Category Archives: start your business
Creating a Plan B?
While it’s not fun to think about what could go wrong, it helps to have a Plan B. As you consider the possibilities, here are some items to keep in mind:
- What can you cut? Look at your budget. While you don’t necessarily need to trim the fat right now, it’s a good idea to consider what you can do if you need to start pinching pennies later. Identify the first items that need to be cut from your budget, so you know what has to go when you run into trouble.
- How big is your emergency fund? Consider your emergency fund. Is it large enough to support you as you try to make your business venture work, or as you look for a new job? Can your emergency fund help you meet your deductible payments in the event of a medical catastrophe?
- What skills do you have? Complete a skills inventory. Look at your skills and knowledge, and think about how you can apply it to different career settings. In many cases, it makes sense to look at how your skills would translate to a different career field. Don’t assume that you have to keep doing the same thing over and over again.
- How divorced is your income? Don’t forget about your income diversity. Consider developing other sources of revenue so that you aren’t in complete trouble if one revenue stream is significantly reduced.
You need to know that you have options to fall back on if something goes wrong. It makes sense to think about what’s next, and whether you have the resources to meet it.
More on Troubles
1. Professional Costs
Whether you’re setting up an LLC, a corporation or otherwise, you’re going to have to pay a fee just to move past the phase of conceptualizing your start-up by making it into a real, registered business. Countries differ on costs and registration procedures, but this is often the first check you’re going to stroke as you get your business off the ground. For Nigerian, yours is N10,000.
Your professional costs will expand and skyrocket from there: You’re going to need to shell out expenses for copyrights and patents. And, you’re definitely going to need an accountant and a lawyer at some point, and we all know how affordable those services are.
Another one of the initial startup expenses not to discount as you financially plan for your startup is the cost of designing, developing and hosting a website. A lot of people naively think that they can accomplish most of these technological feats themselves, and they can dream on. Designing, developing (and most importantly) efficiently hosting an e-commerce site to house your startup is no easy task.
Unless you have a fully-functioning, professional IT staff on board when you initiate your startup (which I’m guessing you don’t), you’re going to have to look into a qualified hosting company that can provide your site with the resources it needs to successfully get off the ground. This will likely include talk of servers, hardware, software, Web security, maintenance and further IT consulting.
And, don’t forget other tech costs like high-speed Internet access, printers, payroll software, cell phones, beepers and robots. Okay, just kidding about that last one.
It’s likely that you’re not going to forget about the fact that you’re going to be shelling out some money for advertising and promotion to effectively get your new business off the ground. But hear me out. There’s a chance you might not be factoring in quite enough funds in this department.
Sure, you know you’re going to want to place ads locally and nationally (who knows, maybe globally), and you’re probably going to be looking into paying for online advertising and SEO costs. However, common marketing expenses are often forgotten, like the fact that you’re going to be printing stationery, posters and other marketing materials. And don’t forget the cost of admittance to trade shows and industry events to get your name out there (as well as chamber of commerce membership fees and the expenses involved in joining industry associations). So I advice your to see a marketing consultancy firm or see a professional.
Public relations isn’t cheap, but investing in PR can take your business far, fast.
4. Administrative Costs
Little things add up, so take everything into account when budgeting for your startup expenses — right down to the purchase of paper clips and staples. Never mind the bigger expenses like desks, office chairs, filing cabinets, etc. Also, remember that administrative costs go far beyond office supplies to include licenses and permits, parking, utilities, rent and more.
Plus, if you want to really look professional, you’re going to need to invest in the proper packaging materials for your business (and don’t forget shipping and postage), which brings us to the next startup cost factor not to be forgotten.
5. Cost of Sales
It seems counterproductive to think of your startup’s first few sales as costing your business money; but that’s how it is when you’re just starting out. Raw materials are going to factor into the cost of your sales, and you’re going to have to beef up your product inventory in order to actually even make those sales.
If your startup is going big, then you’ll have to factor in warehousing and shipping insurance as well.
Don’t Freak Out
Take a deep breath and stop biting your nails. Now roll your shoulders a little and relax.
The above mentioned startup expenses shouldn’t freak you out and discourage you from accomplishing your startup dreams. But you should take note of them as you budget for the future of your business.
Every company’s startup expenses and costs may differ, but chances are you’ll be spending some time and money getting some of these facets of your nascent business in order. And if you do so mindfully — your startup will grow into a full-fledged, successful company. Like our face book page on https://www.facebook.com/Biztalksblogs
“We are all faced with a series of great opportunities
brilliantly disguised as impossible situations.”
~ Charles R. Swindoll
I wish I could just say that if you do X, Y & Z, you’ll magically raise millions of dollars for your venture. But unfortunately, that’s not how raising capital works.
One key reason for this is that most sources of money, like banks and institutional equity investors (defined as institutions like venture capital firms, private equity firms and corporations that invest), are essentially professional risk managers. That is, they successfully invest or lend money by managing the risk that the money will be repaid or not.
So, your job as the entrepreneur seeking capital is to reduce your investor or lender’s risk.
For example, let’s say that two entrepreneurs want to open a new restaurant.
Which is the riskier investment?
Entrepreneur A has put together a business plan for the new restaurant.
Entrepreneur B has also put together a business plan for the restaurant…and he has also put together the menu, secured a deal for leasing space, received a detailed contract with a design/build firm, signed an employment agreement with the head chef, etc.
