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Things to Keep in Mind When Starting a Business

While the internet makes it possible to conduct research without leaving your desk, Googling isn’t enough to research advice for business startups. Talk to real people who are in the business you want to go into. Talk to people who might be your future customers and get their opinions and views. Test your ideas as much as possible.

Using the founders of Tender Greens as an example of a startup company who did it the right way, spending two years in the development process allowed for a unique opportunity to try their ideas. They started their research process with the public that would eventually become their clients. “During that time, we were testing recipes and refining our business,” says one of the founders, Oberholtzer. “Because we were already working in the restaurant industry, we were able to actually test some of our recipes on customers at the resort, for two or three times the price we planned to charge at our own restaurant.”

Business Startups

3 Tips for Business Startups

  1. Know your market. Business startups need to ask the right questions, perform research and do your best to gain experience that will help you learn your market inside and out. That includes getting to know the folks that will be your key distributors, suppliers, and let’s not forget your competitors and customers. “You also have to really understand the critical metrics of your market, whether it’s as simple as sales per square foot and inventory turnover, or an esoteric measure in a highly specialized niche market, another founder of Tender Greens, Bachenheimer says.

The Tender Greens partners spent several years working in the restaurant industry in California before they launched their business. That involvement allowed them to perfect their craft, and also develop longtime relationships with farmers, food marketers/bloggers, and other suppliers that they depended on to help their business succeed. In fact, the restaurant’s greens and lettuce supplier, Scarborough Farms, is now a partner and investor in their company. Talk about best case scenario when building a long-lasting relationship with a supplier!

  1. Understand your future customer. In mostly all business plans, the portrayal of who your potential customers will be and how they make purchasing decisions gets much less attention than operational details. Items like financing, sourcing and technology would fall under this category. But in the end, it will be your clientele who determines your triumph or failure.

“You need to know who they are going to be, what drives their purchase decisions, what you can do that will differentiate your offering from that of competitors and how you can convince them of the value of your offer,” says a Blue Canyon Partner. “And the answers to those questions shouldn’t be off-the-cuff guesses. They need to be well-grounded in reality and market testing.”

Before the launch of Tender Greens, the partners spent years producing and serving the kinds of plates they wanted to serve one day but at a more affordable price. That experience, is what helped them gain an understanding of the kinds of farmers-market-inspired plates that would please their local customers. This type of strategic thinking for business startups is a healthy way to get you started.

Knowing your future customers can be the variance between changing a failed idea or product vs. finding out mid-production. The former is a much simpler way to find out what will work and is more likely to be fruitful. Once you launch the business, it’s likely that you will be expended with operating specifics, often with very little time to ponder and even less to make changes. Implementing the correct plan from the very beginning is far more likely to produce success than figuring out your plan on the fly.

  1. Establish your monies. “Cash is king, so you must take steps to adequately capitalize the business and secure ready sources of capital for growth,” says Steve Henley, senior managing director and national tax practice leader at Cbiz MHM, an accounting and management service provider. “A good cash-forecasting tool is critical so that you can plan for the sources and uses of cash on a rolling basis.”

Although some startup companies depend on owners’ capital, there are business owners that look to investors. The owners of Tender Greens raised capital from family members, friends, and colleagues.

To figure out how much cash you’ll need, build a cash-flow statement that will estimate your income and expenses. Be sure to include suitable expense levels by studying concrete business costs rather than approximating based on your personal knowledge as a retail consumer. For example, you can host your website with unlimited bandwidth for a low monthly fee, rather than managing a commercial website that may cost hundreds or even thousands of dollars each month.

Business startups should try to limit their necessity for cash by dodging long-term commitments like long-term leases, until absolutely necessary. There will be a substantial amount of hesitation during the first few years of being in business, so try to be as conservative as possible when making commitments for resources that may not be needed just yet.

business structure

Best Structure for Business Startups

From the start, it’s vital to select the proper corporate structure for your business, which will have legal and tax ramifications. The structure you select could also safeguard the victory of future decisions, like raising capital or leaving the business.

Most startup companies should perhaps function as either an S Corporation or an LLC, because starting with one of those structure types and then converting to a C Corporation later on is much easier than doing it the other way around. To find out which structure will best suit your business, here are four things to consider.

  1. Liability limitations: For C Corps, S Corps and LLCs, the owners’ personal liability is generally limited to the amounts invested and loaned. There is unlimited liability for general partners.

  2. Startup losses: If your company is an S Corp or an LLC, also known as “pass-through” structures (because tax liabilities and benefits “pass through” to the owners’ personal tax return), you can usually write off startup costs as losses on your personal tax return. In a C Corp, startup costs producing tax losses can only be utilized at the business level and offer no future benefit if the new company has future tax profits.

  3. Double taxation: “Generally, double taxation of earnings is avoided for pass-through entities, but not for C Corporations,” Henley says.

  4. Capital-raising plans: If you plan to take your business public or fundraise through private equity, these plans may require that the company not be a pass-through structure.

Don’t be scared off by all the jargon of the business startups. If you’re passionate about what you want to do, then use this article as a reference guide to understand the initial steps you should take before approaching lenders. Once you have the vision and the startup money, you’re well on your way to making your dreams come true.

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