Entrepreneur Resources

Common Mistakes

By Steve Densley, president, Provo/Orem Chamber of Commerce

J. Willard Marriott once told me that if I wanted to start a business, I should find the best business in that industry and go to work for them. Once I had learned everything that I could, I should then start my own. What he was suggesting was that I should have a great knowledge about the industry I was about to enter.

The following are the most common mistakes that people make when starting a business:

· Inadequate front end planning (no business plan, feasibility study, or cash flow projections). You need sufficient capital for both the startup and the backup.

· Thinking that you can achieve instant success without spending the time and having the long commitment.

· Failure to research the market. Know the market and your competition before you start.

· Underestimating the competition. Whether they're big or small, understand that your competition sees you as another company trying to take money out of their pockets.

· Trying to do everything alone. Work with a banker, accountant and a lawyer.

· Hiring inexperienced people to save money particularly in the area of marketing and sales.

· Inadequate records, financial knowledge and not watching cash flow. Just because you're making a profit doesn't mean you can pay all the bills.

· The false idea that the world will come to you. Your product is not going to sell itself. Never underestimate the power of advertising.

· Assuming that all you need is just a good idea. You need fortitude, financial and moral backing, as well as timing, organization and a bit of luck to be successful.

Small business dominates the nation and certainly is the driving force of the economy in Utah Valley. I love to see people take on the challenge of business ownership and independence. I hate to see people take on that challenge ill prepared to succeed. Don't get caught saying to yourself, "if I had only known."

Steve Densley can be reached by email at: info@thechamber.org

Business Start-Up Checklist

The following checklist shows the steps which should be taken when starting a new business. It is only a guide. No final conclusions should be reached by completing it without further review and consultation.

Before Start-Up

· Choose management advisors: accountant, attorney, and banker.

· Develop a business plan, including cash flow projections.

· Using the business plan, establish a relationship with a banker. Possible bank services include:

o Credit card merchant account

o Business checking account

o Working capital loan

o Equipment loan

o Lock-box services

· Select the legal entity at yearend.

· Find a location for the business.

· Negotiate a lease.

· Design the layout of the facility.

· Prepare all the necessary legal documents, as applicable:

· Partnership agreement

· Articles of incorporation and first organizational minutes

· Bylaws

· Federal identification number (SS-4)

· State and local license application

· Sales tax identification number

· State unemployment number

· Industry-specific issue

· Obtain quotes for and then order office furnishings and equipment.

· Order office supplies.

· Order business cards and business stationary.

· Order office telephone number.

· Purchase adequate insurance:

· Health

· Malpractice

· Liability

· Worker's compensation

· Life

· Fidelity bond

· Computer and equipment

· Umbrella

· Employee dishonesty

· Register the business with local and state authorities.

Start-Up

· Establish prices for your goods and services.

· Promote the business' opening through:

· Press releases to local and national media

· Advertising

· Direct-mail announcement

· Other

(This depends on the target market defined in the business plan. For example, a restaurant or store might send special coupons for discounts to local residents or present a grand opening event and send invitations to prospective customers, or a manufacturer or supplier of office supplies might offer special discounts to local businesses)

· Seek, interview and make offers to job candidates

· Select and implement a financial recordkeeping system

(While this can be either manual or computerized, it must be implemented consistently. If the business records a particular type of transaction one way at the start, such transactions must continue to be recorded in a similar manner to avoid confusion.) Aspects of recordkeeping include:

1. Accounts payable

2. Accounts receivable

3. Inventory tracking

4. Order entry

Ongoing Operations

· Develop personnel policies and procedures

· Prepare quarterly payroll returns and verify timely tax deposits

· Prepare quarterly or monthly financial statements

· Perform yearend tax planning, at least one month before the yearend

· Prepare annual federal, state and payroll returns

· Develop employee job descriptions

· Review existing insurance coverage at least once a year

· Prepare and maintain personnel files

· Establish a petty cash fund and policy

· Establish answering mechanism for after hours

· Join industry associations and groups

· Verify listing in the yellow pages of area phone directories

· Register trademarks (word, name, symbol or device) that indicate a unique identity on which your business is building

