Key Things to Consider Before Opening a Business

“The basic rule of free enterprise: You must give in order to get!”

~Scott Alexander

So many people want to open their own businesses. I think that is wonderful since so many of the big businesses in today’s economy are not serving their customers well.

If you are looking at starting a new business, the opportunities are abundant, but like any endeavor, doing so requires a lot of time and planning. You must first lay out a business plan that is both viable and practical.

When starting a business, one of the worst traps people fall into is asking their friends and relatives what they think of their idea. You cannot rely on friends and relatives to give you good advice. Generally speaking, they are going to be too concerned about your feelings to be objective.

I often hear prospective business owners saying that all their friends told them their idea is great. I, on the other hand, know it is terrible, and I always give them my opinion as kindly as possible. The bottom line is, if you are looking for feedback on your business idea, you must ask strangers or people you know will be 100% honest and unbiased in their assessment.

Another mistake people make is not doing enough research to know if their concept will work. For example, one woman came to me for help with her business idea. She wanted to have a spa for women that would also provide hair and nail services, but she was unable to answer basic questions like how her rates would compare to her competitors’ and how close the nearest competition was located. Obviously, these are critical concerns that should be researched before starting any business.

Similarly, a friend of mine wanted to start a home repair business offering very specialized services but had not done any research to determine the level of demand. Had he followed his gut feeling, he would have lost nearly all of his $200,000 life savings. Fortunately, he did end up doing some background research that showed there was no future for his idea, and he did not follow through with the venture.

A third mistake people make is starting a new business just to make money. Making money is not bad, but it is important to have a deeper mission—something that has meaning to you.

Most entrepreneurs start their businesses because they want to help others, make their communities better or even leave a legacy. It is very important to have a “higher” motivation because making money is simply not enough to keep you going through the inevitable tough times you will experience while running your business.

Before starting your business, ask yourself why you want to do it. If the only answer you can come up with is money, you may want to look at a different type of business that can bring you more satisfaction.

A final critical error people make when starting a new business is using unrealistic figures in their forecasted income statements. Every potential entrepreneur should have a forecasted income statement in their business plan, but all too often, I hear people say they determined their projected revenue simply by taking 1% of the total market.

Though 1% seems small, it is frequently a large volume that big firms fight over all the time. Just look at how Coca-Cola and Pepsi fight for just 1% of the soft drink business.

In order to have an adequate proforma income statement, you must have a strong and reliable basis for estimating your sales. You might consider doing focus groups or surveys to determine realistic approximations of what your numbers will look like.

And a final recommendation: find a mentor or coach who will work with you and help you avoid making these mistakes. It usually costs very little to have one, but not having one can cost you dearly. Mistakes are a death sentence for small businesses. You can avoid them with the help of a mentor.

If you are looking at starting your own business, go out and make sure you do the homework that is so necessary to ensure your business’ success.

You can do this!