Dos and Don'ts of Starting a Business

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Dr of BBQ
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2011/10/26 08:50:22 (permalink)

Dos and Don'ts of Starting a Business

Dos and Don'ts of Starting a Business

Luke Johnson, chairman of private-equity house Risk Capital Partners, has made a success of businesses as varied as the Pizza Express restaurant chain, the Riva chain of bingo clubs and dental-surgery group Integrated Dental Holdings. Mr. Johnson, the author of "Start It Up: Why Running Your Own Business is Easier Than You Think" shares his 10 key tips for getting a business off the ground.
 
Before leaving your job for a new venture, consider moonlighting or going part-time. A steady income to cover personal overheads can be a life-saver while you develop your concept. Few new companies can afford to pay their founder a decent salary at the beginning. It will mean working on your new project at weekends, evenings and holidays—but then no entrepreneur ever made it without trade-offs.
 
Always write a comprehensive business plan. Even if you don't need a business plan to raise cash, it's worthwhile to express your thoughts in a coherent way in written form. A plan should include a timetable, a description of the product and potential customers, the capitalization, biographies of the key management, and financial projections—as a minimum. The plan shouldn't be longer than 20 pages, but it must include all the key details.
 
If you haven't already recruited a partner, look into it. Teams are generally more likely to succeed than one-man or -woman bands. A partnership will be seen as a better proposition by capital providers, and a combination of skills and resources is more likely to overcome the inevitable challenges facing any new firm. I have always worked with partners—being a sole trader can be a lonely occupation, and the journey is always more enjoyable if you have a colleague with whom to share it.
 
Never give a bank or landlord a personal guarantee. There is almost always another source of funding, or another property to occupy. When you sign a personal guarantee to a lender, you risk being made bankrupt if the business fails. Too many first-time entrepreneurs agree to such bank demands when they should say no. Sometimes the bank will still extend the facility, but sometimes it will be necessary to look elsewhere for financing.
 
Do what you know. Don't plunge into a new sector without having done extensive homework—or preferably having worked in the field. Most entrepreneurs who do well have studied the technical aspects of the industry by working in it before breaking off on their own. That way they gain contacts, credibility and an understanding of customers and the particular economics of their preferred niche.
 
It's the execution, not the idea, that counts most. Lots of would-be millionaires believe they have a world-beating business concept. But a dream is just that, unless it is translated into concrete and practical action. Passion matters, but commerce is at heart a pragmatic exercise, not an emotional one. Before deciding to become your own boss, be sure you are willing to do the gritty essentials, like selling and bookkeeping. It is not a career for the faint of heart or the chronically shy—or indeed the idle.
 
Don't take a franchise. Very few franchise offerings represent good value, and those that do, like McDonald's, are generally oversubscribed. Many franchises don't deliver on their promises, and have an obvious formula and a mediocre brand—for which franchisees pay through the nose. The point about working for yourself is that you enjoy freedom and independence—it's hard to do that as a franchisee.
 
Creating a real business takes time. Few companies do well quickly—most take years to cultivate their customers, perfect their services and generate sustainable profits. This means entrepreneurs need both a sense of urgency, in order to make things happen, and a degree of patience. Many start-ups have to reinvent themselves to discover the right business model—often several times. All this requires perseverance and flexibility over the long haul.
 
It's not just about the money. Few entrepreneurs start a business just because they want to be rich. They do it because they want to build something, because they see an unexploited gap, because they have no choice, because they have a point to prove, because of the thrill of making something from nothing.
 
Of course, positive cash flow and the profit motive are integral—no business survives that loses money. But the high achievers know that being vitally engaged in something worthwhile is what really counts.
 
Be prepared to make sacrifices. Quite a few entrepreneurs I know reckon they earn less working for themselves than they could as an employee. They do it because they love the life, and couldn't bear the bureaucracy and office politics so prevalent in so many large organizations. But be sure your family support you in your adventure, and that you have the stamina and desire to see it through. It is unlikely to be an easy ride, but I have found the rewards to be worth the price.
 
http://online.wsj.com/art...76622592137479546.html
 
—"Start It Up: Why Running Your Own Business is Easier Than You Think" was published in September by Portfolio Penguin. Printed in The Wall Street Journal, page 29

post edited by Dr of BBQ - 2011/10/26 09:33:52
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    jman
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    Re:Dos and Don'ts of Starting a Business 2011/10/26 14:45:29 (permalink)
    In regards to a business plan, I advise people to develop the plan in such a way that it can be used on a daily basis, after the business is up and running.  Most people write their business plan and then once they get started, they never look at it again. Big mistake!!
     
