Setting up a small business involves a number of formalities and steps to be followed. Prior to setting a business, you need to have a business idea followed by a marketing plan to execute that idea. These both aspects lay the foundation of a small business. A business idea should be selected on the basis of the specialization area of the owner as well as on the degree of investment into the business.

Essentials for Setting up a Small Business

There are certain resources that are essential while setting up a small business. These include-

Planning:

The base of any small business is a well-crafted plan. A good plan helps you in well executing the other functions such as management, organizing, and controlling. The promotion and advertisement of the products should be well planned and then implemented.

Arranging Funds:

Small businesses require low investment than big scale business. A big share for the funds for a small-scale business is usually gathered from personal savings. Many banks and financial institutions also give loans on a certain amount of interest and collateral security as a back up.

Naming the Business:

Naming your small business is very important. The name gives recognition to the business and makes it stand unique in the market that is full of other such businesses. Moreover, the name also represents the type of services offered by the franchise.

Registration:

Registration to a small business gives a formal entity to a business. It requires some paper work and procedures. The Secretary of State formally recognizes your business as corporation or a limited liability company. You also need to have an employer identification number while setting up a business.

Accounting and Book Keeping:

It is always recommended to have a separate banking account for the business. This will help you in keeping the track of the income and expenses. You can also use accounting system or software that also helps in maintaining the record books.

Licensing:

To acquire a license for your small business, you need to consult the local authority where the business will be set up. Licensing procedure requires certain fees and rules to be followed.

Tax Implications:

The tax implications depend on the entity of the small business. A sole proprietorship business needs to pay quarterly payment at the end of a quarter year. In case the small business is S-Corp, C-Corp, or LLC, you need to contact the attorney for your tax implications.

Client Contract for Service:

While setting up the business, a client contract for the services should be made. This helps in making a mutual agreement and understanding a plan to work together.

Setting up a small business requires certain essential aspects as mentioned above. These aspects help you in well setting up the business in the market. Aftermath, its your responsibility to its take it further. A good businessman always looks out for more options and resources to expand his business. Always seek advice and suggestions from your experienced and senior businessmen to attain success with your small business.

1. Wearing too many hats

This is a huge overlooked problem in the world of traditional business and can single-handedly destroy a business overnight. If you are the person handling 2-5 positions within the company, and the business could not operate one or two days without you on its own; it is a matter of time before you harm yourself and ultimately the business.

A. If you get hurt or sick, your business stops. This is when the business is completely reliant on you.

B. If you are not qualified to perform certain aspects of the company (business functions): you are damaging the business structure or outside client perception.

C. Too many hours of work: you will inevitably cause yourself physical exhaustion and have a burn out rate of just a few years.

D. You may think that you are saving yourself money by not hiring the needed amount of people to perform a proper business structure, but in the end you could be hurting your growth and even preventing a higher price on the sale of your business.

Wearing to many hats is a real burden and will cause more problems within a company than you can fathom. I would suggest that if you want to move forward and have a thriving company that you budget and prepare all job duties to be delegated to someone qualified when your cash flow will sustain the expense.

2. Lack of Working Capital

This is a vital necessity in a traditional business, working capital is a word to describe a large amount of on hand cash that is set aside to handle unexpected expenses and company growth. If you are not capable of having at least one or two full months of company expenses covered by your working capital, then you could be at risk of losing everything in a blink of an eye.

A. Many businesses work on a NET 30 (payment is due within 30 days of work), but do you really get paid on time? And what happens if you don’t get paid at all?

B. There are many fixed expenses on a day to day basis called fixed overhead. These expenses do not depend on the work that you do. Many people do not understand this concept until they have to pay bills and employees from a bank account that does not have enough money in it. This causes a cash crunch and is a real problem if you do not have extra money put aside to float your business along until you receive payment from your clients.

C. Extra unexpected costs may prevent you from performing your services until fixed or corrected, if you do not have enough on hand cash you may have to borrow or shut your doors.

Working capital is prudent to any successful business and will allow you to grow and be comfortable. If you have a large reserve of on hand cash, you will never have to pass up an opportunity to expand your business while preventing cash flow problems.

3. Cash Flow problems

This is when you are not able to pay for bills, taxes, and make payroll for your employees or yourself on time. Understanding the timing of when you receive cash in your business is critical. When cash flow problems occur it can be detrimental to your company and you may not be able to recover or collect funds fast enough to keep your business from closing.

