Charting a Course for Success: Business Startups

But potential business owners can lessen the pressure through proper preparation, say local business-planning experts who have laid out the steps to starting a new business.

Know the idea

Jane Cargill, director of Missouri State University’s Small Business Development Center, says entrepreneurs must go through a process of self-evaluation – both of themselves and the business they’d like to operate – before entertaining the idea of a new business.

“Are you a risk-taker?” Cargill asked. “Are you willing to learn any business skills that you lack?”

The SBDC offers a monthly seminar on writing a business plan that helps potential business owners evaluate whether their idea could lead to a successful business, and whether the individual has the commitment and wherewithal needed to succeed.

Bill Davis went through the SBDC seminar with his wife, Julie, before they started Doe’s Eat Place on East Trafficway. The Springfield franchise location, which has been open for about three months, came from the idea to offer quality steaks in a less formal environment.

“I enjoy going out to a nice fine restaurant, but we felt that getting a really good steak in a casual atmosphere like we offer here is unique, particularly in this part of town,” Davis said.

Once the businessperson has chosen an idea – one that, ideally, is in an area where they have either professional or casual experience – the next step is to do market research, determining the demand for the company’s product or service.

Cargill says an often-untapped resource for business knowledge is other business owners.

“We have found that small-business owners are really pleased to be able to share information with people who they don’t consider competition,” she said. “So we encourage people to learn about a business from another business in a different city.”

Build the plan

The next step is creating a business plan. The plan includes everything from the idea for the business to the company’s target audience, cash flow and revenue predictions for the company’s first years.

One consideration to be made is the method of incorporation. A new company can be filed as a sole proprietorship – where it will be taxed on the individual’s tax returns – or as a corporation, which is a free-standing entity.

“It should be one of the very first things that they do,” said Brooke Liggett, accountant with Kirkpatrick, Phillips & Miller CPAs PC, “because to get their organization documents set up they need to know what kind of taxable entity they want to be.”

SBDC’s Cargill says the decision does not have to be part of the initial business plan, but it is an important one to make.

“If you choose something with the wrong tax implication, you’re paying out more money or (taking) more risk than you need to,” Cargill said. “They don’t have to make that decision immediately, but they do have to make it before they open.”

In addition to laying the groundwork for the new business, the business plan is also required by banks when requesting financing.

“Our loan funds are going to go somewhere, so we want to see a breakout of where the proceeds of this loan are going to,” said Kade Scrivner, a commercial loan officer for Liberty Bank. Liberty Bank issued $14.1 million in U.S. Small Business Administration loans through the first three quarters of the fiscal year. Liberty Bank has been ranked by the SBA as the No. 1 small-business lender in southwest Missouri for eight consecutive years.

Entrepreneur Michael Dawley learned the hard way how important it is to have a sound business plan. Dawley started Hammer Collections LLC, a commercial collections agency, in April using his personal savings. He was repeatedly turned down for bank financing even though he had a business plan.

Then he attended an SBDC seminar.

“The deficiencies in my plan hit me like a brick,” Dawley said, adding that the major flaw in his original plan was the lack of a cash flow statement. “It’s more about cash flow than it is even about equity. They won’t give you a loan unless you demonstrate the cash flow necessary.”

Cash flow isn’t an issue for Dawley now – his company made double its $9,000 revenue projection in August, and it has already passed its $22,000 projection for September.

Get the money

Dawley, armed with an improved business plan, is now in the process of closing on an SBA loan through Liberty Bank.

The SBA steps in on many loan applications, particularly ones that banks feel are too risky to grant without some sort of protection.

“We guarantee the loan between 75 and 85 percent,” said Steve Aduddle, SBA branch manager. “That mitigates the bank’s risk in making a loan to what they consider to be a higher-risk borrower. If that loan goes bad, they come to the SBA and ask us to honor the guarantee.”

Liberty’s Scrivner also points out that the bank will not loan 100 percent of the money needed to start a business – the applicant must have some collateral, usually about 20 percent.

Again, that’s where SBA comes in.

“The bank says it can’t make loans that are under-collateralized, but the SBA is a cash-flow guarantor,” Aduddle said. “We’re basing our decision on the ability to pay the loan back rather than collateral.”

Keep the books

Even when the funding is in and the business is running, businesses need to consider how to keep the books, according to CPA Liggett, who said that selecting the right accounting software is crucial

“So many times we’ll get a new client at the end of the year, and they won’t have had any help all year long, and it takes so much more time to fix than it would if you get started on the right foot in the beginning,” Liggett said.

In the end, starting a new business is a long and difficult process that takes a special kind of businessperson.

“You need to pick a business idea where you have some experience,” SBDC Director Cargill said. “Maybe it’s a hobby that you’ve had for a number of years and you want to turn it into a business. You need to be passionate about it because it’s something you’ll be doing many hours a week.”

The steps to a new business

While the sequence can vary based on business type and each entrepreneur’s experience, here’s a basic list of steps for starting a new business.

• Create the business plan – The most crucial step in the process, the plan spells out what the business will do, how it will operate and how it will be funded.

• Obtain financing – The U.S. Small Business Administration and local banks can help with funding. Banks typically require collateral – around 20 percent of the total amount needed. Friends, family and business partners also can be sources of startup capital.

• Consult an accountant – While a new business may not need a full-time accountant, a CPA firm can help the owner choose the correct accounting software and bookkeeping system.

• Incorporate – A CPA or business attorney can help determine which type of incorporation makes the most sense for a new business.

• Find real estate – This step can really occur anywhere in the process; some new businesses get all the plans in place and choose the appropriate location, while others build their plan around an already selected building.

Want to Learn More?

The Small Business Development Center’s next business-plan-writing course is Oct. 4–5.