Contributors: David Hu & Maggie Chen
Starting a business is a daunting task. Just the thought of going to bank after bank, requesting loan after loan and pursuing an endless list of investors may send shivers down your spine. But we’re here to tell you it’s not as bad as you think. Starting your own successful business is a straightforward process and is more intuitive than you might think. Here are 6 quick tips on how you could turn your business idea into a reality.
Sure. You have an idea, and you’re ready to turn that idea into a reality and begin to start your entrepreneurial journey. However, what most business owners fail to do is prepare themselves for that.
Before you dive nose deep into this venture, you want to make sure that your business will not only have the tools and conditions to succeed, but also be able to tackle any challenges that follow with the market or your company. Some questions you may ask yourself are: What are barriers of entry to this industry? Is this industry profitable? How can I either innovate and differentiate myself from the competition? And more.
From my summer experience as a business consultant, being prepared and doing your market research is absolutely essential. From what I have seen, successful businesses always conduct thorough and rigorous research and preparation in order to ensure that they can turn a profit in a reasonable duration of time. The companies that I have worked with are all extremely competent and have done their research. All questions that I have asked, and potential questions investors may ask, have all been answered with precision, detail and confidence. Thus, being prepared can help you come off as very knowledgeable and help you prepare for any obstacles down the road. For example, while doing my reports, I asked clients questions regarding their products compared to other industry competitors, technical specifications on company products, and more. All questions were answered very well, leading me to have confidence in the client. Below are some sources in which such information can be found.
A lot of good places to find valuable data and information for your research are:
- News sources like Bloomberg News
- Tools like Google Trends
- Market research sites like Statista
- Government Agency postings
- Any other credible sites relating to your respective industry.
Always be sure you’re getting the most recent and credible information as possible.
Plan it out
After you’ve done all your research and decided to yourself that you will be moving forward with your idea, it’s time to make a plan. You hear it all the time from investors: “What’s your business plan like?”. A business plan not only lays out your company’s mission statement, goals, and financials, but also serves to show investors that you are a capable person. A business plan should also showcase off the best and most notable aspects of your company, and symbolizes to investors that you know what you’re doing and you have the ambition to do it. Ultimately, your business plan should be the selling point of your company, and how you prepare the plan reflects a lot on how to people view your company. With this being said, your plan should be short, sweet, straight to the point, and informative.
I’ve read some business plans of my own during my time an intern, and the ones that catch my attention the most are the ones that I thoroughly enjoy reading. I am not an expert in every business field, so business plans that can give me a quick rundown on the current economic state of their respective field while showing me their keys to success are the ones that I enjoy reading the most. For example, a recent pitch deck I got the chance to look at was very enjoyable to read. The pitch itself was about 20 pages long, not too long and not too short. I was given a quick market analysis of their business field which included industry growth, product applications, and major players within the industry. Further reading lead me to a presentation of their product and what innovations they designed to separate themselves from the competition, showing me that the company had the capability to innovate and think creatively. Last but not least, I was introduced to the team behind the company, which allowed me to learn more about everyone’s background as well familiarize myself more with the people behind the product. This business plan was perfect to me, as it kept my attention throughout all 20 slides and didn’t bore me at all. Furthermore, this pitch deck was interesting and educational and did a good job convincing me that they were qualified. Next up, I was able to examine a short-term forecast of the company’s financials. This was a quick 4-year projection that included projected cash flows, projected profit/loss, a balance sheet, and more. Each projection was made delicately and was very easy to comprehend. Additionally, it included lots of numbers like profit margins, EBIT%, and more, making the projections very easy to summarize and can allow someone from not even an accounting/finance background to understand easily. While I may be describing how easy and intuitive the projections are, it can be in-depth at times too. When doing these projections be sure to include detail as well. For example, including cash outflows and what exactly the expenditures are help people see what you prioritize and where you could improve on. Finally, something that I found extremely helpful is graphs. Making a graph as simple as a year-on-year comparison of your assets and liabilities allows the reader to look at it and immediately be able to make quick, general assumptions about the company financials’. In the end, making financial projections are hard. You want to keep them simple and easy to understand while simultaneously adding detail. Ultimately, I found the pitch deck and financial projections to be very easy to follow and enjoyable to read.
Your business plan should include things like:
- A mission statement
- A quick rundown of your business
- Market competition
- Your team
- SWOT Analysis
- Financial analysis
- Cash flow projections
- Projected profit/loss
- Breakeven Analysis
- Sensitivity Analysis
Choosing a Capital Structure
Capital Structure is something that may sound very intimidating at first, but it’s actually a very simple concept. You want to decide how much equity financing and debt financing you want to use for your company. In layman’s terms, you are going to decide how much of your own money you will be investing into this project and how much money you will be borrowing. Nowadays, it’s very common to have a mixture of the two. However, many startup owners have turned to more debt funding than equity. Reasons behind this is that sinking your own personal savings into an endeavor like a new company is incredibly risky, as it may result in long-term financial struggles. Furthermore, seeking out investors give the business owners more financing to use as well as offering a reasonable terms of repayment that give the business owners some more room to breathe. Ultimately, in the end, things like capital structure is different for each person and business. This step is the most subjective step out of all 6. Determining how you want to fund your company is completely dependent on yourself and your company. Below is a list of things to consider before making a concrete decision. Bear in mind that loan officers, professional consultants, and other financial officers are definitely more than capable to help you out with this step.
