Launch Magazine - Fall 2007 - (Page 25) Before You Dive In No matter how confident you are in your business plan, it’s a good idea to make sure there’s water in the pool before plunging headfirst into the deep end. Here are some basic concepts to fully consider before starting your own business: Family Are your spouse and children aware of and OK with the probable long hours and lower initial salary many entrepreneurs are required to endure during the early years of a startup? great promise has died due to the high burn rate related to monthly payroll. Remember to factor in payroll taxes and employee benefits when estimating future total payroll costs. is critical — justify every penny. Onethird of the companies on the Inc. 500 started with $1,000 or less and 41 percent bootstrapped it with an initial investment under $10,000. Mentors Many local organizations, incubators and business schools can provide you with the opportunity to speak with someone who has been through the startup process before. Make sure to run your ideas past someone with entrepreneurial experience. Willing to Lose Your House? It’s almost impossible for a prerevenue startup to get an SBA loan without a hefty chuck of collateral. For most, that means putting your home on the line. Do you have enough equity in your house (and faith in your enterprise) to put your house on the line? Do the Research Is your industry oversaturated in your desired markets? Example: Utah has plenty of ice cream shops already. Your new ice cream endeavor better have something really special going on if you want to stand out. What’s the competition like? Example: FedEx, UPS and DHL pretty much have the overnight shipping industry locked up. Think of something else. What kind of profit margin can you realistically expect within your industry? No mater how good your idea is, it won’t play if you can’t eventually make money. Example: Ever wonder why you don’t see many new mom-andpop grocery stores popping up? That’s because today, anyone in the grocery space has to be large and lean. Typical grocery store chains are lucky to garner a 5 percent profit margin even with years of streamlining experience under their belt and multi-store buying power. Can You Pony Up? If you aren’t willing to put up some of the startup capital yourself, then your idea isn’t likely a worthwhile venture. You’ll be hard pressed to find someone willing to invest in your idea if you don’t have at least some skin in the game. Idea vs. Opportunity Take off the blinders for a moment and ask yourself, “Do I have a good opportunity or just a good idea?” Learn to tell the difference. Just because an idea is original, creative or life changing doesn’t mean you can build a viable company around it. Plan B Some entrepreneurs are willing to bet the farm and lose everything if their business doesn’t succeed. If you don’t fall into that camp, what’s your early exit strategy if things go south? Can you close down or get out with acceptable losses while staying married in the process? This is important to consider if you or your family can’t financially or emotionally handle a total business failure. Funding Sources Only 1 percent of companies nationwide receive venture capital sometime during their lifespan. Don’t plan on VC money — ever. Do you have a backup plan if you can’t find angel money? Even better, can you start your company without needing a huge influx of capital? Get a Black Belt in Excel Savvy entrepreneurs build elaborate spreadsheet models taking into account multiple variables to predict whether an idea for a business could eventually make money or not within an acceptable time frame. Take the time to master Excel and run every possible scenario to profitability (using realistic and conservative numbers). At the very least, take advantage of online resources such as entrepreneur.com/ calculators or similar sites. Can You Bootstrap to Revenue? Equity-based funding for pre-revenue startups in Utah is almost nonexistent. Even most angel investors in the state shy away from pre-revenue deals. This means three things for the great majority of entrepreneurs: 1) You need money to cover expenses until you start making cash; 2) You must soon start selling something to someone; 3) Mastering the art of bootstrapping Need a Paycheck? Any business owner will tell you how severely labor costs contribute to cash flow problems. Can you operate your new business with few or no employees on the payroll? Can you afford to not pay yourself for the first six to 18 months? Many a startup with launch fall 25 http://entrepreneur.com/calculators http://entrepreneur.com/calculators
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