    IMO, the Proforma portion of the BP, with detailed assumptions, serves as an extremely important tool.  It allows you to measure your plan against reality if you use a variance report that shows, by line item, how you measure up to the plan.
     
    Being a wordsmith when describing the business including descriptions of the products/services, sales & marketing plans, and other information that gives a comprehensive view of the business, is important, but it's doubly important to be able to show how the numbers are developed and how they are calculated.  After all, if the numbers don't work, all of the words in the dictionary won't help you produce a good business plan.
     
    When I use the term, "detailed assumptions" it means that every line of the Proforma Statement is supported with the exact mathematical formula, including values, that is used to attain the number in the box.  If a prospective investor (including yourself) or a loan officer sees how your numbers are formulated, you'll have a better chance of getting funded.  The worse thing that can happen to you is for the banker/investor to ask, "How did you come up with this number?" and you can't tell them.  Regardless of the spreadsheet software you use, every value should be determined by a formula.  That way, if you need to change something like labor costs, food costs, or other direct or indirect costs, everything within the Proforma will adjust automatically.  Once the business is operating, those written assumptions make it easier to see where you're succeeding and where you're failing.     
     
    #2
    SR-71
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    Re:Dos and Don'ts of Starting a Business 2011/10/27 01:10:36 (permalink)
    Good article, and I think jman is right about the numbers.
     
    I've created my own spreadsheet with all sorts of formulas to help forecast my business. I need to know the effects of slow sales versus busy. At what point am I breaking even? How will credit card sales affect my business? etc.
     
    As I make progress, I can turn estimates into real numbers. For example last week I got an insurance quote. When I get closer to opening, all of my fixed and variable costs should be set. Once I open for business, with real sales numbers I'll know how well I'm doing pretty quick. And if I'm not doing well I'll know the few areas that I can tweak based on my playing with spreadsheet numbers.
     
    It's my investment so I'm fairly cautious, but I guess some people just wing it.
    #3
    Foodbme
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    Re:Dos and Don'ts of Starting a Business 2011/10/27 04:34:41 (permalink)
    To me, the most important paragraph in the article is the one that starts with:
    "Do what you know. Don't plunge into a new sector without having done extensive homework—or preferably having worked in the field."
    #4
    senor boogie woogie
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    Re:Dos and Don'ts of Starting a Business 2011/10/30 04:46:49 (permalink)
    Don't work with family.
    Don't hire Mexicans without green cards.
    Don't treat the waitstaff like garbage.
    Don't open a restaurant, it will fail.
    Don't forget to pay the insurance company in case you say screw it and want to burn it down.
    Don't treat the cooks like garbage, they have sharp knives.
    Don't hire an attractive woman or your wife will think you are banging her on the side.
    Don't forget to buy soap for the men's room and tell the Mexican cooks that they must wash their hands after they pee.
    Don't open a place in the ghetto unless you are selling fried chicken and 40 ouncers.
    Don't allow the staff to smoke marijuana in the kitchen. Tell them to go outside first.
    #5
    kreativekvs209
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    Re:Dos and Don'ts of Starting a Business 2011/11/03 16:27:13 (permalink)
    you forgot to add..
     
    don't forget to learn the basic spanish kitchen commands and numbers . like mida ( look ) necessito ( need ) rapido (hurry) donday ( where ) ah-riba ( up ) ah-baho (down ) ah-key ( here ) evail ( togo ). para ( it is. or is it ).. esta and como to fill in the bllanks.
    for example.  est stupido mida ah-key, donday esta order number cinco. ai-oos mi-oo.. roughly translated .. excuse me sir, where is number 5 order. ( lol i'm an asian person that's been working in a kitchen with mexicans to0o long )
    i do not speak fluent spanish, but i can run a kitchen with spanish speaking only.
     
    #6
    jcheese
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    Re:Dos and Don'ts of Starting a Business 2011/11/03 19:43:15 (permalink)
    I was a painter once, learned every term related to that biz, working with Mexicans, who were wonderful people.
    #7
    kreativekvs209
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    Re:Dos and Don'ts of Starting a Business 2011/11/04 02:47:14 (permalink)
    you gotta love these mexicans workers.. but you gotta watch out for the ones who dont give a **** and are only there to do that 9-5, and not give a **** about quality. but then there are the ones that started as a dish washer and have pride and a sense of quality control. i love them. i cant stand the ones that dont care and just wanna get food out.. i just fired acouple last month. and it was probably the best thing for the kitchen.
     
    #8
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