Everybody dreams about being her own boss someday. Maybe you love what you do but want to go out on your own. Maybe you hate what you do and want to start a completely different career. Or maybe you’re fine where you’re at, but you’ve just come up with your “million-dollar idea.” Regardless of the motive behind the dream, most often, the pursuit ends there because—let’s face it—starting a business is really scary.
You’ve seen the terrifying statistics: Forbes says 8 out of 10 entrepreneurs fail within the first 18 months; Investopedia says more than half of new businesses fail during the first year; and the Small Business Association instills some hope by claiming only 30% of new businesses fail in the first year.
These numbers should inspire a bit of fear and make you ask, “How can I give my business the best shot at success?” The answer to that question is ultimately going to be different for each person and each business. However, there are a few things that every aspiring entrepreneur can do to improve her chances.
Vet your idea
If a new business is going to be successful, it needs to solve a problem, fill a need, provide a valuable service, or bring something new to the table. To figure out whether your business idea can accomplish any of those things, you need to research your target market from an objective standpoint. Ask yourself, advisor, focus groups, surveys, and anyone you trust to give an honest opinion, questions like:
Is there sufficient demand for what you’re offering? Who is your target audience? Is there anyone in the market already offering what you will? If there is competition, how much of the market can you realistically expect to take? How are you different from any competition? Are there any barriers to entry? What regulations are required in your target market?
There are a lot of online and local resources you can access to do this part yourself. But if you need a more accurate and detailed job, there are professionals who can perform a market analysis for you. However you decide to approach this step, it’s something you need to figure out before you go any further.
Figure out the finances
Whatever the endeavor, all startups require some initial investment and the ability to cover ongoing expenses until the business gets on its feet. To get a rough estimate of the number you’ll need to get started, a good rule of thumb is to add up all of the one-time startup costs and at least one year of the expected recurring expenses.
Once you have that rough number, you need to evaluate the best way for you to get there. There are several options available to help get a business off the ground—you can tap into your own savings, obtain traditional financing, apply for small business loans and grants, find angel investors, obtain crowdfunding, or any combination of the above.
Working with legal and financial professionals can help you come up with all the costs to include in your rough number, estimate those costs, and advise on the best way to finance that number. This analysis should be thorough and is going to look different for each person and each business.
Choose your business structure
In Kansas, your business can be structured as a sole proprietorship, a general partnership, a limited partnership, a limited liability partnership, a corporation, a limited liability company, or a not-for-profit corporation. Each structure has its own set of requirements, benefits, and drawbacks, and selecting one structure over another has a significant impact on your liability exposure, how you file your taxes, how you get paid, your business name, and more.
An attorney will be your best resource to help you here. He or she can help you make the initial structure decision, register your business, draft your startup documents, evaluate any needs for change, make sure that your business is in compliance with the law, and can also serve as an advisor throughout the life of the business.
Make a detailed business plan
A business plan is a written description of your business’s future, which is vital to attract investors and/or lenders and to provide direction through each stage of starting and managing your business.
Your business plan should include all of the topics we’ve covered so far and more. It can be as formal or informal as your business requires. If you’re planning on proposing the business idea to sophisticated investors or lenders, it will need to be more formal than if you’re funding the business yourself.
There are a lot of templates available to help make sure you’re not forgetting to address an important topic in your business plan. Of course, you may also want to consider consulting a professional, especially if you need it to be more formal.
Starting a business is scary and difficult. Hiring legal and financial professionals to help you with the various aspects of starting and running a business will make your life exponentially easier and less stressful. While it’s tempting in the abstract to try to cut costs by doing everything yourself, that is not ordinarily the best practice. To give your business the best shot at success, build your team with the right people to help you get there.
Karlee Canaday joined Martin Pringle in 2019 after clerking with the firm for two years. Karlee completed her undergraduate degree at Kansas State University and went on to earn her J. D. at the University of Kansas School of Law. She focuses her practice on business & entrepreneurial law, tax law as well as estate planning including estate administration and probate.