A. When you are spending or withdrawing too much from the company prematurely before you have received the payments due to you. This is a problem especially when you do not have a secondary source of emergency funds.

B. Many times cash flow problems can stem from fast growth, theft, too much overhead, taxes, not properly job costing (more money going out to employees than the job takes in or charges), accounting errors, etc.

My advice is do not deplete your bank account with credit cards, get in a habit of only taking money out one time a month after all expenses or even six times per year. This habit will give you plenty of extra money in the account and acts as working capital until you have made sure that all of your bills have been paid.

4. Rapid Growth

Rapid growth is a silent and unexpected business failure waiting to happen if not done properly. Many people do not understand the proper way to grow a business that promotes a healthy and strong business structure while increasing the revenue. The common phrase used amongst other business owner to describe a Rapid Growth failure is “too big, too fast, too soon.”

A. Before you grow you must dive deep into research on how much it will cost you to expand the area or provide a service new to your company. This will ensure that you know your real cost behind the growth, putting you in a position to decide weather you can handle the cost associated with the new growth.

B. Determine how fast you can grow with your new perspective on cost of the new growth, then make a growth plan that will walk you through each step required to make the business ready for the new growth. This can include new employees, new job descriptions, new machinery or equipment, extra inventory, transportation, signs or logo, sales material or marketing strategy, time frames, extra cash on hand to cover upfront expenses and overhead, payroll increases and website updates.

C. When getting ready to sell a business many buyers will look at a fast growth as a possible source of structural problems and may shy away from buying that business without great research. Use the 15-20% rule of growth per year unless you have professional business growth help or bring in seasoned investors. This will ensure that there are no Cash flow problems or structural problems within the business.

When I grow I always research and document every step needed to make sure nothing goes wrong and I am fully aware of all extra cost associated with the growth.

5. Poor management

This problem is one of the most common amongst all businesses including those that have already failed. A business can still grow and not be forced to close the doors like the previous problems that I have explained even when the management is poor. A business is only as good as its management and poor management will stunt the businesses growth, structural stability, hire unqualified employees and waste your profits like its going out of style.

A. Poor management has no control over the business and makes you vulnerable to collapsing of the managerial system creating BIG issues for you to deal with.

B. Many people know that the manager that they have hired isn’t qualified to do the job, but if it means that they don’t have to be the manager than it is now plausible. This thinking will turn out to be a nightmare, when the management decides to harm the business through careless actions and possibly destroying your local reputation. Then they leave you hanging with a dysfunctional system, fewer employees and possibly many unknown thefts.

My advice to you is when you know they are not cutting the mustard it is easier work getting rid of them now before they damage anything too bad, but far harder to let them stay and to correct and repair all of their irreversible damages they may have cost you money and future clientele.

Delegation has always been a problem for a lot of entrepreneurs. In a many cases there isn’t even a question about it: it’s my business and therefore I must be as involved as I possibly can! It feels normal – I’m my own boss and because of it I don’t have anybody to help me, I’m only as successful as how hard I work.

And the problem is obvious: our business is our baby! It’s our heart and soul and we will fight anybody who will touch it!

Having been through a number of businesses myself, I’ve come to realize that we often have difficulty telling the difference between the business concept itself and the dirty little things that are involved in actual production or manufacturing process.

By default we think that as business owners we are supposed to be involved in every aspect of our business; that we have to know everything about everything that is involved in the process of the creation of the final product and that’s the way it should be if you want to run your own business.

Nothing could be further from the truth!

This kind of ideas actually run a lot of small business owners out of business every year and they rarely understand what kills them!

In order to see why it happens let’s go back a little bit and ask ourselves: what is a business? Is it an opportunity to provide your customers with fresh bread and cleaning services or an opportunity to make money for an entrepreneur?

It’s the money! It’s the profit that we want to receive from our business! That’s the main reason we quit our jobs and become entrepreneurs!

So when we consider a new opportunity we have to calculate ahead of time: are we going to make money on it or we just know how to bake bread and clean floors and we assume that if we own the entire business it will automatically make money for us.

Ultimately, your work as an entrepreneur is to invest available resources at a rate of return that exceeds the price that you pay for them.

