Is it a New Year’s resolution to start your own business? If so, you aren’t alone.
“There is a big influx of business startups in January and February,” said Mike Vanderlip, the new associate state director of the Mississippi Small Business Development Centers (SBDC). “This time of year when you talk to people, about 70% have been thinking about starting their own business for a while. It becomes a New Year’s resolution.”
The number one type of business people open is retail. But this is not the best time of the year to start a retail business. Vanderlip said one of the things that the SBDC counselors work with people to understand is the importance of timing your market entry.
“The last thing you want to do is start your business right after the busy season,” he said. “For retail, you probably want to wait until a little closer to spring. It is going to vary from market to market, and from industry to industry.”
No matter how long you have been thinking about it, you still need to take the formal step of writing it all out. Failure to plan adequately is probably the number one cause of business startup failures.
“The one most significant piece of advice is plan, plan, plan,” Vanderlip said. “When you talk to people who have been unsuccessful in startups, and ask them what happened, the single most frequent response is that they were undercapitalized. They simply did not have enough money to do what they needed to do. Planning helps you prevent this. You have to be realistic about how much it will cost. When people don’t do the hard work of planning and market research, they end up running out of money almost every time. They didn’t plan sufficiently to understand the true cost.”
An analogy he gives is the maxim that, “Only a fool would build a house without first counting the cost.” A business is even a bigger risk than a house, especially if you must make a payroll. People starting a business need to make sure they have a realistic, workable plan sufficiently financed that gives them a good opportunity for success.
Assistance is available from the SBDCs to make a comprehensive business plan. And all of the services are free of charge.
“All it takes is your time,” Vanderlip said. “We would be more than willing to work with you to develop a business plan including a comprehensive market analysis to insure it looks like there will be a sufficient market. You want to look at the market, the competition, and the customers in the market. And since very, very few of the people we work with actually have money in their pockets to do this on their own, they also have to come up with a financing plan and finance projections.”
An operational plan is also important. Sooner or later, the business is likely to need employees. So it is important to have procedures in place to properly train staff, making sure there are clear policies and procedures so decisions are made correctly even when the business owner isn’t on premises.
Often, when adequate planning is done, it may turn out that what seemed like a great idea is pretty iffy. One of the functions of the SBDC is to throw cold water on business plans that have a slim chance of success.
Running the numbers
Consider the statistics. It is estimated that between 80% to 90% of small businesses that start up in any given year aren’t around for their two-year anniversary.
“If you are going to bet the farm, I want you to have some reasonable expectation that it is going to work,” Vanderlip said. “And you are going to bet the farm. Don’t think for a minute any lender or government program will put money into this thing if you don’t have something at risk. The key is to do the hard planning work before you talk to people about borrowing money, and before you commit yourself. Then you can make an informed decision. We want to help people make their dreams come true, and we want to help prevent those dreams from turning into nightmares. We have an awful lot of tools that will help you insure that you are on the good side of that 80-20 statistic.”
Don’t waste your money on bogus offers from companies that promise, for a fee, they will get you financing to start a business. For years consumers in the U.S. have been getting ripped off by companies that primarily take fees, but then only refer customers to free resources available from the government. Currently the New York State Consumer Protection Board is taking action against these businesses that make false and misleading advertisements.
“There is no source of 100% financing for business startups,” Vanderlip said. “So don’t waste your money.
Janita Stewart, district director of the U.S. Small Business Administration (SBA) in Mississippi, agrees about the importance of planning before opening a new business. She likens it to a chess game, saying success in business starts with decisive and correct opening moves.
What it takes
“Starting and managing a business takes motivation, desire and talent,” Stewart said. “It also takes research and planning. And although initial mistakes are not fatal, it takes skill, discipline and hard work to regain the advantage. To increase your chance for success, take the time up front to explore and evaluate your business and personal goals. Then use this information to build a comprehensive and well thought out plan that will help you reach these goals.”
In addition to helping you think through issues that must be considered, the plan can also become a valuable tool to help gain financing. It also provides milestones to gauge your success.
SBA’s tutorial on preparing a solid plan with all its essential ingredients can be found at www.sba.gov/training/bplan.html.
Ocean Springs-based freelance journalist Becky Gillette writers regularly for the Mississippi Business Journal. Contact her via e-mail at email@example.com.