Starting a business is an exciting and anxious time. It provides a chance to set your own career path, frequently with objectives of enhanced flexibility and higher income. While the long-term benefits can be rewarding, new businesses require significant planning, hard work and financial start-up commitments. The following considerations are critical when planning to open your own business or become a self-employed individual.
Develop a Business Plan
Every new business should begin with a business plan. A business plan helps you to evaluate the viability of your business objectives. It is also critical for obtaining any necessary business funding.
Business plans should be thorough, but somewhat concise. They often include many of the following elements:
- Executive summary (elevator pitch)
- Vision and mission statements
- In-depth business description
- Growth objectives and forecasts
- Marketing strategies
- Competitive analysis
- Financials projections (cash flow and profitability)
Consider Your Personal Finances
Starting a business often entails significant financial commitment before the venture becomes profitable. It’s critical to evaluate your financial resources and stability during the start-up phase. Assess how you will cover your personal expenses if you might have a lack of income during the start-up phase, and estimate the costs of starting the business itself. Start-up expenses often include legal and professional fees, and initial overhead such as rent, furniture, technology, equipment, phone, internet, supplies, inventory, insurance, etc.
Pricing
Pricing is a critical aspect of starting a new business. People commonly focus on bottom-line financial results without fully evaluating the gross revenue level that needs to cover a number of expenses and risks to achieve bottom-line goals. Common items that need to be factored into pricing include:
- Fluctuations in revenues
- Higher taxes (business income taxes, employment or self-employment taxes, property taxes, etc.)
- Cost of benefits (health insurance, life insurance, disability insurance, education benefits, vacation and sick time, retirement plan matching contributions, travel reimbursements, stock awards, etc.)
- Overhead (rent, phone, internet, equipment, supplies, inventory, liability insurance)
- Lost time dedicated to running and growing the business versus generating revenue
Your Talents
Many people have talents in a few areas, but not all areas necessary to start and run a business. Business owners wear many hats often including:
- Strategic planning
- Marketing
- Financial management
- Business development
- Production
- Product and/or service delivery
- Organizational and human resource management
Every future business owner should honestly evaluate their ability to manage the requirements of starting and managing the firm. These should be considered relative to personal responsibilities versus those that will be outsourced or allocated to employees.
Risks
All businesses face risks, both internal and external. These should be factored into your strategic planning process. They should also be contemplated relative to your ability to absorb risks, both financially and psychologically.
From a financial perspective, you will have fluctuations in earnings that could lead to reduced earnings or possible financial losses. Debt obligations could present additional risks, particularly if they are secured by personal assets. Finally, it’s worth considering your ability to re-enter the workforce if the business fails to succeed.
Business Partners
Having business partners can be beneficial as you can divide work and financial obligations. However, they can also bring disagreements about how to run and grow the business. Take the time to evaluate:
- The congruency of your business and personal goals
- The interplay of your personalities
- Your individual talents relative to the collective needs of the business
If you decide that having a business partner makes sense, always enter the relationship with a legal business agreement that outlines how business decisions will be implemented, how financials will be allocated, and how the partnership would dissolve if elected or needed.
Personal Life
While the financial elements of a business are important, so too are the personal aspects. Owning a business might afford personal flexibility long-term, but it often requires intensive upfront commitments. Time and stress impacts should be considered relative to your personal stamina as well as how they might affect relationships with family and friends.
SageVest Wealth Management works with many business owners including individual consultants, small business owners, and firm partners. Our advisors’ financial, professional, and educational backgrounds enable us to guide business owners through all phases of business ownership including development, management, growth, and final business succession planning. Please contact us to explore your business planning considerations in greater detail.
