Cashology by FNBO

Important Financial Considerations When Setting Up Your Small Business

Episode Summary

Before we start off on today’s episode, a joke: why did the doughnut maker retire? He was fed up with the hole business. Starting a successful business involves many considerations — but none more important than examining your financial situation. Welcome (and thanks for listening today) to the Cashology® podcast, hosted by your guide on the path to financial savvy, Juli Wians.

Episode Notes

So our ‘hypothetical future Jeff Bezos’ is ready to launch off on the small business journey. Risk versus reward? Thoughts?

• There is nothing like starting your own business. It has its advantages, such as control over decisions, future financial upside, and the pursuit of a dream creating a business around a product or service you truly believe in. 
• There is also the challenge side: the owner is on the hook for any shortfall or miscalculation.  So having a plan and a viable offering are very important. 

Let’s hit the former one first.  The business plan. How important is this, and will a new business owner really need it, or can a powerful idea overcome?

• Great ideas can be transcendent and lucrative, but a solid business plan is the vehicle that takes you there. This is also the point where you realize whether your new business idea is sound, or has some obstacles to overcome.  Don’t wait until your bank or prospective investors put you on the spot for it. This is the framework, the line drawing that happens before the Sistine Chapel is painted.  Outline your masterpiece first. 
• Be realistic. Be ready for best/worst case scenarios.
• Once it’s done, it’s not actually done.  Be ready to go back to your business plan down the road and adjust as things in your industry space change. 

Now, we arrive at viability.  There have to be some criteria to make sure you have something promising in the works, right?

• Does your business fill a need? What value does this business bring to your prospective customers?
• What differentiates your business.  If you say ‘customer service’, that’s not a bad answer, but it’s not a differentiator. (our guest clarifies this more in their own words)
• Can you monetize the business and be profitable? Understanding what customers will pay for your wares will help you to clear a path to success.
• Is it sustainable?  That is, can your business adapt to the possibility of competition duplicating a process? Or, dare we say it, a pandemic?  That’s a major event that really can adjust sustainability. (guest can also clarify here)

You all knew we’d get here, considering the source of the podcast, but…where does funding fit in this process? Is it better to seek funding from those closer to you? Go a formal loan route? Investors?

• Having a detailed understanding of how much money you will need to start your business and where it will come from is another critical consideration. Make sure your list of expenses is realistic.  Plan for the unexpected.
• Thinking through where you plan to get the funding for your business is also critical. Think of funding sources as a continuum. On one end, you have options like your own money and money from friends and family. While these may not always be an option, these sources are generally more open to risk. Your friends’ and family’s expectations for repayment and any potential return on their investments will vary. In the middle, you may have options like partners and investors. These two are generally more open to risk as well, but have a much higher return expectation – including ownership in the business. On the other end, you have options like Small Business Administration loans from your bank. These funds come with less tolerance for risk, but have a much lower return expectation in the form of interest.

Useful info/links

1. SBA has a template for those getting started on their business plan here https://www.sba.gov/business-guide/plan-your-business/write-your-business-plan
2. https://www.fnbo.com/insights/small-business/
3. https://www.grants.gov/ is a place for business to find and apply for federal grants that might be applicable for your industry.