Part 1 of the “Things we wish we knew” Blog series
By: Tina Oddleifson, Business Advisor
When we asked Maine SBDC Business Advisors about the biggest mistakes they see new business owners make (including themselves) many of the responses boiled down to the same essential thing: Moving forward before you are ready.
We’ve all been there. You’re ready to leave your job and you have the perfect business idea. Enthusiasm and excitement are important ingredients for business success and over-analyzing or overthinking can present its own problems. But to set yourself up for success you need to lay a solid foundation. Here are essential questions to consider before taking the plunge:
Do you have experience in this industry?
You may have a dream to bring a secret family recipe to market or create the perfect lodging or tourist experiences for customers. And that is how many successful businesses have started. But one of the single best things you can do to prepare yourself for small business ownership is to get some industry experience. Working in the industry, even for a short time, will help you understand how it works, what trends, opportunities and challenges are happening now, and if you actually like it. You’ll be much more attractive to lenders and investors if you’ve proved you know what you’re getting into.
Is it feasible?
Before anything else, ensure that your business idea is feasible, and in demand. Test your assumptions by conducting thorough market research. You’ll need to know if there will be demand for your product or service and who is most likely to want it. You’ll also need to know who your competition is and how you’ll stand out and be different. Understanding the challenges your industry may be facing and if this is the right time to launch is also critical. Refining your idea early on can save you from launching at the wrong time or in the wrong place.
Will it make you enough money?
Understand your own financial needs before leaving a job or giving up important benefits to start a new business – unless you are purchasing a business with a proven track record. Some businesses don’t see a profit for several years. Make sure you have other funds to live on in the first few years.
Sometimes the best approach is to try out your idea as a side gig while you keep another job. Working with an SBDC advisor will help you understand how to identify your startup costs, how to develop realistic month by month financial projections, and what your breakeven point is. You’ll also need to know how much working capital you’ll need in the bank while you grow your business. Many businesses in Maine have seasonal fluctuations which have a big impact on cash flow. Developing cash flow projections will help you manage those fluctuations so you don’t run out of cash.
Can you fund it?
Many lenders view start up businesses as risky, so small businesses are often “bootstrapped” – meaning they are started with personal funds, personal loans, or help from friends and family. Determine if there is a way for you to start your business on a smaller scale to test its viability, and prove the demand for your product or service. This will make you more attractive to funders when you are ready to scale up.
If you do decide to pursue a business loan, be sure you understand what lenders look for when it comes to your personal credit score, collateral requirements, and your own capital investment before you invest your own funds. Understand how your personal debt might impact your application and whether the earnings you are projecting from the business meet the requirements of the bank.
Do you understand the legal requirements?
Familiarize yourself with the legal obligations and the regulations that impact your industry. Obtaining the necessary licenses and permits may require additional education and certifications before you can start. Staying in compliance can mean additional administrative costs, but failing to comply can result in penalties that jeopardize the future of your business.
Do you have a business plan and a solid marketing strategy?
A well crafted business plan acts as a roadmap for your venture, guiding you through the initial stages and beyond. A well-thought-out business plan not only helps you stay focused but also serves as a crucial document when seeking financial support from investors or lenders.
An essential part of your plan is the marketing section that outlines the most efficient and cost effective way to get in front of your target market. Many startups don’t have a lot to invest in marketing, making this step especially crucial.
Do you have a support system?
Surround yourself with a network of mentors, advisors, and fellow entrepreneurs who can provide valuable guidance and support throughout your journey. Join local business communities, attend networking events, and leverage online platforms to connect with individuals who have experience in your industry. Their insights and perspectives can offer valuable lessons.
To build a strong and sustainable business that has the best chance of success means doing some work upfront. An SBDC advisor can help you navigate this process. In addition, Visit our YouTube Channel to watch pre-recorded webinars on all kinds of topics related to starting your own business, including our “Are You Ready Series”
Want to know how other small businesses got their start? Check out our client success stories!