Looking to start your own business? Then start off by coming up with a plan.
Even if you've got the greatest idea in the world for a can't-miss
product or a one-of-a-kind service, the chances that your new venture will
endure aren't great if you haven't given serious thought to how you'll clear
all of the hurdles before you even get a chance to meet your first customer.
How will you make your business stand out against its competitors? How
will you get the funding you need to get started? How will customers find out
about your new venture? And, most importantly, how much will your business
cost to operate and how much will you have to sell to make a comfortable
living off of it?
Those are all questions that typically are covered by a business plan --
a document that serves as a guidebook for a company's early days and forces
entrepreneurs to give serious thought to many of the nitty-gritty details that
can make or break a new venture.
"This business plan should be a road map for your business," said Cindi
Thomason, a senior business adviser at the Small Business Development Center
at Buffalo State College. "It puts you in control of your business."
Here are a few questions any small business owner needs to answer at the
start:
-- Who are your competitors? "You need to keep up with your competitors,"
said William Grieshober, an adviser at the small business development center.
"Even if you created the best business in the world, someone will open up
across the street from you tomorrow."
Understand what your niche is in the market and what other companies now
are serving the customers your business will target. "If you open a
construction company, your competition is not Ciminelli," one of the region's
biggest construction firms, Grieshober said. "You're competing for Ciminelli's
crumbs."
Thomason suggests honing in on three or four major competitors and
looking closely at how they operate. "You need to look at the things they are
doing well, just as much as the things they are doing poorly," she said.
-- How will you fund your business? Typically, lenders, like a bank, like
to see a business owner contribute 20 percent to 30 percent of the money that
will be needed to get a business off the ground.
That's why it's essential that, before you approach a lender, you figure
out how much money you're going to need to get started, from buying equipment
and paying rent, to purchasing supplies and marketing your business, Thomason
said.
The lender also will want to take a close look at your business plan,
that road map that you developed early on, to evaluate how well you've thought
out your new venture. "They want to make sure that, even if the business gets
funding, it's going to be sustainable," she said.
-- How will you market your business? Unless you're incredibly lucky,
customers won't come flocking to your business just because you've opened your
doors. You've got to figure out a way to let potential customers know that
you're in business and why they should buy what you're selling.
Today, that often means setting up a website and turning to social media,
like Facebook and Twitter, to get the word out inexpensively.
"Social media is a big thing. That's the big buzz right now," Thomason
said.
But you still need to come up with a way to attract people to your
website or social media postings. "Having a website now is very similar to
having a telephone number," Thomason said.
Grieshober cautions start-up business owners against spending too much on
advertising. "Watch your advertising spending," he said. "For small
businesses, spending on advertising is probably not the most effective way of
spending your money. But some companies do have to advertise."
It helps to know your market. Restaurants, for instance, typically get
about 80 percent of their customers from within a 10-mile radius, so it
doesn't make sense for them to pay for a marketing program that targets a much
broader area, Thomason said.
-- How much should I charge? You need to come up with a pricing strategy
that is competitive, yet still generates enough revenue to allow you to make a
comfortable living from your business.
"You need to think about how much money the business needs to generate to
make you satisfied," Thomason said. "Otherwise, you're going to get totally
burned out and the business will fail."
Sometimes, it isn't even essential that your business charge less than
its competitors. For a business like a day care operator, the quality of the
service and the convenience of the location may outweigh cost factors when
customers are deciding where to send their children, Thomason said.
But make sure you're charging enough. It's helpful to know what the
average cost of sales is for a typical business in your industry --
information that can be found from databases available at the Buffalo and Erie
County Public Library's downtown Buffalo branch, she said. Food costs, for
instance, typically eat up about 30 percent of a restaurants' revenues, so a
new restaurant operator would want to set up a pricing scheme that would keep
food expenses around that level.
-- What about taxes? It's simple. Pay -- and collect -- your taxes. Keep
the tax revenue you collect separate from your operating funds.
"In New York State, you definitely do not want to get sideways with the
sales tax people," Thomason said. "They will put a padlock on your door."
-- Do I need insurance? Business insurance can be complicated -- and an
expense small business owners would rather avoid -- but it can protect you
against a catastrophic lawsuit, said Kevin Overdorf, the president of Overdorf
Associates Agency in Hamburg.
"You're going to get sued. In business, you're a target. And in a down
economy, lawsuits go through the roof," he said. "If they sue you and you
don't have the coverage, who's going to pay for your lawyers?"
