How to Overcome Start-Up Business Hurdles

August 6, 2007

Every year, about 600,000 new businesses are launched in the United States. Many people dream of owning their own companies, but starting a business can be risky if not planned carefully. U.S. Small Business Administration data show that more than one-half of all new businesses do not survive at least four years. If being an entrepreneur is your true calling, don’t let these statistics hamper your dream. According to the Connecticut Society of CPAs, new ventures can succeed if their owners take the right steps from the outset.

The Importance of Planning

A great idea for a service or a promising new product can be excellent starting points for a new business, but you’ll need a lot more than a marketable idea to make your venture successful. You should begin with a strategic plan that covers every aspect of your venture, including details on:

The product or service you plan to sell
Your potential customers and how you are going to market to them
The company leaders and their experience
How you plan to produce the product or deliver the service
Financial information - financial statements or projections prepared by a CPA add credibility when you meet with lenders or potential investors.

CPAs recommend that you record all this information in a business plan, a document that describes how you expect to run your business. Creating a thorough business plan is not only a great strategic exercise for a new company, but it’s also a requirement if you hope to get outside financing or attract investors. Don’t skip this important initial step.

Consider the costs.

Money is, of course, a crucial element in any business start-up. Your expenses will fall into two groups: one-time needs and ongoing costs. One-time costs include items such as the expense of equipment and furnishings, legal fees for incorporating the company, registering the name, and the cost of a franchise or license, if required. You will also have to begin paying ongoing costs, which will include rent, salaries, supplies, and utilities. Some of these ongoing expenses, such as leases, will be fixed, while others, such as inventory costs, will depend on your sales from month to month.

Create a projected budget of start-up expenses, including both one-time and ongoing costs. You can gather information for this budget from potential vendors, landlords, or businesspeople running similar operations.

Your budget will tell you how much money you’ll need in the early stages of your business. Next, determine how you are going to pay for the expenses you incur before the company begins generating income. Many new business owners use their own savings to cover these costs, while others borrow from banks or find investors who provide financing in exchange for part ownership in the business. Your budget should help you determine what you can cover with your own funds and how much you will need from outside sources.

Consult a CPA.

This process may sound complicated, but there are many valuable resources available. The American Institute of CPAs 360 Degrees of Financial literacy website (www.360financialliteracy.org; click on “Entrepreneurs”) contains a wealth of information on business planning and small business issues. The U.S. Small Business Administration site also provides advice for start-ups (www.sba.gov). And the Connecticut Society of CPAs can offer tools to address questions at www.cscpa.org.

In fact, CPAs can help you understand all the financial aspects of a business launch. Be sure to talk to a CPA about the best ways to ensure your company gets off to the right start.

Questions? Contact Mark Zampino at 860-258-4800, ext. 212 or markz@cscpa.org.