The difference between small business success and a swift crash and burn is often the foundation you build from day one. Successful business owners typically plan for the future and address potential problems and concerns while they focus on attracting customers and revenue growth.
After all, starting and growing your company will often mean putting your career, finances, and even your mental health on the line. This is why you need to prepare for the challenges and risks ahead properly.
Here’s a look at four crucial aspects of starting a business that aspiring business owners should consider before setting off on their entrepreneurial journey.
1. You (probably) need a business plan
A business plan is a document in which you outline and plan out your business’s future objectives and how you will achieve them. If you’re not looking to raise funds or immediately hire employees, it could be tempting to forgo creating a written business plan. However, devoting your time to doing so, including your forecasts, marketing strategy, and top-level goals, is a very effective way to hone your vision and ensure you’re putting your best foot forward.
When it comes to creating your business plan, there are no hard and fast rules. A good rule of thumb is that your plan should address two essential questions:
- How will my business meet a particular need or pain in the market?
- Is there a sufficient audience for my service/product, and how do I best reach them?
If you’re looking for specific guidance, it could be a good idea to look at courses at your local community college, university, or subject-matter online courses. There’s a vast amount of resources available for entrepreneurs who are getting started.
2. Know and follow rules and regulations
Most businesses will need a general business license to operate, regardless of their product, service, or industry. Outside of this, individual companies may require additional local, state, and federal licensing and permits. You can find a useful licensing checklist here to understand what’s expected.
If you’re getting a headache just thinking about sorting out licensing and permits, consult an attorney to ensure compliance with rules and regulations.
3. Determine operating costs
Before spending money or thinking about growing your business, first approximate your operating costs. You don’t have to be super precise, but it’s good to know in your head (and on paper) what it will take to run your business.
Identify and list all potential expenses you’ll need to run the business. Make sure not to miss anything significant and include your possible payroll, rent, utilities, the cost of raw materials, etc. This is also a crucial step in your capital requirement as you’ll generally need to have at least six months to a year of monthly spendings as capital.
4. Create a risk management plan
Most aspiring entrepreneurs worry about raising enough money to get started and attracting business to survive. However, what many fail to realize is that there are a plethora of common and potentially devastating business risks that are entirely out of their control.
It doesn’t matter how good you are at managing your business and how good your staff is–mistakes and accidents can and will happen, and you need to be prepared. Just think about it. One liability lawsuit, an inadvertent error by your staff member, or an unexpected natural disaster can easily cause enough financial damage to shut down most small businesses. This is why every entrepreneur needs to put a strong risk management plan in place by investing in the right business insurance products. This will ensure that they have the financial security to get through difficulties.
Most businesses will only need basic policies such as general liability, workers’ compensation, and commercial property insurance.
- General liability will cover third-party claims of property damage or bodily injury that occur on your premises; paying for both the defense costs and potential settlements.
- Worker’s comp will protect your employees if they are hurt while working; paying both for their lost wages and medical bills.
- Property insurance will reimburse you if your buildings and their contents are damaged by a peril. Even the personal property you use in your business will be covered.
These three policies are often bundled in a cost-effective solution known as a Business Owner’s Policy (BOP). This ensures that you pay less for insurance and have no gaps in your coverage.
However, larger businesses and owners who plan to rapidly scale will likely face new, more serious threats, which means that they’ll need to expand their insurance profile.
With employees comes employment risks. This means that you’ll need to invest in a good employee practices liability policy. EPLI will protect you from employment-related claims such as sexual harassment, wrongful termination, wrongful demotion, failure to promote.
Additionally, if you store, collect, and maintain your client’s personal information on your networks, you’re also responsible for protecting it. A potential breach can not only be extremely expensive, but it could also damage your reputation irreparably. This is why you’ll need to invest in a strong cyber liability insurance policy. This coverage will ensure that your business is protected in the event of a cyberattack or a data breach and will cover both potential lawsuits as well as costs to recover from the attack.
Any business providing professional services or manufacturing products should also strongly look into professional liability/product insurance. Nothing tanks a business quicker than a lawsuit alleging that your service or product caused harm or damages to one of your customers. The right insurance policy will pay for your legal defense, as well, for the cost of a settlement with the client––avoiding potentially crippling financial stressors.
Marketing mastermind and agent of change, Sean X. Cummings has been looking into the future where brands, technology, and media intersect —and manipulating the present to get there—for more than two decades. He led global marketing for Ask, oversaw digital strategy for consumer leader Amazon Advertising, established an acquisition engine for the financial arm of American Express, and helped Nike and numerous other brands succeed. Sean is currently CMO at Embroker, a digital insurance company reinventing how businesses ensure they can take the risks they need to grow.
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