| Have a Solid Plan - Then Change It | | | | expanding your business, the numbers are now based |
| Most business start-up stories say that you have to | | | | not on focus groups or surveys but on real-world |
| have a business plan. And you do. But that's not the | | | | experience." |
| beginning and end of figuring out your start-up costs. | | | | Calculate Prices and Time Correctly |
| Jeff Shuman, who directs entrepreneurial studies at | | | | Calculating your initial cash flow is part of figuring out |
| Bentley College, says, "The conventional wisdom is | | | | your start-up costs. It's an area where businesses are |
| that an entrepreneur sees an opportunity, comes up | | | | sometimes less optimistic than they should be. "Small |
| with a Small business plan to capitalise on it, | | | | business owners may under-price their product or |
| determines the capital that needs to be raised, raises | | | | service, thinking they have to come in at the lowest |
| the capital and then applies it to building the business | | | | price point to compete," says Barbara Bird, who chairs |
| described in the business plan." | | | | the business management program at an American |
| There's one major problem with that model, says | | | | university. "They don't necessarily need to do that." |
| Shuman. It all hinges on getting the business right the | | | | Correctly Estimate Your Start-up Time |
| first time, and that doesn't often happen. "In reality, it's | | | | Yes, when beginning a business, time can be money. |
| likely that some of your initial assumptions are pretty | | | | Let's say you're going to have fixed costs such as a |
| good and others aren't going to be worth the paper | | | | monthly lease. If you have to make improvements to a |
| they're written on," he says. | | | | space before you can actually open for business, |
| Shuman and others say that figuring out your small | | | | those fixed costs are going to be additional start-up |
| business startup costs means regularly reviewing your | | | | costs until you can actually open for business. I've |
| assumptions and changing your initial model. Writing a | | | | watched many entrepreneurs draw up a timeline for |
| plan is good because it forces you to write down | | | | their ventures and get tripped up on the safety and |
| everything you are going to need to start your | | | | inspection requirements imposed by local agencies. |
| business. | | | | For that reason, I think one of the first places a |
| But that initial plan is likely to change repeatedly as you | | | | prospective new business owner should go is to the |
| learn new things and incorporate them into the plan. | | | | local government planning or license department. |
| Be Willing to Pull Back | | | | Construction permits and inspections can push a |
| It's tempting to add up everything you need for the | | | | prospective opening date back by months. If you fail to |
| full-fledged business you imagine, and decide it’s | | | | take into account the cost of this time, you could be |
| what you need to start out. | | | | short of working capital right at the start. |
| But pulling back and looking for a smaller model can | | | | Be Realistic About the Cost of Money |
| give you a way to get started while also saving | | | | Many small business entrepreneur finance their |
| money. Shuman uses the example of someone who | | | | ventures by running up big balances on their personal |
| calculates the total cost of starting a retail business in | | | | credit cards. Others tap the equity in their homes. |
| a local shopping centre. | | | | But self-financing isn't a practical option for larger |
| "You could start that way and write a business plan | | | | ventures. Tom Emerson, who directs the |
| based on that amount," he says. "But maybe you'd be | | | | entrepreneurship centre at Carnegie Mellon University |
| better off renting a stand and testing what the | | | | in Pittsburgh, says start-ups should figure in the cost of |
| demand is for your products at that location." | | | | capital when determining initial expenses and cash |
| This consumer testing reduces your initial start-up | | | | flow. "The cost is usually based on what the interest |
| costs. The result is that the initial cycle of your | | | | would be, were that cash invested in something with |
| business is dedicated not so much to generating profits | | | | similar risk on the market" Emerson says. "It's usually a |
| as to generating information. "With this, you can fund | | | | figure that is a few percentage points or more above |
| your business on a cycle-by-cycle basis," Shuman | | | | the prime rate. |
| says. "When you go for the second cycle and for | | | | |