You have an idea for a business and are convinced it’s good. That’s great! Small business is our economy’s backbone. Where to start? Determine if you can afford the cost of entry and how quickly you will gain some return. That’s important, but not first on the list. Here’s an abbreviated version of the steps; there’s much more to do:
What is your objective?
An objective consists of a goal (what to accomplish), a method (how to accomplish it), and a measurement (determining if the goal is met). An example: “The purpose of the XYZ Corporation will be the manufacture and distribution of widgets. We’ll use bar stock from metal producers and shape them into consumer products. Plans will be developed annually and satisfaction will be 93% of plan for each of the first five years.”
Can I sell what I make?
Determine your market. Are there similar products or services available in your industry? What is the cost to enter? Can you accurately estimate your penetration of the market in your business plan? You must estimate the cost of operations (fixed), the cost of materials (variable), and the potential revenue from forecasted sales. That’s a break-even analysis.
Human Resource Tasks.
You will have costs of finding, training, and paying people. From this and the information above, develop a business plan, including profit/loss and cash flow estimates. Included in this plan should be the credit insurance for both raw materials (trade credit insurance) and the credit you wish to extend to customers (consumer credit insurance). A cash-based business is best, but limited in the long term. Credit terms will help overcome financial and operational problems. In the simplest of terms, your net cash flow increases as you are able to postpone payments and apply sales credit terms.
As you start business, check your wallet, checking account, and bank balance. If you can’t underwrite it, and chances are you cannot, then alternative sources of funding will be required. The business obligations will be filled by bank loans, family loans and contributions, or the attraction of investors. Don’t make any plans that depend on hitting the lottery.
Engage a CPA.
If you pay taxes on net profit (hopefully); if you withhold taxes and FICA payments from employees; if you must amortize capital expenditures; and for a number of valid reasons, hire a CPA for this work. It’ll keep you out of trouble.