Clearly investing in Entrepreneur B is less risky, because Entrepreneur B has already has already accomplished some of his “risk mitigating milestones.”
Establishing Your Risk Mitigating Milestones
A “risk mitigating milestone” is an event that when completed, makes your company more likely to succeed. For example, for a restaurant, some of the “risk mitigating milestones” would include:
Finding the location
Getting the permits and licenses
Building out the restaurant
Hiring and training the staff
Opening the restaurant
Reaching $20,000 in monthly sales
Reaching $50,000 in monthly sales
As you can see, each time the restaurant achieves a milestone, the risk to the investor or lender decreases significantly. There are fewer things that can go wrong. And by the time the business reaches its last milestone, it has virtually no risk of failure.
To give you another example, for a new software company the risk mitigating milestones might be:
Designing a prototype
Getting successful beta testing results
Getting the product to a point where it is market-ready
Getting customers to purchase the product
Securing distribution partnerships
Reaching monthly revenue milestones
The key point when it comes to raising money is this: you generally do NOT raise ALL the money you need for your venture upfront. You merely raise enough money to achieve your initial milestones. Then, you raise more money later to accomplish more milestones.
Yes, you are always raising money to get your company to the next level. Even Fortune 100 companies do this – they raise money by issuing more stock in order to launch new initiatives. It’s an ongoing process-not something you do just once.
Creating Your Milestone Chart & Funding Requirements
The key is to first create your detailed risk mitigating milestone chart. Not only is this helpful for funding, but it will serve as a great “To Do” list for you and make sure you continue to achieve goals each day, week and month that progress your business.
Shoot for listing approximately six big milestones to achieve in the next year, five milestones to achieve next year, and so on for up to 5 years (so include two milestones to achieve in year 5). And alongside the milestones, include the time (expected completion date) and the amount of funding you will need to attain them.
Example: Launch billboard marketing campaign over 6 months, spending $18,000
After you create your milestone chart, you need to prioritize. Determine the milestones that youabsolutely must accomplish with the initial funding. Ideally, these milestones will get you to point where you are generating revenues. This is because the ability to generate revenues significantly reduces the risk of your venture; as it proves to lenders and investors that customers want what you are offering.
By setting up your milestones, you will figure out what you can accomplish for less money. And the fact is, the less money you need to raise, the easier it generally is to raise it (mainly because the easiest to raise money sources offer lower dollar amounts).
The other good news is that if you raise less money now, you will give up less equity and incur less debt, which will eventually lead to more dollars in your pocket.
Finally, when you eventually raise more money later (in a future funding round), because you have already achieved numerous milestones, you will raise it easier and secure better terms (e.g., higher valuation, lower interest rate, etc.).
It might surprise you what you can accomplish with less money! So write up your list of risk mitigating milestones and determine which must be done now and which can wait for later, focusing first on what is most likely to generate revenues.
If you’d prefer to write your business plan from scratch, here are the main steps:
1. State your reason for writing a business plan.
What do you expect to accomplish by writing a business plan, and who are you targeting – lenders, angel investors, venture capitalists?
2. Write a complete outline.
Write down the ten section of your business plan in the order they will appear in the final draft: Executive Summary, Company Analysis, Industry Analysis, Customer Analysis, Competitive Analysis, Marketing Plan, Operations Plan, Management Team, Financial Plan, and Business Plan Appendix. Fill out each section using sub-headers. When necessary, enter sub-headers in the form of a question, to be answered later.
3. Write your business down (for the Company Analysis and Management Teamsections).
Describe your product with a deep understanding of your business concept. Ask yourself, who your target market is and what do they need? Then describe the accomplishments and unique qualifications of your management team for delivering that target market need.
4. Conduct a Competitive Analysis.
Who are your competition and what are their strengths and weaknesses? How are your competition similar to you, and how do you differ? What “barriers to entry” will you erect to control your market share – proprietary information, new technology, a management team uniquely qualified to do the job?
5. Identify and evaluate your industry (Industry Analysis).
Find out what industry your business competes in most directly. What are the best practices of that industry for you to build on? If your company competes in multiple industries, research and describe each one.
6. Identify and target your market (Customer Analysis).
Who are your customers? Who needs what your business has to offer? What are the concerns of your customers, and how does your business satisfy them?
7. Create a Marketing Plan.
How will you deliver the news of your product or service to your customers, and how will you deliver your product or service itself, to your customers?
8. Create an Operations Plan.
What are the daily operations (“short-term processes”), and what are future, overall operations (“long-term processes”) to deliver your product to your market?
9. Create a Financial Plan.
Conduct research into the costs of your business operating in your industry. Include market penetration rates, operating margins, and employee head counts. Detail all revenue streams as well. Your pro forma (projected) financial projections will flow from your cost/revenue analyses.
Compile the Business Plan Appendix.
Include any necessary charts, infographics, customer testimonials, and other supplementary research materials.
Write the Executive Summary.
Although the Executive Summary comes last in the creation of a business plan, it appears first. Use clear, concise writing based on the most gripping aspects of the rest of your business plan. The purpose of the Executive Summary is to hook the reader into reading the rest of your plan, be they lenders, angels, or VCs. Do good to like our facebook page https://www.facebook.com/Biztalksblogs