Starting a Small Business?

[Matt193]

I've noticed that a few of the members here are entrepreneurs and small business owners and thought that you guys (and gals) may be able to give me some valuable insight when it comes to starting a small business.

I have been working in my field for the same semi successful small business for about 12 years. Over those 12 years, I feel that I have acquired a large enough knowledge base that would allow me to branch out on my own. I have been contemplating doing this for the last three years but I have been very uneasy about leaving a good and secure job to step into the unknown and face the very real fear of failure.

I have a few basic questions that some real world insight would go a long way to help me make a decision as to whether or not I want to pursue this idea any further.

They are:

How did you start your own business? Did you start with just an idea or did you gradually branch out on your own in a field that you have a good amount of experience in?

How long did it take to get your business from idea to opening?

How long did it take for your business to thrive or fail?

I would imagine that startup costs can be high. What were some unexpected costs that you ran into?

What about finances? To be honest, I don’t have much saved and I don’t really have much collateral. Is it realistic to think that I could get a loan in this economy?

On average, how many hours a week do you think you spend doing business related tasks?

Is small business accounting hard?

Do you have any regrets starting your own business and what, if anything would you have done differently?

The thing that has spurred me to start thinking of pursuing this a little more seriously is that a semi perfect building has come on the market in a fantastic location at a great price. Do you think it would be worth my time to go and take a look at it to see if it’s too good to be true, and if it is something that could work, start crunching some numbers and make a plan? Or, should I forget about this location and start on a smaller scale, say from my house, and go from there?

I realize that I am being very general about this and there are an infinite number of variables that can and will come into play. If it would help, I can be more specific about my ideas of what I would like to do, what my goals are, and supply some rough ideas as far as costs go. This business is not audio related.

Any advice would be greatly appreciated!

 

[amirm]

How did you start your own business? Did you start with just an idea or did you gradually branch out on your own in a field that you have a good amount of experience in?

I started my latest venture, Madrona, in an adjacent field to my core expertise. I was remodeling my home and got tired of dealing with salespeople who couldn't answer technical questions and gave me sales lines. After learning the foundation by designing my own systems, I started the company based on this differentiation (deep design/engineering expertise vs sales focus).

How long did it take to get your business from idea to opening?

I hit the ground running as we found another company that had just spun from another and bought them and their employees/business. The retail side though took about a year. Just to give you a sense, the construction was supposed to take 3 months and it took 4X more. The cost of the building was about 8X of what I had originally planned! I was going for Burger King and wound up being a high-end stake house . Similar thing happened to my home remodeling. So I have learned the hard way that whatever you budget and time wise, is probably way too low.

How long did it take for your business to thrive or fail?

We have really hit our stride after about two years. This is with us starting with customers and work on day one.

I would imagine that startup costs can be high. What were some unexpected costs that you ran into?

I gave some examples above. If you don't need a specialized place and can avoid the build out, then that saves you a ton of money. I was however determined to have a place where folks could come and touch equipment and experience what we did.

The other unexpected costs were:
1) Accounting and compliance with local laws/taxation. So many forms and payments to make when you run a business. The government and paperwork burden is exceptionally high. Don't do it right and you get hit with penalties and such.

2) Health Insurance. We pay almost $100K/year for a dozen or so employees. In its first year it went up 20% alone. We keep cutting out benefits and shopping for better plans just to keep it from going insanely high.

3) If you have employees, the moment they sit around you get killed on their expenses.

4) Paying for stupid mistakes. There will be many. In our big sign, we decided to just put our name and then put what we do on the windows. Well, that cost nearly $3,000!

What about finances? To be honest, I don’t have much saved and I don’t really have much collateral. Is it realistic to think that I could get a loan in this economy?

I went to get a business loan from my bank where I am a top customer. Well, they were being polite but otherwise, were going to laugh me out of their office . So I funded it myself. I suspect you will need to borrow against your personal assets, and not against the business. If you don't have much collateral, then the uncomfortable but probably the only viable option is to borrow from family.

On average, how many hours a week do you think you spend doing business related tasks?

You mean the work of running the business? That depends on the business. But plan for a lot! If you normally work 40 hours, I would think that you have to put in 60 hours now. You can hire people to do these things but then it will cost you.

Is small business accounting hard?

If you ask me, it is pain in the neck. Everyone gets quickbooks and then you get told 10 different ways to use it. The standard path is to take some lessons from a local tutor and then have an accounting firm hold your hands and do the harder things like tax filings.

Do you have any regrets starting your own business and what, if anything would you have done differently?

It is a tough question and I am not sure my answers work for you as Madrona is a fun/adjunct business for me. My "day job" if you will, is something else. Overall, if you can make it work, it is better than any job reporting to someone else. But with it, comes incredible amount of risk stress. Be sure to have a supportive and understanding family or it will cause problems there. You could easily wind up deep in a hole and lose more than the business since your personal goods will surely be collateral for any money you need.

The thing that has spurred me to start thinking of pursuing this a little more seriously is that a semi perfect building has come on the market in a fantastic location at a great price. Do you think it would be worth my time to go and take a look at it to see if it’s too good to be true, and if it is something that could work, start crunching some numbers and make a plan? Or, should I forget about this location and start on a smaller scale, say from my house, and go from there?

There are more great buys in real estate than you can count. I would not make that the reason to do something. For sure if you can start smaller from your home, I suggest doing that. Real estate market is not going anywhere in the next 2-3 years and you can always go buy something once you know you have a business that is working.

