First Steps to Financially Savvy Entrepreneurship: Part One
Feb. 10, 2020
“What would you do if you knew you could not fail?” (Robert H. Schuller)
Do you lie awake at night wondering whether you have what it takes to be an entrepreneur? Have you thought about the pros and cons of being your own boss? Do you find yourself scribbling financial figures on weekends deciding whether to turn your hobby into a business? You’re not alone. Chattanooga’s Business Development Center/INCubator program has graduated an average of 19 companies per year over the past 29 years. HR Biz was one of their 2016 graduates!
Small Business Development Centers (SBDCs) provide economical resources to new entrepreneurs, such as: startup support, business mentoring, free seminars and meeting rooms. The Chattanooga Chamber INCubator provides reduced rate rents for startups, an entrepreneurial environment and an official business address as part of a three-year startup development program.
Knowing that you have a local support network available to you, how do you start your startup? Here’s part one of our three-part series on financial tips for companies starting from square one.
Where to begin:
1) Draft a business plan for your company. It’s like writing an academic paper – collect all your brainstorming in one place, then communicate it as concisely as possible, following a recommended or required format of presenting your points.
The Small Business Adiministration offers 10 steps to guide you through creating a business plan with tips for each area. You can also attend a free workshop at Chattanooga’s SBDC called “Demystify Business Plan Writing” to get you going in the right direction.
2) Research everything about your idea and talk to others in the industry. You must know your competition, your market and its ups and downs and all of the players. Be open to tweaking your plan if market research shows it may not be easy to break into. Research trends in the industry. I often find that many trends start on the West coast before migrating to the East coast and the South.
3) Focus on the financial section of your business plan. You will want to construct a five-year financial projection. The three most common reports you’ll want to create for each projected year are:
a) Balance Sheet (net worth at a particular point in time),
b) Profit and Loss (income and expenses over a period of time) and your
c) Cash Flow (actual cash or cash equivalent onhand).
Remember that these are estimates, unless you have real sample data you can use from financial transactions that have already taken place.
4) How will you fund it? Can you bootstrap your business like I did? Or do you need to seek a small business loan? Keep your financial projections moderate. Assume that you will not be drawing a paycheck for the first year of business. (If you get to bring home money – GREAT!) In the second year, set your goal to be able to pay yourself a little something and then in year three, depending upon your business model, you should create your plan so that you are self-sufficient.
Be realistic about your expectations regarding time commitment and finances. Part of this is knowing what to require of yourself to get where you want to be financially. Discovering you’ve quit a 40-hour per week job to work 60-75 hours each week for little to no pay for the first few years might be a surprising revelation. Gary Vaynerchuck says founders should spend 18+ hours per day on their business during the first year. While that may seem a little excessive – I have experienced these long work days and long work weeks when my business scaled faster than I could keep up with.
Being realistic also means understanding the difference between needs and wants. For example, you may want to have an external office instead of working out of a spare bedroom, but you may need to stay put to minimize expense for a time. Check out these tips for staying motivated while working from home.
Look for our next article on choosing a bookkeeping platform and what to include in your Chart of Accounts. We’ll also define common terms. Our goal is your success!
HR Business Solutions, LLC (HR Biz), is an INCubator graduate. Founder and President, Lynn Talbott, MBA, was awarded the TSBDC’s Small Business Person of the Year in 2015. Her success story is featured on the SBA’s website for Tennessee. She and her team of QuickBooks ProAdvisors provide full-charge bookkeeping services as well as QuickBooks training for Desktop and Online versions. Need a consult? Call 423.668.6020 or e-mail: firstname.lastname@example.org.