How-To Adviser - Career and Business 2

Career & Business

Business

How to Start Your Own Business

Starting your own business is not an easy task. It demands good ideas, lots of studies, usually a great deal of money, knowledge on the chosen field and on marketing, experience in dealing with people (customers, employees and suppliers) and a lot of courage.

In this short article, I cannot give you a thorough description of everything involved in opening a company. That’s a job for a university in which administration courses usually take four years to be completed. I intend to pass only my experience here, showing the phases that I’ve been through when doing it myself. This experience may serve you as a hints guideline only, and, of course, I cannot give you guaranties that your business will be successful. Your own business growth depends solely on your situation, knowledge, determination etc., in other words, on you. The phases that I followed when starting my own business and that I present here where proposed to me in the post-graduation course on business administration that I took in the best university in Latin America. So, here they are:

1) The Idea

2) The Pre-Project - Initial Study

3) The Legal Opening

4) Starting the Company

5) The Growth

6) How to Define When It’s Time to Close the Company?

But first an advice:

The start of a new company always demands hard work. Don’t fool yourself thinking that by owning a company you will not work as hard as before, leaving all the work to the employees. Furthermore, the owner of the company is its leader that must conduct everyone to its main goal. So, his attitudes are the examples followed by the others. If his attitude is slacky, with time, the employees will start acting the same way.

Before deciding what type of business to open, I must firmly advise you to avoid fields in which you don’t have a good level of expertise on. You should, at least, have worked with this type of business in another company before. For instance, if you decide to open a joinery, it would be better if you were a joiner, instead of totally depend on the knowledge of your employees. In that case, you would be able to exactly tell your employees how you want things made, instead of having them telling you what should be done! Another reason for that is to know how that business market works. That means: Will you depend on other companies or people to reach the final costumer? Do you have good enough connections on these other companies so they will certainly help you sell your product? Do your potential costumers like and need the type of product or service that you intend to sell? Do you know what equipment and technical information you need to start the company? This knowledge is fundamental to a new enterprise. I’ll show why:

Reaffirming my orientation, I’ll mention the example of a person who tried to open a business in a field in which she had no previous experience. That person has recently studied a Very Profitable (note the capital letters) idea that was easy and not expensive to develop. But, while deeply studying it, she found out that that field was full with corruption among the parts involved and that she would completely depend on others to reach the final costumers. This person, then, decided that she didn’t want to get involved in it. After that, she said that, if she has had previous knowledge, she wouldn’t have even started that study (wasting her time on it).

1) The Idea

The way I see it, there are two possibilities: to work on a field that is already explored by others or to work on a brand new idea. Each one has their own pros and cons. So, let’s check some points on each one.

A line of work already explored

Advantages

- It’s easier to find information about it and people with knowledge about it to help you;

- Many people already know this type of business and could be willing to be your client;

- It demands less advertising;

- The marketing parameters that must be observed should be easier to identify as the results of other entrepreneurs developing the same thing are more in sight;

- Easier to set the price for the product. You already have an idea about how much people pay for this product;

- The development costs could be less expensive.

A new product or service

Advantages

- You’ll have a greater selling potential as no one else offers it;

- New products, if useful, tend to call people’s attention;

- Many people (but not all) crave for novelties and innovation;

- Many people tend to think that new products grant status to them.

But be aware that to highlight your company you should always offer to your customer something different from your competitor. Therefore, if you decide to work on an already explored type of company, new ideas involving it should be approached anyway. I.e., check whatever your clients’ competitors need that your competitors don’t supply and offer it yourself.

And maybe the most important thing to say in this item is: Do what you like, not what is more profitable. If you like what you’re doing you’ll do it with more interest, it tends to turn out better, you’ll feel happier and this business tends to be more profitable compared to the situation of not liking it. And if you can combine both things, great!

2) The Pre-Project - Initial Study

This is one of the most important phases. This is when you’ll begin to verify if you have enough money, knowledge and condition to start your own company.

In this phase, it is necessary to fill up a Pre-Project spreadsheet table where you’ll organize the new data that you should go after. This table should contain the prediction to all the firm’s expenses and incomes for the next years, month after month. The more completed and real it is the better your prediction will be. This table should anticipate how much money you need to start the new business. Therefore, if you don’t have that amount of money plus an extra for unplanned or unpredicted expenses as a collateral security and a way to sustain you and your family, you should think of starting something else (or even get a job and save more money first).

The following items should be included in this prediction table:

- The shop/office rental price;

- Your suppliers’ prices;

- The shop/office refurbishment or acquisition price;

- The equipment and furniture’s prices that you’ll need;

- The software’s prices;

- The number of employees needed and their salary (including taxes etc.);

- The energy, water and internet expenses;

- The advertising expenses;

- The security system prices (against robbers);

- The prediction of maintenance expenses;

- Your accountant price and all the taxes and fees that he tells you that your company should pay;

- The predicted gross profit and net profit.

