Starting a business is a huge endeavor. It takes a lot of hard work and courage to take that leap and go from earning a steady paycheck to hustling for every dollar you bring in. Sure, the rewards can be enormous: the ability to set your own schedule, call all the shots, and create something that’s truly yours. But the risks are pretty big, too.
Here are 13 questions to ask–and answer–before you start your new business:
THE BUSINESS PLAN
1. Will I make money?
Start your planning process by doing what’s called a break-even analysis. Yes, there is math on this exam! In a break-even analysis, you calculate your fixed costs–your overhead, including rent, utilities, insurance, and so on–and your cost per sale. That’s whatever it costs you to make each item you’re selling. Then you calculate your average profit per sale, and see how many sales you need to break even. Is that number realistic? How long do you think it will take to get there?
2. How much will I charge?
Take another look at that break-even analysis. What prices are you planning to charge? How thin is your profit margin? Can you afford to offer discounts to bring in new customers? For how long? Discounts can be a great marketing tool, but be careful that you don’t get customers too used to a price that’s lower than you can actually afford.
3. Who’s my competition?
Think local–and national and global. Can what you’re selling be bought on Amazon? How will you set yourself apart from big chains? How will your bakery be different than that bakery down the street that’s always packed in the mornings?
4. Who is my customer?
It’s tempting to say “everyone,” but actually, the more specific your answer to this question is, the better. If your customer is “parents of elementary-school-aged kids who don’t have a lot of time to pack lunch in the morning”, then you’re already halfway to a marketing plan. Get as specific as you can. You can always broaden to new markets later.
THE PERSONAL PLAN
5. How will I feel working on this business for 80-plus hours a week?
Starting a new business takes a lot of work. You can expect to be working long hours for a couple of years, at least. Are you ready to make that commitment? And don’t forget all the paperwork, marketing, invoicing, and so on that will need to be done. You won’t be able to spend all your time on the part of the business that you love.
6. Can I really work with my partner?
If you’re considering going into business with someone else, now is the time to ask all the uncomfortable questions. You will be legally bound to this person–their credit score and financial responsibility will affect your livelihood. And you’ll be working those long hours with them. Now is the time to admit it if you think they might hold you back or drive you crazy.
7. Am I financially ready for this?
Take a hard look at your personal budget. What are your bare-bones expenses? How close to the bone are you comfortable cutting, and for how long? How is your credit score? Will you be able to get a loan if you need one? Do you have enough money saved up to get through the first few months as you get this business on its feet?
8. What’s my endgame?
Start thinking now about what your ultimate goal is for this business. That will influence the way you decide to set it up legally, and how quickly you try to expand. Are you dreaming of leaving this restaurant as a legacy for your kids? Do you want to sell this software company to a big tech firm? If you don’t know where you’re going, you won’t get there.
THE LEGAL STUFF
9. What am I going to call my business?
Are you going to do business under your own name? For a lot of service providers, that’s fine. But even if you want to call yourself something as simple as “Jane Smith Accounting”, you may need to register a “doing business as”, or DBA name. And if you want to create a new business name, you’ll need to check that it’s not already trademarked by somebody else.
10. Do I need a license?
Depending on what type of business you’re starting, you may need federal or state licenses or permits in order to operate legally. The Small Business Administration has the information you need.
11. What are my tax obligations?
If you’ve spent most of your career working as an employee who gets a regular paycheck with taxes withheld, your life is about to get a lot more complicated. Again, the SBA can help you figure out what state and local taxes you need to pay–but now’s the time to find accounting and legal professionals who can help you make sure you’re not missing anything.
12. Am I going to hire employees?
Obviously, hiring people comes with a whole host of other obligations. You’ll need to get an Employer Identification Number from the IRS, figure out how to withhold taxes from your employees’ paychecks, make sure they’re legally allowed to work, and more. You can start learning about what’s required online, but you may need legal advice. Payroll companies can help you streamline this burden, too.
THE MILLION-DOLLAR QUESTION
13. What will I do if I fail?
Starting a new business is a big risk. What’s your Plan B? Are you emotionally and financially prepared for this business to struggle for a while? If your business fails, will you end up with assets you can sell? What happens if you lose the money you’ve invested in this venture? Will you end up with a loan you can’t repay or a debt to friends and family that will keep you up nights?
You wouldn’t be considering starting a business if you didn’t have big dreams and the drive to make them come true. But it’s a good idea to pause for a reality check before you actually start trying to make this work. If you know you can survive failure, you’ll be that much more confident to go out there and strive for success.