Starting a Business – A Simple GuidePosted: October 25, 2010
I often get asked for advice about starting a business, not so much what the business should do, but the actual mechanics of getting started and so I thought that I would put some ideas into a post that might help others that are thinking about making the leap. I know five people/parties that are in the preliminary stages of getting started and trying to figure out what needs to be done along with assessing the viability of their idea. I also help three other businesses that are between eight months and ten years along with ideas and solving issues. Keep in mind, this is not legal or accounting advice, but rather my personal opinion. You don’t get to sue me for blindly following my advice, but I do accept large cash gifts if things pan out for you.
1. Assess your idea and gather feedback
This is one of my favorite parts: Hearing the dreams and ideas of others and providing input. I’ve had ideas that are really rock solid presented, along with ideas whereby the idea for a company is poorly thought out and needs a major revamp before going any further. I’ve sadly sent more than one person back to their day job to keep dreaming for a while (that’s not to say I actually sent them back to the salt mines, but rather poked enough holes in the idea that they realize they need to come up with something stronger if they want to make the leap into owning their own business and quitting the security of their existing job).
The important thing to do here is talk to other people about your idea. Get feedback, let them ask questions and provide you with food for thought. It can be tough to hear critical feedback at this stage, but if it survives a tough but well-meaning critique, you might just have something worth pursuing. Airing your idea to others and gaining their input will make you idea stronger and help move towards making it a reality.
And don’t make friends and associates sign NDA’s. At this stage, you’re lucky to get people to listen to the idea at all and idea theft is not likely to happen.
2. Research your options
Without jumping ahead to my next point, the internet has made it much easier to do research about the basics of starting a business that will save you time and money down the road. Before seeking advice from professional service providers, you can research many aspects of your business idea, company structures, and jargon that if nothing else, will reduce the billable time in meetings.
Use the internet to research sole proprietorship, partnerships and incorporation models in your location, competitors, marketing opportunities, government grants and loans, and far more.
3. Get professional help
Let’s assume the idea is a go, you’ve done your research, and you want to create a company. It’s time to get professional help and by this I mean, you need to talk with an accountant and a lawyer. There’s lots of people on the internets that will argue against this, saying that you can just use an online service to incorporate and be done with it. And you can. And the services will be cheaper.
So if it can be done and it’s less expensive, why would I tell you to spend the money on seeing a lawyer and accountant anyways? Let’s look at the reasons for each:
a) The Accountant:
An accountant can help structure your business and personal finances in a way that reduces the tax burden depending on your needs. They can also help you do this legally which unless you like spending time with tax authorities or in prison cells, is money well spent. While I believe it is important for the good of a country to pay both personal and business taxes, there are many ways to reduce the taxes one needs to pay, which leaves more capital to grow one’s business and hire more employees which then also pay into the tax coffers of the nation. The idea is not “dodge” paying taxes legitimately owed, but rather maximize the money that can be rolled into your business to make it better and help you grow. In most locales, this is best done with the services of a professional instead of risking misinterpretation of the rules and landing in hot water.
A good accountant can help you with information on the best ways to track income and expenses, recommend software, and be on call throughout the year when a tricky accounting situation presents itself.
In short, the cost of an accountant’s services will be quickly offset by the savings they can provide and you will sleep better at night.
b) The Lawyer
Lawyers often get a bad rap and often it is deserved. Billboards for personal injury lawyers and newspaper stories about often frivolous litigation do the profession no good. However, when setting up a business, especially for the first time, finding a good lawyer (and good lawyers DO exist) will save you time, heartache and ensure you’re jumping through the required legal hoops.
If you’re going into business by yourself, things can be pretty straightforward, but there are still choices to make that all have implications. A lawyer is the one that can explain the benefits and downsides to each type of entity, how it may affect your future (think mergers, acquisitions, sale of the business) and protection in case someone else hires a lawyer to sue you or your business. Retaining a lawyer when litigation presents itself is going to be much more expensive than working with a lawyer that has handled your company from its inception. Now, I’m not saying that everybody is/does/will get sued and the costs of a lawsuit are still going to be very high in any case (only the lawyers win litigation), but a long term relationship is a benefit if this ever happens. Your annual cost if you don’t need much ‘lawyering’ is going to be minimal anyways.
A lawyer is also able to manage your annual filings, shareholder changes, share disbursements, drafting and review of contracts, answer questions throughout the year and help with several other issues that may arise, especially within your first year of business.
Both a good accountant and a good lawyer offer immense value and security when you start a business. One benefit of both is that they may be able to connect you with contacts that can help with your business, either as a paying customer or with a strategic partnership. They may add some cost overhead to your start up costs, but you can learn a lot from them and the costs should prevent further expenses down the road.
4. To Plan or not to Plan
I am often asked about creating business plans and how much effort should go into them. For Tooq, creating a formal business plan with so many variables, possibilities and unknowns just didn’t make a lot of sense. I had no plans for trying to get a bank or government loan and this is generally where a formal, and traditional plan, is required. Sometimes an investor will want to see one. But unless you’re looking for funding through these channels, the effort and time you will need to invest, really depend on your context.
I did start trying to write a plan a few times and it was a good exercise in helping to answer some tough questions, but I never completed a plan in full nor shared it with anyone. Instead, I realized that formalizing and generating buy in could prevent Tooq from being able to change direction quickly, which is one of the biggest advantages a small company has.
Remember, that if you sell an investor on your business plan and later have to make a huge change in direction to keep the company afloat, you’re then going to have to answer to the investor why you have deviated from the plan. At that point, they may or may not continue to support you with their investment dollars, leaving you open to a huge risk.
After my aborted attempts at writing a formal business plan, I found that one spreadsheet that acts as a budget, customer acquisition record and recording of past performance has covered most of my needs. I have a spreadsheet that allows me to calculate my customer acquisition from online advertising which then populates my master spreadsheet. Those numbers then multiply by the average monthly fee to provide income, along with an other income line for projects that are not based on the site. From there, it is pretty much a budget spreadsheet with my expenses laid out and it is populated for the next 18 months. When the month is over, I update the actual numbers and assess if I need to replan my forward budget. It has been helpful in knowing where I’m at, how many months I can continue with my given expenses before the well is dry and offers some incentive to keep expenses low.
The strategy part of the business comes from tracking features planned for the website and assessing every other opportunity based on what benefit it provides right now, what long term benefit it holds and what negative impacts may come to existing parts of the business. Because of this, we’ve managed to find some other projects that will bring in some income to lengthen my runway and I can continue to be open to more partnerships and contracts. A formal business plan would have made these changes less attractive (“Well, it might work, but we never planned for it” or “In order to take this on, I need to do some re-planning and it will take a couple of weeks, so let’s leave it for now”).
However you decide to plan, be honest about your context and your needs and choose the right solution for your business.
Just Fricken Do It. Once you’ve decided to start a company, get out there and hustle.