Thinking of Starting a Business

The current economic climate in the U.S. is in a period of transition. Many industries have changed considerably, employing workers in what is almost a contract system. Some recent college graduates are finding they must work multiple jobs to barely make ends meet. As a result, some are choosing to open businesses that take advantage of trends in demand for products and services that don’t adhere to old ideas of a business/employee relationship. For example, there has been a marked rise in the number of new businesses that leverage distributed workforces.

What do you need to consider when opening a new business? It almost always comes down to three questions.

Are you committed?

This is the main question. No matter what kind of capital or funding you have, no matter how good you think your idea is, if you aren’t committed to seeing your fledgling business through thick and thin, your chances of succeeding diminish. Most successful business owners have this demeanor. And, fortunately, this attitude can be learned. Consider talking with experts and professionals with experience in launching businesses to get a leg up.

Do you know what you don’t know?

There are some aspects of running a company you will not be good at. As one successful television personality once quipped, “Just because you love doing something doesn’t mean you can’t be bad at it.” After confirming that you are committed to sticking to your goals, knowing what you aren’t good at is the next most important piece in the puzzle. Although this may be a humbling experience, knowing the areas you need to improve on is valuable.

After you have identified your weak points in running a business, your next step is to find someone who is good at doing what you aren’t. You need to get this resource onboard helping you. A good example is if you find that you love selling and marketing but you couldn’t balance a company financial ledger if your life depended on it. You had better get someone who can and then listen to them. Determine what you need them to do and pay them to do it. Be a thought leader where you can and award that title to others in their specialty.

If you can’t delegate these responsibilities, you will likely make a mistake that can prevent you from achieving true success.

How much capital are you going to need?

I know a business consultant who works for a company that specializes in rescuing medium-sized companies in distress. I asked her what, in her experience, was the root of the problem her clients were experiencing. Without flinching, she said, “Undercapitalization.” It is common to overestimate how much you are going to make and underestimate how much it will cost. “So how much is enough,” I asked. “Ideally, a company, especially a startup, should have enough in reserve to pay salaries for three years with zero revenue.” Although no one can know for sure exactly how much is right for every company her confidence in her answer illustrates how important a strong financial base is.

How can you get your hands on that level of financial resources? It is important to understand that however you get funding, it won’t be by accident. You will need to plan and set goals for it. If an associate has experience in developing business plans, use them. If not hire an expert, a professional who has a proven track record to help you put together a solid business plan. But do it. If you don’t have a map, a plan, and clear, measurable goals, you will be at a distinct disadvantage. Just like managing your personal life is better if you have a written plan, a blueprint for your financial future, a business plan acts a blueprint for the success of your new business.

There are exceptions to these rules, but overall they have been a strong indicator of success in the past. Even in uncertain climates, a business will have a far greater chance of success with a plan.

United Capital Financial Advisers, LLC (“United Capital”) provides financial life management and makes recommendations based on the specific needs and circumstances of each client. For clients with managed accounts, United Capital has discretionary authority over investment decisions. Investing involves risk and clients should carefully consider their own investment objectives and never rely on any single chart, graph or marketing piece to make decisions. The information contained in this blog post is intended for information only, is not a recommendation to buy or sell any securities, and should not be considered investment advice.  The information discussed or opinions provided are those of the presenter and do not necessarily reflect the opinions of the United Capital, its affiliates, subsidiaries or the management thereof.   Please contact your financial adviser with questions about your specific needs and circumstances.