Increase the likelihood that your idea will stand the test of time by taking the following actions.
You have a brilliant idea for a business. Now you need a website, retail shop or an office—or maybe all three—so you can start generating revenue as soon as possible, right?
Not so fast, says Molly E. Schlobohm, managing partner of Sound Strategy Consulting in Seattle. Having started two businesses, Schlobohm serves as a mentor with SCORE, a national nonprofit that provides free and confidential business advice to entrepreneurs and is funded in part by the U.S. Small Business Administration (SBA). Before you throw a grand opening, Schlobohm recommends you write a business plan.
The purpose of the plan is not to perfectly predict the future. In fact, Schlobohm acknowledges things may not go as you expect. Writing a plan forces you to think through critical aspects of your business—insurance, taxes, pricing and more—before you open your doors. That way you can spend your precious hours growing your business rather than fighting fires.
Failing to create a plan can have major consequences. Schlobohm has seen entrepreneurs come up with a great idea, product or service, but fail to sit down and think out what the next three-to-five years might look like. “A year or 18 months after they launch, they’re working seven days a week, and they burn out,” Schlobohm says. “And then the business closes.”
If you want to give your business idea the best chance to succeed, these steps will help you refine your business idea and craft your plan.
-
Examine your why
Start your plan with honest answers to three questions. Are you excited about offering a product or service? Does your offer fill a void in the market? (You can either solve a problem that others don’t or provide a solution that’s superior to what’s already available.) Or do you just want to avoid having a boss?
If you answered yes to the first two questions and no to the third, you have what Schlobohm calls the “entrepreneur’s spirit” and are starting from the right place. If your primary motivator is saying goodbye to your boss, entrepreneurship may not be the right path. “Being your own boss is actually not as great as it sounds,” Schlobohm says.
-
Seek professional advice
Hire an accountant sooner rather than later (and maybe a lawyer, too). When you’re just getting started, an online legal service may be enough for setting up the basics, including an LLC or a corporation, says Schlobohm. But an accountant is essential.
-
Figure out how much you really need to charge
The number might surprise you because you need to include so many items in your pricing strategy: the cost of goods sold, taxes, marketing expenses, what you want to earn and, if necessary, rent and employee pay.
To determine your billable hourly rate for a service business, dividing your salary by a 2,080-hour work year—or 40-hour work week—is just the start. “Tack on another 40% because you have to pay all your employment taxes plus your health insurance,” Schlobohm says. Don’t forget to factor in office equipment, software and other recurring costs.
If you’re going to sell a physical product, selling it online can keep costs down. “Once you open a retail space, the overhead becomes significant,” she says. Bear in mind that commercial leases, either for retail or office space, often run five or 10 years, and therefore require a bigger commitment than a typical one-year residential lease.
-
Don’t forget about insurance
In addition to your own health insurance, you may want coverage for liability, cyberattacks and more. If you have employees, the federal government requires you to carry unemployment, workers’ compensation and disability insurance. Some states have additional requirements.
-
Leverage resources from SCORE and the SBA
Access planning templates, low- or no-cost workshops and mentors to help you with every step of starting a business, including structuring your business, getting a business license and securing funding.
-
Build a following
Use social media and in-person networking to connect with potential customers. “That way, when you’re ready to launch, you already have people waiting to buy,” says Schlobohm.
-
Start documenting processes
Prepare to grow before making your first sale by documenting your processes.
Nothing fancy is required. A simple word processing document with step-by-step instructions is all you need. Having one could save you a tremendous amount of time and money in the future, especially once you start hiring employees who need training.
-
Do your homework
“I love the energy of aspiring entrepreneurs, but it’s important to be realistic,” says Schlobohm. “Sometimes, I have to say, ‘Five other people are already doing what you thought nobody was doing,’ so it’s time to do more research.’”
She recommends a SWOT analysis, which looks at your business’s strengths, weaknesses, opportunities and threats. Be sure to include research on your competitors and the state of the industry you want to enter.
Testing your idea is another valuable research technique. Sell your service to a few clients at a discounted rate. Invite people to try a prototype of your product and answer a few questions. Low-cost, low-risk experiments help you better understand what prospective customers want. Then, you can adjust if you need to before you’ve built a website, rented an office or ordered thousands of dollars of inventory.
-
Don’t quit your day job yet
Include in your plan a clear picture of your finances. Schlobohm recommends remaining employed as long as you can while building your business. Have enough money saved to pay all your personal expenses for at least six months.
-
Launch and refine
Once you do throw that grand opening party, be it online or in person, don’t forget to revisit and regularly update your business plan. “It’s a living, breathing document,” Schlobohm says.
Start today
- Read more: Business certification has its advantages.
- Learn more: Find more guidance at our Business Resource Center.
- Take action: : Figure out how much you’ll need to start a business using our Business Startup Costs calculator.
