Inspiration to Start a Business
So, you want to start your own business? Then this is for YOU. This thoughtful guide will help you navigate the technical and official path to business and success.
When people think about doing business, they think of the brick and mortar businesses with a physical location like a restaurant, an ice cream shop, a bakery or a grocery store. But today, there are many ways to own and run a successful business that is more unconventional. Businesses that are booming like wild fire include an online store, a website developer, a digital marketer or a business consultant who may never need a physical office location to operate successfully.
Let’s start by defining what a business is. A business is an enterprise or organization that provide products and services in exchange for money. In some cases, businesses will exchange goods and services for another one. This is also known as a trade. All businesses need an investment; this includes time and money. To become successful, businesses must earn more revenue than their operating expense. This is called a profit or positive return on investment. If a business is no longer profitable, then owners should consider changing their strategies or products and services. The last step is to close shop.
To begin, you need to thoroughly think about what it takes to be in business, the time commitment, finances and the products or services you want to provide. Business is not meant for everyone, especially those with a faint of heart. Business owners are sometimes risk takers, but they are self-motivated and goal-oriented. If you need to be inspired by others every day, this may not be the path for you. If you are driven for success and decisive, then you have traits that will help you navigate this tough but rewarding journey.
Product or Service?
The first step to business is to figure out what you want to provide to the world. I typically like to ask, “how do I want to help?” Or “what world problem can I solve?” I know it sounds like a big rhetorical question, but it helps you understand the market you want to penetrate. Before you begin, I want to point out two things. First, you should stick to doing what you enjoy most. That way you do not feel like you must get up every morning and be a salesperson. If you wake up discouraged to continue your business, then you’re already off to a bad start. Second, find something people need that you enjoy providing; then you feel inspired to get up every morning to work on your business. Here are my thoughts on products versus services.
Typically, it is easier to sell a physical product than a service. Why? That’s because people can see it and feel it. Physical products generate emotional attachments, leading to an easier sell. But products typically require three things: inventory, storage and distribution. Another important factor we will go over for a broader understanding is the “shelf life” of a product.
Inventory & Storage
The first question you must ask yourself is “am I going to manufacture my own product or buy it from another vendor?” If you manufacture your own products, then what raw materials and facilities do you need? Down the line somewhere, you must find vendors who can provide you with consistent quality and affordable raw materials. What are the costs of running a manufacturing facility? Manufacturing facilities typically require permits along with business licensing and insurance requirements.
If you choose to purchase the finished goods from a wholesaler, then make sure the items can be marked up for a profit. Also consider how consistent will this vendor will be in production and quality. The last thing you want is for your vendor to go out of business and you have no access to that same product. Or worst case, the quality control decreased dramatically from one batch to another.
Now that you chose where to get the product or raw materials from, you must decide how much inventory you should have on hand. Inventory is tied directly to expense before revenue. The more inventory you have, the higher your operating expense will be for both cost of goods and storage. The longer the shelf life of your product is, the more cost it will incur. If your product has an expiration date, then you must sell it in a timely manner. If not, you will have to take a loss on expired products. A shelf life is the length of time in which a product can be purchased and used before expiration.
Storage is a very important aspect to a business with physical products. Especially ones that need temperature-controlled rooms. Products that require refrigeration or heating has a higher cost, from the size of the storage to the cost of energy to maintain the temperature.
For products that do not require temperature-controlled environments, you only need to consider how much inventory you want on hand and how long before you can move (sell) the product. Here are a couple formulas you need to know:
Beginning Inventory + Purchases during the period – Ending Inventory = Cost of Goods Sold
Gross Profit Margin = (Total Revenue – Cost of Goods Sold) / Total Revenue
Gross Profit = Total Revenue – Cost of Goods Sold
In the product business, you have two forms of distributions: from the manufacture to you and from your business to the end user. Both distribution channels must be carefully strategized to make sure your business is profitable. Here are a few distribution channels to consider for your business: wholesaler/distributor, value-added reseller, dealer, consultant and retail. Each has its pros and cons; and each comes with a different type of expense and potential storage issues. After you decide where in the distribution you want to operate in, it’s time to do some market research. But before we advance into this topic, I want to go over the services business.
The services business is very different from the products business. Service-based companies have no physical storage facility but may need a digital storage depending on the industry you choose.
A service-based company can provide event coordinating services, website or other digital designs, business coaching, tax filing services, legal services and so on. But a stock photo or a data backup company will need a digital storage to accomplish their mission. Digital storage can either be purchased from a wholesaler or physically housed by your company. Both have its advantages and disadvantages.
Consider the initial cost of investment to purchase hard drives for digital storage, temperature-controlled rooms and backup solutions before you choose this model. It requires heavy investments in the beginning but would flatten out over the years, increasing profits with each passing year. The only thing you need is maintenance to keep the physical hard drives in good conditions. A wholesale digital storage is becoming increasingly affordable that many newer businesses are considering. Cloud-based storage provide quicker setup time, less downtime and much more affordable to get started.
Service-based companies do not have inventory problems. However, they are either paid per project or per hour. I will write a completely different article on service-based businesses you can start online without little or no investments.
Professional services are becoming a very trendy and affordable solution for young professionals to quickly jump into the business game. They can start by purchasing a few courses online on how to create your own website or how to market a company using Facebook and voila! You can provide that as a service to others and charge for your time.
Another important tool to help you decide which type of business you want to open is a market research. Sometimes you think this type of business is great, but after a thorough market research, you end up with another idea. The size of your potential customers is a very critical factor to higher profits. If there are only 30 people interested in a product or service you want to offer, then you should consider something broader and more feasible.
A market research is the process of gathering information about a potential customer based on their needs and wants. The market research also includes the potential size of that market (number of buyers).
The Final Decision
Ok, so now you have a market research and concluded what business want to open, it’s time to decide what type of business model is best for you. This is only a summary. If you want a detailed analysis of each types of business, download our Business Playbook for more details.
Sole Proprietor: this is where you are one with the business. A sole proprietor (sole prop) is also known as a DBA (doing business as). This is easy to set up, quick approval, tax only once and simple to dissolve. There is very little business protection and your personal income/assets are tied to your business.
Limited Liability Company (LLC): A limited liability company is a hybrid between a sole proprietor and a corporation. This takes longer to establish, approved by the Secretary of State, no corporate tax, a bit higher protection and can be owned by individuals, corporations, trusts or even other LLCs.
Corporation: There are two types of corporations, S-Corp and C-Corp. A corporation is a completely different entity than its owners, who has limited liability. Corporation have shareholders, officers, bylaws, board of directors and can have its own assets. C-Corps can raise public funding and recognized internationally. Corporations incur both personal business revenue taxes.
After deciding the business type, you need to find an amazing business name for your company. There are many considerations that require thoughtfulness in your business name. Make sure it connects with your customers and they can tell what you do from the name. Verify if the web domain of your company name is available, Facebook, Instagram and other social media platforms. There is a whole article on business name and marketing strategy you can read up on. The last thing you want is for your company name, website address and social media platforms to all have different names. Also, if you are starting a company, you should only use .com as your web domain. It’s the standard for companies.
Lastly, if you find that your company name unique and do not want others to copy it, you should consider trademarking it.
Next Important Steps
Here are a few tips from us to help jumpstart your company. Your new company needs the following items:
- A professional company logo
- A professional company website
- Professional email address with your company domain
- Professional business cards
- Company posted on various digital platforms
Congratulations! You claimed back your life from the 9-5 world and now on your way to success. Let us know in the comment below what business idea you have and how well it went.