From time to time I am asked, “What do I need to do, since I have started a new business?” While the list can be a mile long, there are key elements that should be in place if you hope to succeed.
One of the first elements to develop is a business plan. While this can be a formal document with pages devoted to all of the key areas of the business, it can also be a less formal document that you develop as an initial guide. Some of the components to your plan should include the following:
• Summary of your business and objectives
• The structure of the ownership as well as key personnel
• Information on your products or services
• Information about your competition and how your product or service is different
• A marketing plan
• Detailed information on sources of funds or financing for the business
• Finally, a projection for the next three years at a minimum
By preparing this type of information, it will improve your ability to stay on track and meet your goals. Each of these areas is critical to the success of the business, or the lack thereof can be a key reason for the business’ failure. Knowing the area competition is crucial in understanding your ability to gain clients or sell your products. Having a well-developed marketing plan will enable you to create the traffic or sales you require. Already having the funding sources in place will help your business through rough spots or the initial period while sales are created.
Many businesses are started on a shoe string and thus are often located in less than ideal locations such as the spare bedroom, garage, and the shed in the backyard or a basement somewhere. While the initial location may not have been ideal, many of these businesses survive and in fact thrive. Advice I heard on an MSNBC show was to own your location. Once your business is up and running, you should strongly consider purchasing your location, if possible. The cash-flow requirements will be higher, since you will be paying a mortgage rather than just a lease. However, after years in the business not only will you have a business to sell but also the real estate.
An area of the business that is often overlooked but can be a major contributor to the failure of many companies is the lack of proper and timely accounting. So many business operators are intensely focused on making sales and then paying the bills received that they miss the valuable information proper accounting reports can provide. If the accounting for your business is your checkbook, then in my opinion you are most likely paying more in taxes than you should and probably incurring higher expenses than necessary.
Businesses just starting out are often funded by a variety of sources including the personal checkbook or cash from the wallet. For every personal dollar you spend but fail to track in your business accounting, you have not only spent the dollar but now will be paying an extra 20 cents or more on every dollar spent in additional taxes. You must create a means to capture the dollars spent personally and reimburse yourself from the business or at least include the dollars spent in the books for the firm.
Using one of the off-the-shelf accounting packages can be an incredible plus. Staying current with the information will allow you to review on a monthly basis the growth of your sales and how that growth may correlate to your expenses. You may find some expenses increase at the same pace as your sales, while others may create $2 or $4 dollars of sales for each $1 of expense. Knowing this type of information will enable you to manage your expenses and understand how much profit or loss you are generating each month. Without the monthly financial reports is almost like driving a car with all the windows fogged up. You know you are moving, but you have no clue in what direction.
So as you develop your new business or take time to review how your company is running, do not overlook the power timely and accurate financial reports can be in assisting you to manage your firm. If you are unclear what software package is best to use, contact an area CPA or other accounting specialist for the guidance you need.
HOW TO REACH THE WRITER
Would you like a response to a financial question? Send your question to Doug Horn, 115 W. Broadway, Maryville, TN 37801. Be sure to mark your envelope Money Matters.
Doug Horn, CFP, is an area financial planner with more than 24 years financial experience and founder of Quality Financial Concepts, located in downtown Maryville on Broadway.
Doug Horn, CFP, Registered Investment Advisor in Tennessee and Texas and Registered Principal, Branch Office of and Securities offered through CUE Financial, Member FINRA, SIPC.