How To Start A Small Business
By Christopher Nowell, CPA
You’ve made the decision. It’s time to be your own boss, call your own hours and possibly even create your own headaches. You’ve done the homework and you’re ready to be the owner of a business. But how do you know if you’re really ready? The decision to dive into business ownership is often the simplest of the questions you’ll want to answer before starting down this path.
While market research, business planning and capital procurement are all vital parts of deciding to start any business, the true work begins as you set up the structure of this venture. Although many may not explore all of the options, a prospective entrepreneur should first evaluate whether it’s more advantageous to start from scratch or if there is an existing entity ripe for purchase. Opportunities for a franchise also may come into the picture.
Often the value of an existing client base, brand presence, patent licensing or capital fixtures can merit the cost of acquiring an established business or franchise versus starting fresh. In other situations, maybe there’s not enough value to justify paying for assets that you, over time, may create on your own.
Some businesses and individuals have seen significant benefit in tapping into specialized business analysis software, such as ProfitCents, to evaluate the worth of a business and to measure against industry standards. It’s important to look at industry benchmarks, business cycles and cash flow models. Accurately forecasting cash flow for the first few years of a business is perhaps the most important thing you can do to ensure the success of a venture.
It’s also vital to establish strong banking relationships early on. Long before opening the doors, meet with more than one banker to discuss all of your needs and ascertain the best resources for your business. Often this means working with more than one bank.
For an existing or new business, there are numerous options for setting up the type of entity, whether an LLC, ‘S’ Corporation, ‘C’ Corporation or sole proprietorship. With growing liability issues, many businesspeople are pursuing an LLC structure, but this does not work for all. The ideal structure for your venture is dependent on many factors, including tax implications and whether you’ll have partners or investors, and it should be explored thoroughly with a certified public accountant and attorney seasoned in small business operations.
Finally, it’s never too early to explore how long you plan to be involved with a business. Yes, it’s prudent to establish a succession or exit plan before ever starting a business.
How long do you expect to be involved with this business and what is your goal at the end of the project? Knowing how and when you plan to leave should be factored into the structure and financing of any venture.
With careful planning on the front end, the journey should ideally be an enjoyable, rewarding, not to mention, highly profitable adventure.
Christopher Nowell is a principal with Jarrard, Nowell & Russell, a certified public accounting and business advisory firm based in Charleston. Chris can be reached at (843)723-2768 or firstname.lastname@example.org.