Now that you’ve got your business put together, funded and up and running, you’ll be faced with a whole slough of new challenges; constantly innovating, generating profits, planning for the future and more. Here’s a few things to expect and to plan for in the crucial first year of your new business.
What To Expect Financially
For almost everyone, excluding of course non-profit organizations, money is the major motivating factor to starting a business. From home based businesses to major corporations, if you’re not making money, your business just isn’t working. Planning for the first year financially is crucial, not only for the health of your business and for your own sanity, but for the sanity of your investors and the security of your loan.
It’s a good rule of thumb to raise enough capital initially to cover startup/launch plus 12 months of operating expenses. This isn’t to say that you wont profit in the first year, although that is a definite possibility, but budgeting with some leigh-way allows you to survive the lean months and if your business encounters more than one or two lean months in the first year, you’ll be closing the doors if you don’t have some sort of financial buffer.
You should also think about your ownership of the company in terms of dollars rather than percentages. Too often, businesses will get hung up because the founder wants to own say 70% of the business and wont give up his percentage in order to fund raise. Your company’s value, prior to going public, will most likely be based on what a percentage of the company can be purchased for. VC’s will want a significant percentage if they’re going to pour millions into your company, so being willing to sell-down your stake in the company can work to your advantage.
For example: you currently own 70% of the company which is currently valued at $1mil; a VC purchases 50% of your company for $4mil leaving you with 50% worth $2mil whereas before your 70% was only worth $700,000.
What To Expect Physically
Starting a business is hard work, both mentally and physically. It’s not uncommon for even work from home jobs to become 90+ hour/week jobs. This is often simply what it takes to get a company off the ground, so it’s important to take care of your body and make sure you don’t kill yourself in the process.
Get enough sleep every night; in the book Rework by Jason Fried and David Heinemeier Hansson, they stress the importance of getting good rest so that you can do good work. Sure, you can put in a 100 hour work week, but if you’re a zombie the whole time, you might only be as effective as if you’d put it 40 concentrated, focused hours.
Eat well. Working long hours compounded with stress can often lead to an unhealthy diet, which will leave you even more tired and can endanger your health. You’ll be pouring yourself into your business, so make sure you always have some healthy food around the home or around the office; drink water instead of coffee when possible and try to eat several small meals throughout the day instead of 2 or 3 big ones which will slow you down and wreak havoc on your metabolism.
When To Walk Away
Every business will have a point where it will be time to exit. Sometimes this happens 50 years into the business when you’re ready to retire, sometimes it comes in the form of a corporate buyout and sometimes it also happens when the business just isn’t working.
These days, the startup that endures for a century is pretty unheard of. If it happens to you, bravo, but if not, you’re probably looking at an exit of either a buyout or a burnout. While you don’t necessarily want to take the first offer that comes along, it’s important not to hold out too long either. Chances are if you’ve got an idea worth acquiring, someone else out there has a similar idea and if you won’t sell, they will. Learn what your company and your idea are truly worth (ask around, hire an independent consultant) then talk with your partners about what an ideal exit would look like. Most importantly, however, don’t run your business expecting a buyout, run your business like it’ll be around for your great grandkids; that way you’ll be innovative and forward thinking, and in the end, that’s what many companies look for in an acquisition anyways.
Depending on the industry, as many as 6 out of 10 business fail within the first five years. Having a good mentor and a solid business plan will give you a fighting chance, but it’s important to identify the signs of a failing business. If you’re losing more and more money each quarter for more than a year, get out while you can. If you’re late to market and have to spend each quarter playing catch-up to your competition, consider revamping your strategy. Ultimately, make sure that you can keep the proper perspective. Too many entrepreneurs have the sad story of a business that just wasn’t working and then they mortgaged the house and eventually went bankrupt trying to keep it going a little longer. If your business simply isn’t working, acknowledge it, move on and maybe try something different.
Check out our previous articles on "Starting A Small Business" Part 1 - Before You Start and Part 2 - Launching Your Business
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