When entrepreneurs ask me for help in starting a business, I immediately think of three questions I need to ask them back. I do that for two reasons. First, there is such a wide range of business types, startup forms, levels of experience, and personal situations, that more details are needed to move beyond the general advice of best practices that benefit any business. Second, one has to start somewhere with the decision tree that will naturally begin to branch and unfold once some baseline information is clarified. Here are the three key questions to ask yourself when starting a business:
1) What are your specific goals and objectives?
The main reason for articulating specific goals and objectives is to determine what actionable steps should be taken next. For example, if entrepreneurs are looking to sell artisan crafted goods — are they doing so as a secondary income for which they would be satisfied with a long-term strategy of selling at seasonal markets? Or are they looking to gain experience, market share, and working capital toward opening a brick-and-mortar location?
Actionable marketing steps for the example of selling at seasonal markets might go no further than social media and a single free webpage online, a business card, and a flyer for marketing. Whereas for the latter example of a brick-and-mortar location, you may want to develop a more complex website showcasing a full line of inventory, a full media marketing plan with associated costs, and a multi-year cash-flow budget that will demonstrate the necessary metrics needed to be reached along a timeline for development.
A smart tool for articulating goals and objectives is the S.M.A.R.T. methodology. Using S.M.A.R.T., an entrepreneur creates goals and objectives that are quantifiable as Specific, Measurable, Attainable, Relevant, and Timed.
2) How will you pay for your startup?
An idea is only that until it’s implemented. And implementation always involves investment, even if it is only a small amount, such as when you’re turning a hobby into a full-time business and you already own the equipment and tools. A simple and effective first step to understanding your startup financial needs is a short form known as sources and uses. In this simple way, one can list the general categories of cost estimates known as the uses of funds, even if they are not yet fully fleshed out and detailed, along with proposed sources of those funds being paid out.
This simple cash-in and cash-out accounting for a startup can help a new entrepreneur understand if starting a business out-of-pocket is realistic, or if other sources of financing will be needed. If additional financing is required, the next steps of looking at metrics such as cash available, credit, collateral, and a full-blown pro-forma cash-flow statement will need to be determined. This is also an opportunity to discuss when appropriate, alternative strategies such as crowdfunding.
3) How will the form of your business look in terms of ownership and entity?
This is often the best time to ask if the entrepreneur has spoken with a lawyer or accountant regarding the implications of ownership and taxation, which can be a deciding factor in final entity form. However, before that conversation, it often behooves the strategic discussion to talk about other non-tax-related factors and lesser-understood business forms with which the entrepreneur might not be wholly familiar.
For instance, the “nonprofits and grants” talk is a commonplace occurrence among beginning entrepreneurs with little to no experience. Giving up ownership of an organization to a controlling board of directors is often not what the entrepreneur had in mind as a trade-off in favor of being able to receive grants and tax-deductible donations, as a 501(c)(3) nonprofit corporation, but it is often a consideration that was not understood or considered prior.
Whatever the answers to these three initial questions, the branches of the tree unfold, the actionable tasks leaf out, and the potential for bloom or bust becomes more apparent. These answers form the foundation of any business-planning process. And not to insinuate that they won’t change, but they will form the launching point necessary for the technical planning work for the startup’s implementation.
Frank Cetera is a NYS SBDC-certified business advisor at the Small Business Development Center at Onondaga Community College.