Welcome followers to this week’s blog segment.
This past week I was speaking to a friend about business ownership. He is interested in starting a business and wanted to pick my brain, so we started a conversation and no sooner than we started my videographer jumped in and said this conversation would make a great Vlog. Therefore, he recorded me speaking to my friend. It is not my best video, actually I think it could be much better but at the same time a raw video might be best. Anyway, we shot it and here it is. I hope you find the information helpful and the below is the article I wrote regarding the topics we talked about. This is part one of a three part Blog. I hope you find the information informative and useful.
What to consider when starting a business.
Business ownership is one of the key American dreams. One of the great things about our country is that anyone is capable of starting one. The big challenge is not simply starting one but starting one that is successful. In this three part series, I will share with you my experiences as an effort to help you achieve your dream. The three part blog is broken down into the following sections:
What you need to think about before you start a business.
What to keep in mind while running a business.
What not to worry about.
In the first section I will cover the following points:
Personal Considerations
Goals
Core values
Business Plan
C-Corp, S-Corp, LLC, alphabet soup.
In the second article I will cover:
Focus
Priorities
People
Marketing
Sales
The third article will cover:
Raising Money
Stats
Knowledge
Shareholders
Business Partners
Busy Work
Time
Failure
What you need to know before you start a business.
First things first, don’t be fooled by the glamour that Hollywood has made regarding business ownership and how a business startup happens. Also don’t think people are going to throw money at you because you have an idea. I watch some shows and just laugh because it is so unrealistic. You have to keep in mind these shows are made for entertainment, not education. Yet many people get brain washed and think it is that way. I know this because I was one of them. I started out thinking “so that is all there is to starting a business.” So with little experience I jumped in to my first business.
What I learned from this and my other businesses would fill many books but don't worry I’m not writing a book in this article. I will point out what you need to know before you dive in and what you don’t need to know. I mention the last part because if I knew some of these things before I started my entrepreneur journey it would have saved me a lot of pain and anguish, so here it goes.
Personal Considerations
This is one thing I really never thought about when I started my journey; mainly because I started out young and single. As time passed however, my situation changed and this did affect my decisions. So the questions you should ask yourself should be: Where are you in your life? Are you young, middle aged, old, single, married, children, financially comfortable, broke, and are you healthy?
I mention these because they all play a key factor to the ability to succeed in business. These considerations can also be your acid test to the kind of business you want to start. For example I wouldn’t recommend starting a real estate investment business if you can't pay your bills and have no credit or investors. If you are married, remember that your family must support you and you must support your family. A business takes an enormous amount of time and this can cause stress for your family. One last thought, I have heard many stories of regret from former CEO’s and Owners that the business cost them their family. Remember we will never get that the time back so don’t waste it. It may sound harsh but if you want to succeed in business you must schedule time for your family on your calendar. Think of them as you would an important client because they are. As for the other items, they all will affect your business in one way or another so be truthful to yourself.
Ok, now that I’ve painted the doom and gloom, are you ready to move forward? I hope so! Let’s take the first step. This will be one of many. This first step will point you in the direction of your journey.
Goals
More specifically, what are the goals for the business? We all want to make millions of dollars, however there are many successful businesses that don't even make one million a year yet the owners are very happy. How happy would you be if you knew you could make $750,000 a year without any future sales and just requires you to maintain your customers? Not a bad gig if you can get it.
Setting goals for your business is so important because it will guide you when creating the ever important Business Plan. More about that later.
For example, if you want to make a million dollars a year in real estate sales commission but your territory consists of small communities of homes valued at $200K then it should be obvious you will need to dominate this territory and sell 167 homes a year. Compare this to a territory of Multi-Million dollar homes; here you will only need to make 10-15 sales a year. You should also consider that only 15% of the population move on a yearly basis therefore the first goal needs a lot more adjustments to be successful.
When thinking of goals, you should use a technique that I have learned over the years. It will help you organize and test your goals. It is called the SMART method. If you are not familiar with this acronym it means:
Specific
This means be specific on what you want to achieve. I want a business is not specific enough. I want a document management software business that caters to government municipalities in the accounting department. Now that’s a little better.
Measurable
Back to the previous example, a document management business, achieving this over the course of a few years is not enough. A better example would be: It will take 1 year to capture 9 key customers in the defined territory. We will build an acquisition campaign in the first quarter. Capture 3 clients in the 2nd quarter 3 in the 3rd and 4 in the last quarter. This a little better, not perfect but it is something to build on. There would be more measurable timelines as to when the first campaign would take place, targeting milestones to measure progress, delivery and support timelines, etc.