I realize that I am being very general about this and there are an infinite number of variables that can and will come into play. If it would help, I can be more specific about my ideas of what I would like to do, what my goals are, and supply some rough ideas as far as costs go. This business is not audio related.

Any advice would be greatly appreciated!

I think if you can be your own boss, it is great. Just remember that the odds are very much against you succeeding. Four out of five businesses fail. The way out of it is to see if you can start with something the day you go on your own. Putting up a sign and waiting for the first customer while the bills pile up can be painful. Hope you can make the equation work!

 

[JackD201]

Hi Matt,

A lot of what you ask will depend heavily on what type of business you plan to put up. Such as wether it is a service, manufacturing or trading business. Registration comes in next, choosing to be a single proprietorship, partnership or a corporation. Specific industries may need specific permits and licenses to go with the usual. Sorry I can't be specific as I am in another country and these differ from State to State in your case. Your locality may have existing incentives for certain industries as well, so that would be nice to know.

Before any of that though, my advice is to know your market. Regardless of your businesses' "product", know who your potential customers are, how many they are, what's important to them and how much they are paying for competing "products". This will give you an idea of your potential cash inflows. Knowing what is important to them will give you an idea about how you can get them to switch to you. Knowing your competition will give you an idea as to how much you'll need to overcome entry barriers.

Next would be assessing your capabilities to deliver given start up constraints. If you've got lots of cash you could blitz the competition, if not which is usually the case, you start by taking small but hopefully increasing bites of marketshare.

Any new business will be working on negative cash flow for extended periods of time. Begin at the beginning. Determine how much you need for the start up costs like rental deposits, registration, permits, capital equipment, office equipment and furniture, signage, initial inventory (if trading), etc. Determine your fixed operating costs, rent, salaries, amortization payments on loans, telecom, electricity, water, etc. and project these over a three year period at least. Then there are program costs like marketing programs that can accelerate your growth which will have a schedule as well. Keep in mind that there are only two sources to pay for these, what you put in (loaned or personal equity) or inflows. Going to the next phase is knowing your variable costs, those that are directly related to each unit of the product or deliverable. Materials, transportation costs, packaging, outsourced labor, import duties, etc. There is a saying in business that the only thing you can control is your own costs. Live by these words most especially in a sluggish economy. Every cent saved is a cent earned.

After all of this, you should have a general idea of what you might stand to make and if it is worth it. Small business accounting isn't hard,but can be tedious depending on the number of entries your business might generate on a daily basis.

For me, the most gratifying feeling I've gotten is from creating jobs and seeing my people prosper. The good ones have become like family the bad well, get axed. You will be doing most of the work yourself at the beginning until you can transition to professional management. In this time period it will be a 24/7 job. You know what they say though, if you love what you do, it isn't work.

Good luck Matt!

 

[NorthStar]

...And always have a backup plan. :b

 

[Matt193]

Excellent posts, guys! I really appreciate the input and it gives me a lot of information to digest.

I think at this point I am going to take some time to evaluate what my goals are in both the short and long term and go from there.

 

[Matt193]

Great advice, Tom. I will look into that a little further.

The business I was/am planning on opening is a powersport repair and rental shop, so it's really not your typical business with a lot of whole goods to sell. I was planning to sell some parts and accessories but I would focus mostly on the service end of the business. I would be the sole employee.

The area where I currently live (and own a house) I feel is saturated with these types of businesses and I think it would be tough opening something successful in this area. Instead, I have focused on a very small unincorporated town about 45 miles up the road from my house that is a tourist hotspot for everything outdoors but is lacking any kind of rental and repair shop. The one repair shop that is in town is constantly swamped with work and has a extremely hard time keeping up.

This brings up a interesting quandary. Do I make an investment to start something from my house and add to my customer base in a already saturated and competitive area or do I take a plunge into the uncertainty of starting something new in a area that in my eyes has good possibility for real growth but has logistical problems with my current residence and customer base? It is not uncommon for people in this area to commute 60+ miles each way to their jobs, but it can become very tedious especially during our long and snowy winters here.

I do have a few customers in my prospective area that I have been working with for the past few years but it has hardly been a winning proposition when travel time and convenience come into play. For each service call I can figure on spending at least half a day between travel and running for parts. So far I have been mostly working with my current clientele to build my reputation and get my feet wet.

 

[JackD201]

Hi Matt,

What's powersports? Snow Mobiles, ATVs, etc?

 

[Matt193]

Hi Matt,

What's powersports? Snow Mobiles, ATVs, etc?

Yes. There can be pretty good money in renting out snowmobiles, ATVs, and boats as long as someone doesn't wreck it and not pay for the damages. Unfortunately, that has become a trend that is far too common these days.

 

[JackD201]

If you're doing parts and repairs and aren't the rental company, that's a good thing right?

You might want to add time and motion (your total number of possible work hours as opposed to just your labor charge on the receipt) vs. seasonality (demand spikes) if you are thinking of renting a space elsewhere. That will give you an idea of opportunity losses and help you to decide when and how much part time help you should get so you can devote more time on actually fixing the machines, which pays, instead of running around, which eats up the billable hours.

 

[flez007]

I started the other way around, having my own business for almost a decade, and then as an employee (a decade as well) - main thing to be an entrepeneur is having the passion to lead, innovate and going forward, particullary under stresfull or demanding situations where that extra-stamina is needed.

It always helped me back then to have a clear and solid business plan, three scenarios and an objective SWOT, finances were run mainly under a cash-basis scenario ( remember the say "cash is king"? ) and re-think your business assumptions every 6 months to fine tune your goals.

Each customer will turn into your boss, differentiate from competition and enjoy the process!