Starting a new business can be exhilarating – and terrifying – all at the same time. Startup failure rates vary according to the source, but the most conservative estimates are that roughly 50 percent of businesses fail within the first four years. To help you avoid becoming an unfortunate statistic, we’ve compiled some helpful tips for starting a local business.
Have Plenty of Start-up Capital
On top of all of your anticipated start-up expenses, such as equipment purchases, inventory, and lease agreements, among other things you need to be prepared for extra expenses you probably haven’t accounted for in your business plan. Additionally, marketing expenses are likely to be much higher in the beginning, as it will take time for your customers to find you. Take a careful look at your business plan, and make sure you have enough funds to get you through a rocky and unprofitable start; at least six months’ worth of savings.
Understand your Licensing Requirements
Nothing shuts a business down faster than not having the right license or permit. Check into your county’s requirements for a dba license, vendor’s license, and any other licenses or registrations you may need, for sale of food or alcoholic beverages, child care, pet care, or whatever type of business you seek to start. Some activities are licensed by the federal government, such as sales of alcohol or firearms, while other licenses may be required by your state or county. The Small Business Association is an excellent source of licensing information for all types of businesses.
Location, Location, Location
As with real estate, location is everything for a local business. Do your homework. Unfortunately, unless you’re really lucky, you’ll no doubt have to compromise. Certainly, you would prefer a high traffic area in a safe, low-crime neighborhood with plenty of parking and complementary businesses nearby. If you can’t afford the rent or mortgage and/or the taxes, however, you may have to decide which factors are more important, and whether they will improve your profitability sufficiently to cover the extra expenses.
Create a Comprehensive Business Plan
Of course, everything starts with a plan. A well-written, well thought out plan will not only help you get financing, it will help you get through your first few years. You’ll need to outline exactly how you plan to run your business, your operating and management procedures, hiring plans, expenses and revenue forecasts. You’ll want at least a three-year forecast of your sales, and a projection of what point in time you expect to start earning a profit. Once again, the Small Business Association provides in-depth guidance on all the different components of a comprehensive business plan.
Scope Out the Competition
Chances are you’ve already done this – perhaps it’s what convinced you to start your business. “This hair salon is raking in money hand over fist,” you thought. “There’s room for one more in this neighborhood.” Or perhaps the dearth of a particular type of business in an otherwise thriving retail setting got your attention. In any event, you’ll want to examine your market, see who’s already in it, and determine whether there is room for you. If your competition is barely scraping by, you may want to reconsider. If business is booming, determine what they’re doing well, and what you could do better. Don’t be a copycat, but do learn from their mistakes!
Determine your Target Demographic
When it comes to a local business, your location often determines your demographic, which is why location is so critical. An upscale, trendy retail shop would probably not do well in a strip mall surrounded by retired people on fixed incomes, for example, any more than a butcher shop would fare in a neighborhood of organic vegans and PETA activists. Carefully research your surrounding area and decide who your customer is, so that you can target your goods and services as well as your marketing strategy to someone who’s likely to be interested.
Don’t be Afraid to Ask for Help
In addition the Small Business Association, there are other helpful nonprofit associations dedicated to helping small businesses get off the ground, including SCORE, with 340 offices across the country. A helpful guidebook titled “How to Really Start Your Own Business” can be downloaded on their website, where you can also find your nearest SCORE chapter. The guidebook covers a wide range of helpful topics, including how to:
- Define your business and your market niche
- Test your idea (conduct market research)
- Find the right location
- Negotiate leases and business purchases
- Protect a copyright/logo
- Create a business plan
- Choose a corporate structure
- Secure funding and comply with financial regulations
- Build a team
- Understand a financial statement and project cash flow
Even if you already have an experienced business partner (or you are one), it never hurts to reach out to other knowledgeable individuals for guidance and mentorship, and these are two very good sources!