I’ve talked a lot in the last couple of weeks about how to come up with an idea and the fact that you need to come up with something that you can really get behind and truly believe in. So now that you have an idea, you need to take action. An idea is only as good as what you do with it, so this post is going to talk about what it really takes to get your idea off the ground.
I would say the first thing you need to do when you have your idea is really define your road map. You have your idea and you really believe it can solve a problem, but how are you going to achieve that goal? You may have thought of a way to terraform Pluto and finally give it the recognition it deserves (although this is a really good description of why it was demoted, but I digress), but what are the steps that it will take to get you from A to B? By defining your road map you can have a clear plan that takes you from concept to exit strategy, and will result in less wasted time, energy, and money; trust me, it is worth the effort. This post is going to takes us from the first stop on the map to business registration and entity formation, and we will continue on our path in coming posts to take us all the way to exit strategy.
Starting On The Road To A Successful Business
At the very beginning of your map you need to become an expert in the field you’re entering. In the extreme example I mentioned earlier you’d need several degrees in astrophysics, biology, chemistry, and just about any other field of science you could think of; not to mention the fact that you’d need A LOT of money. To give you a little more down to Earth example, Old Town required Olivia and I to research licenses, certifications, state and federal registrations, inspection regulations, food vendors and product costs, and insurance. We had to know the ins and outs of the cafe and the way the previous owner had done things. There are seemingly endless items to check off of the list before you can start running with your idea. However, identifying those requirements help you define your road map and gives you a clearer picture of what needs to get done.
One of the major aspects of becoming an expert in the field is knowing who your competition is. Are there major players in the industry, or are you paving the way in an entirely new field? Is it a David vs. Goliath thing, or are you boldly going where no one has gone before? Knowing whether or not there is significant competition allows you to have a strategy of your plan of action. How are you going to be different, how are you going to get your product or service to the end consumer, what makes your company better than any other options? These are extremely important questions that you need to answer before you can consider bringing your business to the masses.
Knowing all of this information is invaluable when it comes to planning and it especially helps you budget. Once you know what it takes to make your idea work, you can move to the next pit stop on your road map: How much is this thing going to cost? Knowing your realistic cost structure can make or break your first few months in business.
Costs: What Do You NEED To Get Your Business Going?
In my opinion, one of the most important aspects of start up costs is being able to differentiate between what you need and what you want in the business. When you identify all of your necessities in the first part of your map, this will help you avoid that issue. Do you really need fancy advertising? Do you have to rent office space, or can you manage it from home? Whatever you do, don’t pull a Tom Haverford/Jean-Ralphio Entertainment 720 fiasco. If you don’t know what I’m talking about, then please reevaluate your life choices and watch Parks and Recreation.
One of the main ways that Olivia and I controlled our initial costs was by not changing anything at Old Town for the first few months. Granted you can only do this when buying an existing business, but it worked out well for us. By not changing anything we avoided getting trigger happy with our spending. We knew what our expenses would be based on historic numbers, and we could figure out how to navigate the first few months without going broke. We worked a lot and kept our employees’ shifts to a minimum to control payroll costs, we were diligent about where our money was going in terms of food cost, utilities, and loan payments. This is why I can’t stress enough the importance of doing your due diligence in the first phase of your map.
Now this may sound discouraging, but you’re probably going to have to adjust your personal expenses at least a little bit. This isn’t to act as a deterrent, but it is being realistic. The fact of the matter is that starting a business can take a significant financial investment. The money put into the business up front is necessary, but it doesn’t have to make or break your way of life. Just know that there may be a period where you have to adjust your spending to save toward that goal. This is why budgeting and knowing how much your initial costs are from the get-go are so important. In addition, this is the exact reason why I said last week that being financially literal is of the utmost importance. Taking an intro to business course is one of the best investments you can make for your business and yourself.
Once you know your costs and you’ve budgeted for the business, how do you actual get the money to get started? There are countless creative ways to finance a venture and depending on what you’re going into some carry more risk than others. There are bank loans, angel investors, venture capital, and crowd-sourcing. However, probably the easiest and most efficient avenues, at least in the short term, are personal savings and the Four Fs–Friends, Family, Felons, and Fools. These are the options that will likely be the quickest to access and it’s a lot easier to sell friends and family on your business than a bank or professional investors.
In addition to those two options, one good way, especially for young people, to get past the initial funding issue is to just start small. If your business happens to be a hobby of yours, simply continue to do what you already have been doing. The only difference would be consciously thinking about ways to capitalize on your investment in the materials you use to satisfy your hobby. If you enjoy creating fabulous sweaters and wanted to sell those, you’d simply formalize all of your costs and track expenses. Then you can find a market place to sell them in. Whether it be a local craft market, or bazaar, there are always low cost ways to get your product out there. Once you gain some notoriety for your product, then you can begin to expand your business and increase the capital you put into it.
The best part about going with the “start small” strategy is that it allows you to keep a day job and have guaranteed income while you’re trying to get your business off the ground. In doing so, you can mitigate some risk involved with going all in on a business. You’ll more easily be able to manage the scaling of your business as you can set aside some money from your regular paycheck to go toward your exciting new venture!
Business Registration and Certification
So you’ve done your research, identified your costs, budgeted, and saved for your initial investment; now what? The next stop on the road map is deciding a name and registering your business to become an official entity. I’ll talk more in future posts about what business type is right for your venture and the pros and cons of each, but for right now I’m just going to say that you need to determine what type of business you want yours to be (Sole Proprietor, LLC, Corporation, etc.), and register it with your state (Oregon’s registration page) and the federal government. This will give you the business’ Employer Identification Number which is basically the social security number for businesses. Once you have that number, you can technically begin business activities assuming you have any other industry specific certifications and licenses.
To give a real world example to show you that sometimes it gets more complicated, we bought the property that the cafe sits on. To help ourselves out with any liability issues, we set up a company that owns the property and the company that runs the business. Now the actual business is the one generating revenue, and that is the main entity, but we still had to put up registration and insurance for two separate companies before we could begin operations. We then had to get our health license, make sure each employee had a Food Handler’s Certification, and have all of our food vendor accounts set up before we could actually open the doors on day one. If it sounds a little confusing, it’s because it was at times. Luckily we had plenty of support in the form of family and friends in professional roles and the help of our wonderful accountant to help us get all of the details ironed out. Which leads me to an important detour on the road map:
Don’t Be Afraid To Seek Out A Professional
If you ever run into issues in the very beginning of your venture, please consult a professional. If you’re like me you like to do things yourself, but when it comes to navigating the legal and accounting systems, I can’t stress enough how helpful it is to have someone who knows what they’re talking about. Yes, they can cost some money, but it will save you many headaches down the road if you have everything set up correctly from the start. Our accountant is wonderful and works incredibly hard to save us time and frustration, and she is actually very reasonable in her billing. Look around at different professionals and get references for them because they are invaluable to your business in the long run.
We’re going to sit at this stop on our road map for now and pick up here in future posts. For right now this is a good starting point to actually take action and get your idea going. It will be a lot of work, but it will pay off down the road when you know you’ve researched and gotten a good handle on where your business is heading. The biggest advantage I can see to being a young business owner is that young people have a tendency to have a lot more energy and can be much more flexible in their lifestyles. In addition, a major transitional point happens in many peoples’ late teens and early twenties that allows them the freedom to try something like starting a business. There are endless opportunities and countless ways to make them happen. You just need to make sure your road map has a clear path that you can set out on to make your business work.