Achievable
Your goals need to be achievable. For example, I mentioned 4 customers in the 4th quarter; this could be achievable if you are in an area that is rich in prospects for your product or service. But if you’re not, achieving this might require you to open other market areas and this may not be possible.
Realistic
Similar to the above, your goals need to be realistic. The goals above might be achievable given certain circumstances but this section is more focused on being realistic regardless of circumstances. This one was always hard for me because I am so optimistic and always thought with enough blood, sweat, and tears I could do anything. As good as that drive was, and believe me it is needed, if you focus on realistic goals your success rate will be more attainable.
Timely
This one is another one of those goals people forget to put attention to. Your goals need to be timely. What does this mean? Well it’s simple: if you create goals that are out there and take you too long to complete, you run the chance of the competition beating you to the market. So this means setting deadlines to achieve each of your goals. This little piece will teach you much and keep you accountable. This will make you effective at managing your business.
Keep in mind that this framework on goal setting is not by all means comprehensive; use it to frame out the goals you want to achieve with your business.
Core values
Why are core values in a business planning article? Well, hopefully, you are creating a business that is in line with who you are. If you are not, then it will become a job pretty quick and with the dedication needed to run a business, not being in line with your values is a recipe for disaster. I learned early on, the only business to have is one that makes you happy. If not, why do it? Instead, get an unfulfilling job and don’t go through the stress. On a positive note, core values that extend to the business makes things a whole lot easier. The outside world will clearly see it and it should be in everything you deliver. A simple note here: People buy from people they can relate to. This is not rocket science but it starts with core values.
Now that you have thought about these items, what’s next? Well as I hinted earlier, it’s time for the business plan.
Business Plan
This should be a concise but comprehensive document that outlines the mission of the company, where you see it as it grows, what area you are going to focus on, how you plan to attack this area, personnel needed, timeframe, competition and financial need. This may sound daunting but it is necessary to guide you to the promise land however this is not an etched-in-stone road map but a star in the desert guiding your way. Build an outline first and fill it out piece by piece. Start with what you are offering, where, and to whom. Then, plan out the people you need, how much things are going to cost and time frame needed. Now comes the secret, …always keep updating the plan based on changes in your market. Make it a habit to review it on a yearly basis. You will learn about your assumptions, goals and achievements. You will become more refined and better able to predict your path and growth. This will give powerful insight on how to adapt, which is as critical a skill to a company as breathing is to us. Ok, now that you have thought this out you are better prepared to select what type of legal business entity you are going to be.
To C-Corp or not to C-Corp? That is the question.
This section is not as difficult as it seems. A simple question to ask starts with, are you ever going to have employees? If so, how many? What type of liability protection is needed? The tax consideration? Here is where you shouldn’t be penny wise and pound foolish. A corporate attorney can most definitely assist here. I highly recommend utilizing one.
In my experience, I have had S-corps and C-Corps. What I can tell you about S-corps is that they provide better protection than a LLC, Partnership, or Sole Proprietors but not as much as a C-Corp. One advantage of the S-Corp for a young company is that the stockholder can benefit from the losses of the company. An example of this is if the company loses $40,000 you can write it off on your personal taxes and this could be personally helpful. Vice versa if the company makes a profit then you will have to show it as income on your personal taxes. In simple terms, the IRS looks at your company's income as your own but you have the ability to write off legitimate expenses from the income. This type of corporation is better suited than a LLC for the adding of employees and shareholders. However, the corporation is limited to 100 shareholders. This type of company is good for starting a company. As your company grows it will not be difficult to convert to a C-Corp unlike a LLC, Partnership or Sole Proprietor.
C-Corp on the other hand is the “mac daddy” of the corporate type. It provides the best protection to you as the owner, its employees, and shareholders. It will give you all the flexibility needed for expansion, sale and other things you might need in the future. If you are ever thinking of going public, you will need to be a C-Corp. There are some drawbacks however; the main one being the double taxation. In this company type, the company will have to pay taxes and you have to pay taxes. It is the same as if you worked for someone else. The good part is if the company is making money you are not personally responsible for the taxes of that money.
This is just a brief explanation and there is so much more on this topic that my best advice to anyone out there looking to start a business is that you contact a corporate attorney to guide you through the maze to the decision that is best fit for you.
This covers the first part of my conversation. the full conversation was close to an hour long but I promise we will not post all of it. We will cut it down in size for you. Keep a look out for it. It will be coming out in a couple