Are you an aspiring entrepreneur? Bad news: Funding for business startups declined in 2012 for the first time in 3 years. Startup investments fell 10 percent from 2011, and the number of total deals completed also dropped by 6 percent, according to a new study from PriceWaterHouseCoopers and the National Venture Capital Association.
But despite the stats, starting your own business remains as tempting as ever—just ask the guys behind Twitter, who last week saw their once-small social media service skyrocket to a $9 billion value. Or ask the millions of viewers who tune in to Shark Tank every Friday night, watching amateur entrepreneurs pitch their crazy ideas to big-shot investors like Mark Cuban.
Thinking of hatching a new business? You’re not alone. But you wouldn’t bungee jump off a cliff without bringing the right equipment, right? Not taking the time to develop a plan for your startup business amounts to roughly the same amount of risk—especially if you’re quitting a full-time job to pursue your path.
“A business plan doesn’t have to be a formal business school-like document,” says Adam Hanft, CEO of Hanft Projects, who’s started several of his own businesses and regularly advises startups.
In lieu of writing up a formal plan, follow these four tips from Hanft and other entrepreneurs to launch a successful startup. Here’s what you should check off your to-do list before you declare you’re open for business.
1. A good idea isn’t the same as a profitable business venture.
Many would-be entrepreneurs fail because they neglect to ask themselves this crucial question after coming up with a kick-ass product: Would someone else actually want to buy it? Take the iPad, for example. People flocked to the gadget immediately after it was announced because it fit a huge need. “It occupied that space between a computer and a smartphone,” says Hanft. It’s also important to initially keep your product or service simple. “The more complicated a business is, the riskier it is, particularly for a novice entrepreneur,” he says. Rhonda Abrams, a syndicated columnist and best-selling author of books for small business owners, says it’s easy to find out if your idea is sellable. “Talk to potential customers. If you build it, will they come?”
2. Go see a lawyer before you start your business.
Do you know the difference between a corporation, LLC, PLLC, LP and LLP? If not, meet with someone who does. It might sound like secret code, but the decision you make when you incorporate could cost you serious dollars down the road. “You want to protect yourself from a liability standpoint and from a tax standpoint,” says Will Bartholomew, CEO of D1 Sports Training. For example, in an S-Corporation, only earnings paid to an owner as salary are subject to payroll taxes. Money distributed as a dividend to that owner is not subject to self-employment taxes. This can equate to thousands in savings come tax time. So consult with a tax attorney or other qualified professional to put yourself in the best situation.
3. Choose the right kind of insurance.
Your insurance needs can range from professional liability to property to medical and more. Many insurance professionals provide free quotes and advice, so there’s no excuse not to be educated on your business’s insurance needs. “Entrepreneurs often try to cut corners on insurance,” says Hanft, “but you need to have basic insurance, and if you have employees, then you need other required types of insurance, like worker’s compensation.” Even if you’re going at it solo, have no physical office to insure, and are getting your medical insurance elsewhere, you still might not have it all covered. “We live in a very litigious society. It can be something as simple as needing to protect against copyright issues like using a stock photo, only to find the photographer suing you,” Hanft says.
4. Connect with your customers.
When you’re first starting out, you’ll have a lot of time on your hands—which you should be using to boost your social media presence, Abrams says. Your first order of business: Set up accounts for your business that are wholly separate from your personal social media accounts. “You want to have a way for people to connect with you outside of your fraternity brothers or family or ex-girlfriends,” said Abrams. Offer your followers cool discounts, tweet behind-the-scenes pictures of business meetings, and engage with potential customers as much as you can. Book a domain name A.S.A.P., too. “This will get you your email address,” said Abrams. “It looks a lot more professional.”
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