In order for you to determine what structure is best for you, consider the following:
- Your personal finances
- Your company’s short term and long term financial needs
- Your investors/loaners interest rates
- What types of investors that are available for you
- Risks facing your firm’s ability to repay debt
Choosing a capital structure isn’t something that will just affect your company’s financial future, but also your personal future too.
Finding investors and raising capital
For many startup business owners, this step Is the hardest step. After all, it’s not easy to get people to give you their money. However, it may not be as tricky as people make it out to be. After your making your business plan and determining your capital structure, you should know by now exactly how much money you are asking for from investors. In reality, this step is simply just all of the previous steps combined. Investors want to see that you’ve done your research and have credible projections that lead to them getting a worthwhile return on investment. However, what some startup owners fail to understand is that investors are not only investing in your company, but they are investing in you as well. Investors want to make sure that their business owners are humble, realistic and friendly. Thus, effectively communicating and being friendly to your investors may have the same impact on having a credible company idea. Some common things I usually find myself doing, is putting myself in the investors’ shoes. A lot of times when I’m reading through company business proposals I like to think of myself as an investor that’s being presented to. There are common criteria I find myself judging upon and questions I find myself asking. Is this company viable given current macroeconomic circumstances? Does the company have viable financial projections for both long-term and short-term? Do I see the ability in this team and product to differentiate themselves and think out-of-the-box? Is this company valuing their assets properly and, or asking for an appropriate amount of capital at a reasonable repayment period? Of course there are more questions but these are the key ones that I often find myself asking. A good practice to do is to either put yourself in an objective point of view of the investor or ask someone else to give you their opinion on your proposal.
This is a list of possible places to find investors for your startup:
- Business/entrepreneurial schools
- Online (LinkedIn, Investmentnetwork, Gust, AngelList, Fundersnetwork, Other crowdfunding sites
- Friends and family
- Commercial banks
- Startup business development centres
Networking is key to finding investors. Attending networking events and fundraising events may allow more opportunities to meet potential investors and broaden your network.
Make sure to also know your different types of investors. For example, if you just start your business you may look for angel investors, but once you get the ball rolling you start looking at venture capitalists. Identifying what type of investors, you want to pursue is key, and failing to do so may result in looking unprepared.
Follow the plan
After completing all of this, you may be happy that you now have an idea and funding to slowly start turning that idea into a reality. However, it’s easy to get ahead of yourself. What you want to keep in mind that at the end of the day, one of, if not, your biggest goals is to payback your investors. Furthermore, your investors gave you the funding because they believed in you and your plan. It’s important to stay on top of that plan and make sure that you always follow it. Sudden changes in plans almost never end well and will definitely not sit well with investors. I have plenty of colleagues who have tried to start businesses of their own. While they manage to get their feet off the ground, many of them fall back down because they don’t follow the initial plan they laid out for themselves. Morale of the story here is that to not get too ahead of yourself and always remember to follow the plan that helped turn your idea into a reality.
Don’t Give Up
In the end, starting your own business is not an easy task. It’s easy to get frustrated with the whole process and contemplate giving up. However, we’re here to tell you don’t give up. Starting a business is frustrating but in the end it's more than rewarding enough. Forbes reported that 90% of startups fail, and a big reason of that is giving up too early. Many startups don’t turn a profit until later on down the road, and a big part of starting a business is going through financial adversity. If you are able to maintain a consistent business practice and have the patience to push through, you will eventually turn a profit. On top of that, you’re never alone in a task like this. Professional business consultants are always available and are able to help you with their years of expertise in this field. So whenever you’re feeling frustrated with your new business, always remember to keep pushing through and exhaust all your resources, and remember that you’re never alone on this journey.
About the authors:
Maggie Chen, Certified Management Consultant; Certified Mergers & Acquisitions; Founder/CEO at CTL Business Group – Canada, USA & Taiwan
David Hu, Management Consultant Summer Internship: University of Toronto St.George Financial Mathematics Specialist with Statistics Minor
Buying/Selling Business; Mergers & Acquisitions; Business Valuations; Business Consultations; Corporate Finance; Investment; Business Training
Telephone: 1-800-301-6817; 403-9982436; 626-8176526; 02-27056845
CTL Business Group Canada, USA and Taiwan: www.ctlinternational.ca
--This post was first published here.