Guide to starting your own small business

Starting your own small business can occur for many reasons: replacing job income after a layoff; turning a hobby or a family recipe into a business; creating additional streams of income.

Use this guide as a business planning tool. There’s a true saying that applies to the business world for entrepreneurs: it’s easier to get started in something than it is to get out of something. Plan as thoroughly as possible before starting the business and the chance for success increases.

This Hub is written in 5 sections:

• Planning the business concept
• Financing the business
• Organzing the business finances
• Planning for income
• Finding and servicing customers

It concludes with a statement on having a business exit strategy.

You have a business idea that is likely tied to a personal interest or passion. The most important thing is testing the business idea – performing due diligence – to make sure the idea is solid. As you develop the business idea, make sure you understand and study the competitors. And don’t say “I don’t have any competitors.”

I have met companies that make that claim even companies that have performed research and spent tens of thousands to perfect their software or develop their business model. It isn’t true. There is competition for your business idea. I can’t think of any company or any possible business idea that does not have existing competition.

Here are tips for planning the business concept:

Write a simple business plan. I wrote this Hub about the need to write a business plan that sets out the most important elements without being an overwhelming task.

Write a mission statement. “A good mission statement is a written, easy-to-remember sentence, a short list of bullet points, or a paragraph illustrating your business’s goals and purposes in life,” according to authors Eric Tyson and Jim Schell writing in Small Business for Dummies.

Check industry websites to determine the short-term and long-term prospects for the business.

Are you opening a lingerie store? Then log on to fashion industry websites to determine how brick and mortar stores are competing with e-commerce websites.

Are you starting a lawn care business? Type the words “lawn care association” into Google and you will find a professional lawn care association. In addition, add the name of your state to get a state lawn care website. I’ve seen them.

Trade associations for music stores, solar power, vending machines, and more have tremendous information on profitability, best practices, equipment, suppliers and more. Every business has a national association. If your business idea is so unique that an association does not exist then you may consider abandoning the business idea.

Read industry information thoroughly before starting a business. Know what the industry landscape will look like in 2 - 3 years and read forecasts to know the business landscape 5 – 7 years out.

Study competitors.

Opening a lingerie store? Then visit 3 – 5 different stores to learn what brands are carried and what accessory products. Do you have a restaurant idea? The co-founder of California Pizza Kitchen, Larry Flax, and his business partner studied a restaurant in Chicago and a pasta restaurant in Glendale, California before opening their first California Pizza Kitchen restaurant in 1984 in Beverly Hills. They also knew about the concept of the wood-fired pizza giving it the California style and flavor from Alice Waters in northern California. Study competitors and those who are pioneers in the field.

Talk to franchise owners. If buying a franchise then talk to the franchise owners that are both happy and disgruntled.

Select a name. Make it clear and practical.

Write a sample budget. How much capital do you need to get started? Are you starting an online writing business? No money is required, correct? But time is required. How much time will you invest?

Again, Larry Flax and his business partner ran short on capital when they planned their first California Pizza Kitchen restaurant. In a talk to the Los Angeles Chamber of Commerce on May 6, Flax said he and his partner got a quote on the actual building of the restaurant but forgot to budget for furnishing so they had to raise more capital to avoid running out of money . . . or dough in their case.

Choose a corporate structure. This can be: sole proprietor, Doing Business As (DBA), LLC – limited liability company which an individual can have, S Corp or C corp. Services such as Legal Zoom can offer assistance in forming a business structure.

First look to personal cash assets and personal debt to finance an operation. Why? If you’re willing to invest in the business and take a personal risk then others are more likely to take the same risk.

Don’t ask others to invest if the planning stage is not done thoroughly. If others in your industry have lost money, then how much have they lost and why? If others have made money then how much have they made and why?

Credit cards are financial tools. Before using them have a set plan as to when to use them, how long a balance may exist, and then call the credit card company to negotiate the best rate possible. Call the local bank and see about a line of credit on a home.

Research peer-to-peer lending networks online.

Contact a local business development center like the PACE Business Development Center in Los Angeles. Ask about workshops and counseling regarding Small Business Administration micro-loans or full loan packages.

Explore these sources before going to family and friends depending on the relationship, of course.

For a list of business development centers log on to America’s Samll Business Development Network.

Know the tax laws even if you’re self-employed with no employees. Know when quarterly tax payments are due. Know home office deductions. Know how much is allowed for travel and meal expenses, leases and equipment purchases.

Consult with a small business tax accountant. Go ahead and pay a small fee at this phase. Budget the consultation as part of the start-up costs.

Get familiar with accounting software like Quickbooks, Peachtree or another accounting program. If starting with little money, and the accounting is going to be simple, then go ahead and use Excel. What’s nice about a program like Quickbooks is that different versions exist for certain industries and types of businesses.

Enter expenses and income on a weekly or daily basis. Keep a hard copy file of receipts. Track mileage by hand, in a notebook, each month and then enter it digitally. An accountant told me that the IRS prefers seeing mileage logs written by hand.

Interview a bookkeeper to help track expenses. A qualified bookkeeper can help set up a chart of accounts to get started and then show you how to enter the data. Most small businesses may only need a bookkeeper 2 – 3 hours per week.

Set up a small business bank account if using a corporation. Otherwise, set up a checking account separate from the personal account even if the business is a sole proprietor with no Doing Business As (DBA) designation.

Budget for setting up a merchant account so it’s possible to accept credit cards. Ask the local bank for information and check with local chambers of commerce to find vendors who set up companies with merchant accounts.

Know how much money it will cost to set up the business and start operating. Then project how long it will take and how much it will cost to have the first clients or the first customers for a brick-and-mortar operation. Project as carefully as possible how long the first amount of money will take to start coming in to the company.

Charge enough to cover costs. Do not let customers talk down your price. Do not do jobs for free or giveaway products for free to try and get customers unless it was part of your original strategy to find customers.

Remember all possible expenses: on-going seminars, laptops, software, gasoline, utility costs, etc and salaries on top. These costs have to be covered.

Establish how customers will pay. For service companies like web development companies, the customers usually pay a 50% deposit and then the balance due upon completion of the project.

For stores, customers pay for the merchandise up front.

Here is a list of ideas on finding customers:

Get a qualified mailing list, mail out postcards

Do business networking with companies or individuals that are complementary to yours

Go to local business mixers and get to know the attendees. Don’t try to make sales right away. Ask others lots of questions. Take an interest in what they’re doing. Be prepared to state the type of customer or client you’re looking for.

Cold call. Yeah, that’s right. Simply get on the phone and ask for an appointment. Do not try to sell over the phone.

Hang banners, pass out door flyers for store openings.

Work hard to service the first customers and clients really well. Make sure they’re happy, but don’t let them take advantage of you. Have them give customer testimonials. Give them gift certificates as a thank-you for making referrals to others.

Continue working hard to make sure additional customers and clients are happy. They will help build a solid word-of-mouth base.

Finally, try and chart an exit strategy. You may expect the business to last forever and pass to family members and maybe it will. But maybe it won’t. Even before getting started, try to have in mind one or two options for exiting the business profitably.