To raise these table’s values, you should look for information on your competitors’ situation, your competitors’ prices, newspapers, labor union, employers and businessmen organizations, governmental organizations, potential suppliers (always look for the lowest price but don’t use bad products), potential clients, attorneys, accountants, the city hall staff, former owners of this type of business and so on.

It is always necessary to plan ahead the steps that you should take when you’ll open the new business. Write all the items down paying attention to build a timetable. For instance:

a) Where and when will I locate my business?

- What is necessary to rent or buy the place? Papers, documents, licenses, guarantor etc.

- How long do the papers and permits take to be approved?

b) How long will the place refurbishment take to be completed?

- Who will I contract?

b) When and what advertising agency will I contract? Or will I plan the advertising myself?

- What graphic will I contract?

- What will be the internet site or folders layout?

- How long does it take to be finished?

c) When and where will I buy the equipment that’s necessary?

d) When will I contract employees?

- What should be their profile?

- How do I find them?

- How many employees should I contract in the first month, second, third and so on?

- How will I train them?

e) When and what internet connection, energy, telephone and water supplier will I contract?

d) When will I build a list of potential clients?

- When will I start contacting them?

- How will I contact and approach them?

Advertising is very important. The more you advertise the more you’ll earn. That is a direct relation. So be prepared to expend a lot of money with it. For example, I heard that a movie maker must spend twice as much the expenses of the movie itself in advertising to attract the public and make it sell. In other words, if the movie costs 10 million, it’s necessary to spend 20 million to advertise it.

But beware! Don’t be carried out by the excitement of building a new company. When you fill out this table’s data, be true to yourself and to the reality because the correct completion of this table may predict if you will have profit or not! Therefore, it may help you determine if it is a really good deal to start that business or not! Imputing wrong or unreal data will distort your vision of things and may lead you to severe losses! One thing that I tend to do when filling this table out is to lower my expectations on every item producing different scenarios. Doing so, I study a least good and the worst case scenarios. For instance, if you come to the conclusion that you’ll sell 6 computers in the second month after the opening of a computer shop (comparing to your competitors’ experience), be a little pessimist and consider that you’ll sell a bit less (let’s say 4, for instance).

An advice: Avoid starting a company loaning money from a bank, credit card or anyone else. I have known cases that the companies weren’t profitable enough and couldn’t pay the loans back. These businesses had to be closed leaving their owners with large debts. Very few new companies that I’ve known of in that situation have managed to pay their debts but that took years.

Here are two questions that must be answered:

A) Where to open it?

Who wants to open a new business usually have an idea on where to locate it. But an idea is not enough. So, you need to analyze where to start your company.

Let’s say that you want to open a restaurant. What is the public that you intend to have as client? High, average or low class society? What age? What ethnic group? What region? And so on. I’m not raising any prejudicial issue here. The concern is purely financial. All explain: If you are going to serve average quality food with a careless table service for high society people, there’s a small chance that you’ll be successful in your enterprise.

So, the location and quality of your restaurant will depend on the public that you want to have and vice-versa. The same way, the amount of money that you’ll invest in it will depend on those decisions, as well.

Another consideration is how many competitors you will have in the many regions where you intend to locate your restaurant. What are their quality and prices? Can you mach it? Are there enough clients for another restaurant in that region? Do these restaurants have many clients? Do they all serve the same type of food (Italian, for example)?

One thing that you can do is to go to those restaurants, ask yourself a meal and compare them to yours. That way you’ll be able to check if their food is better than yours. With that information, you can decide if that’s the place for you, if you must make a better food, lower your prices or even choose another area.

But if those many restaurants serve different types of food, it might not be a bad idea to locate you restaurant there, for the client of one Italian restaurant might be willing to taste Chinese the following day. He might see your Chinese restaurant in his way home and be interested in visiting you the following day.

I know that I’m raising more questions than answering questions. But all that I can do is to give you a direction on how to think and analyze your own situation. As the situations from every reader are different from one another, there’s no way for me to analyze them all myself.

B) How much should I invest?

Easy answer: The least the better! So don’t be shy: look for the lowest prices for the products that suit your quality needs. Here’s an example: in the city that I live, shopping malls’ stores buy their clothes for 1/3 of their own selling price! They buy them from shops in a poor part of town where people that are used to shopping malls don’t want to go. If you’ll reform a shop, there are places that sell used or refurbished window glasses, for instance. These glasses might be bought for 1/10 or 1/5 of the new glass price! Unfortunately, there are very few of these shops here. So, again, go for the lowest price that meet your quality needs and bargain for more. They want your money, so why wouldn’t you want it either?

Wait until you really need to buy things. Other unpredicted but more important expenses could come up and you’ll have the money for it. Sometimes, the predicted expenses can be postponed.

This article continues on page 3.

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