Taking the plunge by starting your own business for the first time is bound to feel exciting, scary and so right. It’s a risk, but there are ways to reduce the risk and maximize the chance that you’ll be the best boss you ever had.
Here are some of the things you should do before you hire anyone or borrow, buy or sign anything.
Write a business plan
As opposed to planning a business and writing that plan down, this suggestion is to start with the writing. It’s likely to focus your mind on answering questions you hadn’t asked before and preparing for problems you hadn’t imagined.
Experts warn against getting bogged down or committed to your first plan. Forbes explains why some experts suggest waiting to write the plan until you’ve done more research and strategic thinking. That’s also good advice but drafting a quick version first may help you direct that market research and strategic thinking. Your second draft will love you for it.
Calculate your break-even point
By walking yourself through the basics, you’ll quickly become a savvier businessperson. Add up the expenses like rent and utilities, taxes and licenses, employee pay and benefits, workers’ comp, the product inventory itself, etc. Now, decide on the prices you’ll charge, and you can calculate how much product you must sell per month to exactly cover these expenses.
That’s your break-even point. Anything more is called “profit.”
Fund your business yourself
You’ve probably heard a statistic that a very large percentage of small businesses fail within the first year. Whatever the number, the take-home message was probably correct.
The worst drain on new small businesses is debt. Finally turning a profit usually takes time, but business loans come due much faster. That’s when the downward spiral starts churning.
Of course, you could use your savings to cover the loans, but consider forgoing or reducing the loan in the first place by using with your own liquid assets as much as possible. Waiting to start the business until you’ve saved enough may pay off in the long run.
Think carefully about whether and how to incorporate
Speaking of debt, consider how incorporation might help shield you from debt. The first and best business relationship you’ll be building over the years may be with a good business attorney who will walk you through your options. Forming a limited liability corporation or another form of business entity can help insulate you from business trouble.