Starting Your First Business
Q: I have an idea for a retail business and I've picked out a shopping center location, but I don't know where to go from here. I think I need to obtain a lease, plan the space, get permits, start gathering estimates for my plan, and then try to get a loan. But I'm just not sure. How do most new business owners start the process?
A: It sounds like you have the vision, the desire and the passion. Begin by making sure there's a real business worthy of you.
To do that, read up on what it means to be an entrepreneur and make sure it's the job for you. The E-Myth Revisited: Why Most Small Businesses Don't Work and What to Do About Itby Michael E. Gerber is a great introduction to entrepreneurship. It helps you understand the difference between working at your business and working on your business. Many people start a business doing something they love, not realizing that running the business may actually take so much time that there isn't enough time leftover to do what they love. Also check out "From Idea to Business," an article I wrote recently on how to start a business. The article outlines in broad terms what it takes to get a business up and running.
If you have partners in the business, get them involved in the start-up steps. If you all understand what it takes to make the business succeed, you'll be a much stronger team when it's time to leave the starting gate. As discussed in my column, "Creating A Management Team," a good team can be worth its weight in gold when it comes to raising money.
But before you make any commitments, make sure the business is viable! Testing viability is much like creating a business plan. First, estimate your monthly expenses (see "Making Projections" for more details). Start by listing your ongoing expenses. Since you're going to be located in a shopping center, it should be easy to get a rough idea of what the lease and utilities will cost. Then decide the salary for yourself as well as anyone who will be working for you. Estimate what it will cost you for accounting/tax preparation, insurance, benefits, transportation, inventory, shipping, advertising, printing and so on. Now add 30 percent for everything you forgot (like the pretzels you eat as a mid-day snack).
Next, estimate your income. Figure out how many customers you expect to come by, and then guess at how much you expect them to spend. Hang around similar stores in other locations and watch what people buy and how much they pay. Since you're planning to be in a shopping center, ask the management to give you crowd estimates and demographics--that will help you get a feel for who shops there. Are the patrons in your target market? Will you be able to entice them into your store? Now determine if you have any competitors close by. If so, how will you entice customers from their stores into yours?
Also pay attention to prices. If people are used to paying $10 for a scented candle, you probably won't be able to sell candles for $20. Survey the prices of products similar to yours, and then factor that pricing into your income estimates. And, finally, face it: You're an entrepreneur, which means you're charmingly, hopelessly optimistic. Take 30 percent off your income figure to get a mildly more realistic number.
Now you have an idea of how much cash will be leftover each month (income minus expenses) once the business is up and running. If you'll have a loss, consider changing the business around. But perhaps your business just isn't feasible. It's better to face it now, rather than after you've devoted time, energy and money to a hopeless pursuit.
But if your company will be making money, take the next step. Estimate the cost to get up and running, such as lawyer's fees, incorporation expenses, space build-out, utility connect charges, licenses, permits, initial inventory and so on. Also factor in the salary for yourself (unless you have ample savings and are willing to risk them). This figure is how much money you need in financing.
Your next step is to approach investors or banks to raise the money. For that, you'll need to pull together a business plan. Another recent column of mine, "Formatting Your Business Plan," describes what to include in the plan. An easy way to get your plan underway is by using Palo Alto Software's Business Plan Pro, which features many sample plans that have been used successfully to raise money.
Once you get a commitment for the money, you can sign the lease, choose your specific products, hang your shingle and really start running the business! If you're feeling daring, you can always sign the lease before getting the money, but that could put you under a lot of pressure at a time when you don't have many resources. While the annals of entrepreneurial lore are full of successful entrepreneurs who took such daring risks, the graveyards are full of even more entrepreneurs who were never written about because they went under before hitting it big.
Whatever you decide, make sure to have at least six months' worth of living expenses in the bank before you take the plunge. Starting a business can take much longer than you anticipate, and the last thing you need is money trouble in your personal life when you're bringing your business to fruition.
Stever Robbins is a venture coach, helping entrepreneurs and early-stage companies develop the attitudes, skills and capabilities needed to succeed. He brings to bear skills as an entrepreneur, teacher and technologist in helping others create successful ventures.
The opinions expressed in this column are those of the author, not of Entrepreneur.com. All answers are intended to be general in nature, without regard to specific geographical areas or circumstances, and should only be relied upon after consulting an appropriate expert, such as an attorney or accountant.