Source: Grabush, Newman & Co, Baltimore, Journal of Accountancy, May 1995

Business Start-Up Costs

1. Rent

2. Telephones: Installation, equipment, services, long distance, etc.

3. Fax:Equipment and long distance

4. Furniture: Desks, tables, chairs, filing cabinets, etc.

5. Incorporation Fees

6. Employees: Payroll (wages & commission), taxes (benefits?)

7. Travel: Conventions, meetings, appointments, interviews, moving, etc.

8. Legal (make sure you have a relative who's an attorney)

9. Account

10. Credit card processing, merchant, and banking fees

11. Taxes: Company, employee, personal

12. Office Supplies: Paper, ink cartridges, pens, etc.

13. Food: Business lunches

14. Printing/copying expenses (fax, computer, brochures)

15. Mailings: FedEx, post office, pre-paid envelopes, etc.

16. Internet: Web design, hosting, registration (InterNIC), updates, etc.

17. Toll-free number (Who says it's free?)

18. Advertising expenses

19. Training materials: For yourself and employees

20. Computer: Hardware, software, networking, etc.

21. Subscriptions: Books, magazines, newsletters, etc.

22. Court fees (hopefully not too many of these)

23. Key duplication

24. Office building (in addition to rent): Cleanup/garbage removal, parking fees, utilities, etc.

25. Newspaper ads: Hiring, selling, advertising

26. Signs/banners, custom T-shirts (for conventions)

27. Building assets

28. And more and more and more!

21 QUESTIONS

Evaluation

1. Briefly describe your opportunity concept.

2. Who will purchase your product or service?

3. What problem for the consumer or industry will your product or service solve?

4. How will your customers hear about your product or service? (word of mouth is not an acceptable answer.)

5. How will you distribute the product or service to the customer?

6. Why will the customer buy from you rather than a competitor?

7. How many competitors are offering a similar service?

8. How will competitor's pricing compare with yours?

9. How will your service or product be differentiated from competitors? (Better is not an answer)

10. What major costs are involved in producing this product or service?

11. What legal form of organization will you have?

12. What are the barriers to entry?

13. Will you have an entrepreneurial team or be a solo?

14. Where will the money come from for start-up costs?

15. What preliminary research have you done thus far about your product or service?

16. Is there any element in the introduction of your product or service that motivates you to start now?

17. Outline, as best you understand them, the steps that are necessary for you to take to change your idea into a specific product or service.

18. As you have reviewed the process, list the strengths you have to "pull off" the introduction of your product or service.

19. Also, list the weaknesses you feel you have to overcome to accomplish the above.

20. How do you propose to make up for the weaknesses?

21. What do you hope I can do for you?

Opportunity Identification

1. Repeat business, not one-time sell.

2. Prefer rental or leasing business.

3. Built-in sense of urgency. Health or financial loss from lack of action on customers’ part is ideal. I prefer automatic shipping, for example having a book-of-the-month, so that customer needs to:
a. Make a new decision to stop
b. Action required from customer to stop automatic shipping from happening.

4. Business instead of a practice. Not built on a person’s talent, but on an organization’s.

5. Regional or national potential, rather than local.

6. The less labor intensive, the better; however, labor is better than capital expenditures.

7. Already a market – other companies doing it.

8. Demographics or lifestyle changes creating the need, and thus, the market.

9. Emotionally appealing to the customer – there’s got to be sizzle.

10. The numbers need to work so there is real money to be made.

11. The more unregulated, the better.

12. Odds of success are stacked in your favor, not against you.

13. A proven team, not an untried idea. A great team is more important than a good idea.

14. Recession proof.

15. Success is not built on one client, one product, or customer.

16. Payment at time of service or before, to eliminate large accounts receivable, accounts receivable aging, collection problems, or costs of bad debt.

Good Idea?

Analyze and evaluate the following:

1. The Idea -- How Do You Get It?

· Problems - yours or others

· "Talk it into being"

· Brainstorm with friends

· Mentors can help

· Ask others if they heard of any good ideas

· From your travels

· Be enthusiastic and positive

· The engineering and other universities, schools (BYU-- WordPerfect, Novell, Dynix)

· A great idea does not guarantee success

2. How the founders of the Inc. 500 got their ideas: (Source: Carl Vesper's book -- Chapter by Jeff Timmons)

· While working in the same industry -- 43%

· Hobby or advocation -- 16%

· Saw somebody else do it -- 15%

· Saw an unfiled niche -- 11%

· Did a systematic search -- 7%

· Don't know -- 5%

3. The Difference Between an Idea and a Business Opportunity (For Me)

· Propriety position

o What is the hill your competition will have to climb?

o Market position, copyright, patient, strategic relationship, etc.

· Expanding (growing) market -- Why important?

o Easier to sell new customers than take from competition.

o More likely to survive

· High margins

· Can be implemented on a bootstrapping basis

· "If it is a good idea, it is too late" (e.g. Fred Smith -- Federal Express)

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