There are three critical steps for setting up a small business for success. Keep in mind that your success is not a matter of luck. It’s a question of design.
When I opened my business 27 years ago, I had no idea of what to do. I didn’t know how to set up my business legally or what systems I’d have to put in place. (LegalZoom didn’t exist at the time.) All I had was a burning desire to open up my own shop and never work for anyone else again. Over that period, here’s what I learned:
1. The Plan – “Kinda”
You must have a plan of course – but you have to be careful not to get lost in the details. And you have to be willing to change your plan as conditions change. I’m not a huge fan of overthinking things – even though I do it all the time. I have to admit it’s a huge time and energy waster.
Be very meticulous about all the variables, but accept the fact that you can’t know everything and you can’t anticipate outcomes. For example, when I started my business I knew I had to put a marketing program in place. I also thought about all my expenses: staff, equipment etc. And I had to consider how to get disability insurance for self-employed people. You might have a different situation. For example, if you have an online store, you obviously have to get set up to accept credit cards online. Easy to overlook…but important. Right?
Anyway, back to marketing. I didn’t know how my marketing program would work. I tested it of course. But at some point, I had to just get out there, do it and hope for the best. I spent weeks and months worrying about what would happen” if…” But the reality was I had no way to know if my plan would work or not.
Bottom line? Have a good, well-thought out plan. But have courage and get into action. Don’t wait for all the stars to line up perfectly. They never will. Starting a small business, at some level, requires faith.
2. Working Capital
Anticipate how much money you’ll need to fund your business and your family for six to 12 months. Make sure you have enough working capital and start-up capital for your small business to keep both going for at least six months…but don’t stop there. Is it reasonable to assume that your business will generate enough profit to carry itself and your family by the time you run out of working capital?
For example, if we assume you will burn $6,000 a month to keep the business and yourself going for six months, you need a minimum of $36,000. But if your business can’t reasonably be expected to start producing $6,000 a month in six months, you’ve got a huge problem. Either the business isn’t a good fit for you or you need more working capital. You might consider raising more money or looking for better business alternatives.
3. Plan “B”
When I opened my doors 27 years ago, I knew that I never wanted to go back to work for anybody…but I knew I could if I had to. This was important. It reduced the stakes a little.
If you support others, you have a responsibility. This doesn’t have to stop you from starting your own business. Just think about your fallback position. Know at what point you’ll have to have to fall back to it. Most important, stick to your time frame. Don’t allow things to drag on if they aren’t working.
The final tip is a bonus for you
Go over these three steps with a trusted business associate. Commit to each of these things. Ask your friend for her ideas. What have you overlooked? Ask her. Then, check in with her on a regular basis and be open to honest feedback.
If you opened your own business, what other steps do you think are critical for success? Did you forget about something and have it come back to bite you later on?
I really relate to your first point. Although I have solid ideas, a lot of times I am paralyzed by perfectionism. It doesn’t prevent me from getting things done, but I definitely need to improve in this area.
I am actually in the process of getting a few business ideas off the ground. I asked my employer if I could go part-time (we’re discussing the possibility today) and I have a strong plan for several diversified sources of income that are all pretty simple to get up & running, or are already up & running.
I might just be calling you soon for some encouragement and advice Neal… thanks as always.
I couldn’t be happier for you Matt. Anytime or anything I can do. Let me know.
Let us all know how it goes!
When I started my business, I kept a part-time job for the first six months of startup, and then quit only when my clientele base could support it. By doing so, I was able to simply bootstrap my business the whole way.
Being a 24 year old girl, I was not financially fit at the time. I knew I had the abilities to do what I set my mind to, but I didn’t qualify for a loan. Since then, I have done a lot to education myself regarding finaces.
“Plan B” was always very important for me when starting an online business. I still sometimes take on part-time summer jobs, just to keep my resume a little more grounded.
Jessica,
WOW….very inspiring story. I’m certain you’ll continue to be very successful. You are hereby granted the status of Wealth Pilgrim of the Highest Order!
Neal,
Thank you so much. I accept the status award with humility and gratitude. 🙂 I’d like to thank you, my family, friends, and all of my wonderful clientele who made it all possible.
No, but seriously, thank you. That made me feel very good. I’m glad you found my story inspiring.
Jessica
Covering all your bases and being prepared rather than just plunging in can make all the difference! Thanks for the tips.
Always have a back up plan.
Get enough money together to fund your first year if you can. Then try and make enough in the first year to fund the second, and so on. That way you always start with 12 months at least, and you are trying to earn next years money this year. Then you always keep a rolling 12 months.
Smart advice Playhouses Man. Thanks.
I think taking into consideration having enough capital for 6-12 months of expenses is an often over looked requirement. It’s great to have an idea and your friends and family support but it should never be at their expense. If you add financial stress onto all the other stresses that come with starting a business you are setting yourself up for failure. Streamline and make efficient as much as possible before you open the doors and the rest will be soo much easier – at least to deal with 🙂