The Entrepreneur's Starter Kit
The Entrepreneur’s Starter Kit is all about the excitement of going off on your own—being a business owner and entrepreneur.
In the coming months we'll be providing excerpts from The Entrepreneur’s Starter Kit, a book written for anyone who is seriously interested in, or has already taken steps toward, starting a business. You may just be thinking about it, you may have done your homework and started on a business plan, or you may be ready to leave your employer and start out on your own. At whatever stage of the process you find yourself, you will learn (among many topics) the importance of matching your business to your skills and temperament; why planning, including a written business plan, is critical; and the value of being financially literate.
You will gain insights into hiring, marketing, inventory control, billing, and collections. New business start-ups are so important in these difficult financial times. They offer hope and a solution to those who have been downsized or have limited growth potential with their current employers. Historically, entrepreneurs are the ones who have created the largest number of new jobs and have been the engine for national recovery and economic growth.
Of course, taking the “leap” has risks; this book attempts to be realistic and straightforward about the many issues facing new businesses. Personal and professional excitement always has to be tempered with the cold economic reality the entrepreneur faces.
Along that middle path, however, lies the potential for real success.
Things to know before starting a business:
It isn’t easy to make a business successful; if it were, everyone would have given it a try.
A business start-up is wrapped in convictions, assumptions, and beliefs, many of which may be false.
You can never have enough preparation, and you can never have enough start-up money.
True commitment to a start-up business is a lifestyle change, not just a career change.
A Reality Check
If you are reading this book, you have obviously decided to take the first steps toward being an entrepreneur—meaning that you have chosen a nontraditional path to fame and hoped-for fortune. You are embarking on a program of planning, starting, operating, and worrying over your new business. As best you can, you have taken the necessary steps to ensure your success. Whether you are opening a boutique in a fashionable neighborhood or a consulting business in your home, your decision reflects the same aspirations as literally tens of millions of people worldwide. Basically you are motivated to work for yourself and build a business that you find both intellectually challenging and financially viable.
- Your motivation for venturing out on your own may be simple or complex, a mix of events and circumstances, some of which may be beyond your control:
- You have talent that is underutilized and often underappreciated.
- You are absolutely positive you can “build the better mousetrap.” You have hit the glass ceiling—because of income limitations, lack of career advancement, or sheer boredom.
- You are concerned about long-term security in the job market.
- You need or want a change in lifestyle and work style.
- You can afford to take the financial risk of starting your own business.
A large part of the reality check, and a necessary part of your long-term vision, is understanding, from the beginning, that your expectations may not go the way you thought they would. First and foremost, you must realize that you may fail, and fail badly. From a personal, financial, business, and family point of view, you need to understand clearly that businesses fail—for many reasons. The odds that you will not meet your goals are high, so high in fact, that the U.S. Department of Commerce estimates that 40 percent of all new businesses fail within one year, and of those that do survive, 80 percent will fail within the first five years. Other sources place the failure rate even higher. Imagine these percentages and apply them to the one million businesses started each year—including yours.
What Can Go Wrong?
Plenty. There are countless variables that ultimately affect the success of your business. Some elements are in your control (like keeping inventory levels reasonable), and others are not (a national economic recession). Though all the factors that affect business success cannot possibly be examined in detail in a single book, if you are doing a reality check, it is essential that you consider the following questions.
Just how prepared are you really?
Preparation is the key, both psychologically (you are ready and mature enough to make that leap) and financially (you actually have a plan and some resources). Some people have to act sooner than they had hoped or expected, because of a sudden loss of employment, for instance. Others, out of enthusiasm or overconfidence, act prematurely—they think they are ready but have not sought outside counsel, perhaps not even discussed the idea with a spouse or friend. All they know is that they are “ready” to move; anxiety and irrationality, rather than planning and preparation, are driving the decision.
In some cases being ill prepared may be related to age or work experience. Ironically, some of the most successful entrepreneurs of late have been young technology wizards, but realistically their numbers are few and far between. With age comes more experience and better business judgment. You don’t have to spend thirty years in the work environment before you step out on your own, but five or six years of solid management experience in which you gain significant operational and financial know-how can improve your odds for overall success.
Experience is especially important if you move from one field to another. Suppose you have a background in systems and technology but plan to open a retail operation. Working in a retail establishment of some sort will open your eyes to a host of areas that may not have been obvious as you began to plan your business concept. You probably have the experience to make the website for your retail business hum, but do you know anything about inventory control and staffing?
Personal maturity has a lot to do with your future success, whether you are an entrepreneur or in a corporate environment. Look objectively for signs that you need more seasoning before starting off, like these:
- finding yourself easily bored
- jumping from one idea to another
- impatient when learning new areas of business
- more concerned about completing work than quality
- quick to make important decisions
- not following through with promises to customers
- unable to take or follow advice
- overly sensitive when something goes wrong
Age does not have to be a barrier to your business dream. Remember, you can partner with someone who has more experience or seek the advice of a business coach. Both approaches, however, require making a mature decision based on self-knowledge—and this is not easy no matter your age.
Are your personal finances in order?
