When Lisa Hennessy’s pet collie was diagnosed with a degenerative disease, she prepared a special, home-made diet for him, and discovered all her dogs loved it. So when she lost her job as a manager for an automotive parts distributor a few years later, she saw an opportunity to launch Your Pet Chef, a company that makes personalised dog food.
“We now make food for over 125 dogs and help them eat healthier every day,” said Hennessy, 52, who lives in Chicago in the US.
While Hennessy enjoys her new venture, which launched in 2012, she also faces a common problem among new business-owners: dwindling funds. Three years in, the business is self-sustaining but still doesn’t pay her a salary. “Now I’m trying to find investors so I can keep doing it and not drive for Uber [to supplement income],” she said.
It takes determination, experience, research, timing and hard work to start a business. And, many fail. But that doesn’t stop people from trying. In the US, 476,000 new businesses launched each month in 2013, according to the Kauffman Index of Entrepreneurial Activity. That same year, more than half a million new businesses were started in the UK, according to StartUp Britain. In Australia, about 300,000 new small businesses launch each year, according to the Reserve Bank of Australia.
But after five years, about half of all new businesses have failed, according to the Small Business Administration in the US. In Australia, about 44 businesses close every day.
“Everybody starting a business is very optimistic,” said Steve Bloom, a business mentor with SCORE, a US nonprofit dedicated to helping small businesses. “But historically the revenues are half and the expenses are double [expectations], and they get themselves into trouble.”
Here are some tips on launching your venture successfully:
What it will take: You’ll need more than a great idea. “Anyone can start a business, but it requires a ton of work and self-discipline,” said Shannon Lee Simmons, a financial planner with Simmons Financial Planning in Toronto. “Those who are self-starters will potentially find it easier to avoid the temptation of binge watching Netflix instead of working on their own business.”
It also helps to have knowledge and experience about the business you’re entering. “If you haven’t been in it, you don’t know the questions to ask,” Bloom said. Industry know-how will help you avoid pitfalls and understand where opportunities are, the competition and how you can best succeed.
“I’ve been successful in some ventures I knew nothing about, but it probably cost me two to three times more to get to profitability than it would have if I’d known something about the business,” Bloom said.
And of course, you’ll need financial resources and a business plan.
How long you need to prepare: You will need at least six to 12 months to research, raise funds and acquire any licenses or credentials you might need. “This will be different for different people in different industries,” said Alan Todd, director of Cambridge Business Advisors in the UK.
Do it now: Make a business plan. Consult an expert or look online for a business plan template that suits your type of venture and set a budget. “I can share stories of failures that should never have happened if the proper steps and due diligence had occurred in the beginning stages,” Bloom said. “Your budget isn’t a budget from day one, it’s a budget of all expenses necessary to get to day one. What is it going to cost you before you get to the break-even point?” Whatever that number is, double it and you might be close, he said.
Choose a business structure. The options available will depend on your country and location. And, the type of structure you choose will affect your personal liability and will have tax implications, among other things. Many small business sites, such as Startups.co.uk or SBA.gov in the US, can help guide you. Online companies such as LegalZoom in the US can help you set up your company, if needed, and local government can advise you on any permits and licenses you may need.
Talk to your bank. Think about applying for a line of credit before you quit your job. “Financial institutions aren’t too crazy about those who are self-employed, so if you have employment now, lock down that line of credit, just in case,” Simmons said.
Investigate whether your business is eligible for any grants. Check small business sites for more information, such as this government site on grants and assistance in Australia.
Dabble first. Don’t be the person who leaves your job to make gourmet cookies full-time — only to discover that you can’t stand doing it for a living. Try dabbling in your chosen business on the side to get a feel for the type of venture you're hoping to launch. If you can, consider trying to shadow or work with someone who is already doing it, or joining industry associations to learn more about it before giving up the day job.
“Are people willing to pay for your good or service?” Simmons said. “Offer it at a slightly discounted price and explain to people that you’re testing it out and that their feedback is important. You will learn so much from this.”
Formalise all agreements. Even if you’re working with close friends, don’t move forward without putting everything in writing. “I know two former friends who are still killing each other financially years later over an unwritten agreement, remembered differently by each,” said Martin Zwilling in an article on his US site, StartupProfessionals.com. “You may all be friends, or spouses, today, but things do change quickly in the stress of a growing company.”
Do it later: Track your progress. At regular intervals you should be taking stock and figuring out where you should make changes. One of the mistakes new business owners make is not taking timely action when things aren’t going according to plan, according to Todd. You might have to change course multiple times.
Get some tax help. “When you earn money outside of regular employment, it’s taxable,” Simmons said. “Get tax advice and learn about what your responsibilities are for taxes and book keeping.”
Do it smarter: Get a mentor. Going out on your own can get lonely, and it’s easy for motivation to wane. “Most people who start a business would benefit from a coach or mentor to keep them on track,” Todd said.
Tap your local resources. Many small business development associations and local Chambers of Commerce offer courses on everything from marketing and software to bookkeeping, usually for a nominal fee. You may also find a wealth of information on their websites. For instance, the Small Business Development Centers of Northern California offers free mentoring for nearby residents, and people in Western Australia have access to the Small Business Development Corporation.