Your client might come to you for advice on starting a new business. As their advisor, you must help them make the appropriate decision. Many factors need to be evaluated prior to the new business owner “taking the plunge.” Although some businesses are successful without prior planning, they are certainly in the minority. The more preparation and analysis is done prior to starting a business, the greater is the chance of success.
The first step for the would-be entrepreneur is introspection. He or she should think long and hard about the reasons. What are the reasons for going into business? What is the motivation? What are the goals? Can these goals be accomplished other than by going into business? Is dodging an overbearing boss the motivation for starting a new company? Is it frustration with corporate politics? Is it to accelerate pay raises? Will this new enterprise truly meet these objectives or will the same frustrations occur in a slightly different form? Will the new firm create new problems that could overshadow the troubles experienced as an employee?
Throughout the evaluation process, the client should be encouraged to think about all the issues that could impact the potential business. The client should also consider establishing a timetable for assessment, preparation, start-up and an initial trial period.
The assessment period should include soul-searching as well as information gathering. Information necessary to determining the feasibility of going into business includes analysis of:
· The owner’s expertise
· Financial security and credit worthiness
· Family situation
· Risk tolerance profile
· Expected cash flow needs
The client will also need to look at the market forces of supply and demand and prepare a detailed business plan – complete with best case and worst case scenarios as well as all those in between. During this time, the client should also assemble an experienced professional team to provide advice in the areas outside his or her expertise.
The assessment period can last weeks, months, or years, depending on the market opportunity, the client’s finances, current job situation, etc. Unless or until a timeframe is established, it is unlikely that the client is serious about starting a business. A person stuck in the assessment phase should not be encouraged to spend significant money on the proposed enterprise nor should they be encouraged to quit their current employment (at least not until they have another job lined up).
If the assessment period results in a “go”, the next phase is preparation. This will include:
· Finalizing the business plan
· Lining up financing
· Determining physical location
· Deciding on a timetable for leaving current employment
· Setting up the legal structure
The preparation phase can take weeks or months. The client should set timing goals for each step of preparation, with the final goal being the start of the new business.