I devote a whole chapter to this subject, but if you cannot answer firmly right here and now that your finances are in order, or that you have a solid plan to get them in order before starting your business, you should not even be considering starting a business. Keep your day job. It is as simple as that.
Every element of your life—spouse, children, house and all its trappings—makes it harder to leave the ranks of the employed for a life as an entrepreneur. And it takes time to get your financial life in order—not just months, sometimes years. Be realistic: Why put yourself and your family under financial duress when some planning and time to pay down bills and save money before acting will improve yours odds of being a successful business owner? Remember that in life, just as in business, the unexpected can happen; everything from an illness to the loss of your spouse’s job can set back your timetable.
Do you have the right motivation?
Closely examining your motivation for going into business is critical to your success. Take the example of a business analyst for a regional communications company. He is paid decently, but he hates his job, dislikes his boss, finds the commute tiring, and gets up every morning wanting to be somewhere else. There are few lateral job opportunities in his area for his skills, so the only solution from his point of view is to start his own company. In fact, he is obsessed with the idea and thinks about nothing else, even to the point of jeopardizing his current employment. The problem is not the basic motivation; wanting to improve life by owning a business is fine.
The problem is that his plan is basically driven by the perception that business ownership is the only solution to his problem. He is not motivated to succeed—only to avoid a frustrating and colorless job. He really needs objective advice from a third party to sort out his feelings and better understand his own motivations. Does he really have the drive to succeed over the long haul? There has to be a stronger, more compelling motivation for starting a business than avoidance.
Is your business potentially undercapitalized?
It is difficult to know if you have sufficient capital. It seems that there is never enough start-up money in a new business once the business has begun. And this is clearly one of the most common problems faced by new business owners. Everything costs more than you planned, and income is much slower to arrive than you expected. You must have reserves to withstand the ever-present gap between costs and income.
Ironically, some people will never start a business because they are risk averse and use the lack of “adequate” capital as an excuse. Cash reserves are never enough for these entrepreneur wannabes. A lifetime goes by without action. The other extreme is the person with debts, mortgages, loans, and a few thousand in the bank who thinks he is ready to go. This is why a business plan is so important and why being in a hurry is the recipe for disaster.
Are you willing to ask for help?
There are volunteer groups, the Service Core of Retired Executives (SCORE), for example, who are willing and eager to assist small business owners. You also have family, friends, and colleagues who are by nature generous and able to assist you with a clear, objective reading of your business plan. People are flattered to be asked and more often happy to assist—with no strings attached. And ask several experienced businesspeople to assist, not just one.
Unfortunately, some budding entrepreneurs simply do not want to rack up billable hours talking to their accountant, lawyer, or business coach. They want to save money; they are convinced that they cannot afford professional advice. Naturally, this is poor economy. If you want to save money, buy used furniture; but ask for and get high-quality advice before you act.
Do you understand all this business about taxes?
The IRS takes a dim view of business owners who do not pay their payroll, withholding, and unemployment taxes, among others. There is no quicker way to get into trouble than to be casual about these matters. If you are a registered company, the tax man expects to hear from you regularly and on time—even if you do not owe money.
Take a lesson from a local retail store that sold upscale wine and fresh-baked goods as a sideline, seemingly prosperous for years in the same city location. Customers found the store shuttered one day with a posted notice from the IRS, which overnight had closed the business and seized all of its assets—including cash, inventory, and the physical store. The owner was served papers stating that his checking, savings, and investments must be forfeited to satisfy an IRS demand for payment. He had paid his vendors, but he had not paid employee withholding taxes or made FICA (Federal Insurance Contributions Act—more commonly known as Social Security and Medicare) payments for months. If the amounts are large enough, the IRS may also consider criminal prosecution, not just fines and interest charges.
If you do not understand these matters, learn about them. The IRS website has everything you need. Most business accounting software also has the core information. You can buy new withholding and tax tables each year. If you still do not understand it, hire a part-time bookkeeper to handle taxes and reporting.
The next installment of The Entrepreneur’s Starter Kit will present a list of assumptions, often misguided, that many people make as they approach the idea of starting their own business.
Small Business Administration
The Small Business Administration has excellent resources that can be used to help you sort through the myriad questions and problems you will face when you are planning a new business. Visit the SBA website and use the navigation bar at the top to locate and click on Starting & Managing a Business. There you will find tools and templates to help you get started.
The website About.com is a rich resource with several excellent short articles and tips. Use the links on the Starting a Small Business 101 page.
Internal Revenue Service
The IRS has all of the essentials a small-business owner needs to understand and manage tax liabilities. Its page be very useful, especially for starting, operating, and closing a business. From this page, you can also find information particular to small businesses by clicking on “Small Business/Self-Employed” on the navigation bar at the top.
SCORE is a nonprofit associated with the Small Business Administration. Its volunteers offer free business counseling.
This article is excerpted from the book The Entrepreneur's Starter Kit:50 Things to Know Before Starting a Business by Paul J. Christopher (2012, Huron Street Press, an imprint ALA Editions).
Please note that unlike the majority of content on the @ your library website, The Entrepreneur's Starter Kit:50 Things to Know Before Starting a Business is copyrighted material and is not available for reuse under Creative Commons license.