That’s where it gets tricky! What is your cost of all the parts and components of your business? Are you sure you are aware of it? Are you?

Everything has a price! The faster you realize it the better! There is nothing free!

You know exactly where I’m going with this! That’s right! Your own time!

Inability to put a price on their own time runs a lot of small business owners out of business!

They think that if they do something themselves, they are getting it for free! This kind of entrepreneurs end up doing everything without any help hoping to “cut costs” and they don’t realize that the problem would never happen if they budgeted for every component and every position in their business.

Haven’t you met business-owners who never have time available or money available because “You know, we run our own business, things are tough?”

Things are not supposed to be tough unless you make them this way!

It all comes back to budgeting. Did you budget for an accountant, for a cleaning lady, for a receptionist, for a loading-unloading professional, or you thought you would do it yourself and therefore it will be “free”?
One more time: everything has a price! Your involvement costs money!

As an average small business owner you want to make average small business money, right? It should be high six- low seven- figures per year, on average $1,000,000.00 per year (according to John Assaroff), or $420.00 per hour!

So, every time you do anything for your business other than making a decision, you should ask yourself: “Can I buy it for less then $420.00 per hour?” and if you can – you should!

Another problem is – what if you can’t? Then you have to be honest with yourself – your business idea does not have enough upside to support itself and you should immediately abandon it! And by “immediately” I mean IMMEDIATELY!

After all we start our own business to eliminate things that we don’t like about being employed by somebody else: lack of financial freedom, lack of geographical freedom, lack of ability to spend time with our family, lack of ability to travel, lack of ability to contribute.

If we don’t get to experience all this, then why bother?

Robert Kiyosaki explains the difference between a business and a job this way: if you can leave it for a year and find it still running and even grown when you come back – it’s a business, if it dies the next day you leave – it’s a job!

So when we are talking about Global Resorts Network Business we should be open to the idea of delegating most of the activities to outsourcers: article and press-release writing and submission, TrafficGuild activities, link building, social media communications, message boards and forums postings, content development and distribution, etc.

It’s not about losing control, it’s about gaining control! You are the brain, you are the brand! Let somebody else execute your ideas! After all you want the benefits, not just a feeling of involvement!

Keeping the big picture in mind is what it takes to build a large organization.

Do what you are the best at – business development and strategizing – and let somebody else handle all the technical details.

I remember, in the beginning of my real estate investing I was flipping houses: you buy a falling apart house, fix it up and sell hopefully making some money at the end. I was trying to do everything myself, because you can’t let somebody else mess it up! It’s my baby! Nobody else can hang drywall better than I can and nobody can install a new toilet the way I do it!

It would take me forever to finish one property and after having spent so much time and effort on it you get really frustrated when a prospective buyer refuses to see how special that house is. All they see is one more three bedroom house among the other three bedroom houses on the market!

And at some point I partnered up with a group of people who had been flipping houses for quite a while as well and, seeing how attached I get to the house we were renovating, they shared with me their approach: they would actually make an effort not to be at the property during the renovation process, they actually hired a project manager to supervise the process and to avoid the need for them to be at the property. They were subbing out everything, focusing only on acquisition and selling aspects of the business. This approach allowed them to avoid falling in love with each property and to become the biggest company on the market within literally a few months!

I have another great example for you.

Back home, in Russia, we have this belief that has been around for decades: you have to grow your own potatoes, because if you do it yourself – it’s free. I’m not joking!

I remember how every year we all had to participate in this weird activity: no matter how wealthy you are, no matter who you are, everybody was getting really involved in planting and growing potatoes. We would plant it manually and harvest it in the fall by manually digging it out of the ground! It was a lot of work!

I kept asking my parents why don’t we just buy potatoes at the store (they were obviously very inexpensive) and they would keep telling me that if we grow them ourselves they are free!

I hadn’t been to college yet, but I was already feeling that it wasn’t the way to go, that this one-sided self-sufficiency was wrong, but I couldn’t figure out why everybody was still doing it.

I remember eventually, when I was already in college, when the time came again to harvest potatoes, I said to my family: “Hey, guys, I can handle it myself, you don’t have to go with me. I’m a strong guy and I will take care of it without your help!” They said: “I you sure? It feels really weird, because for years it’s been an activity that the entire family must participate in! Everybody else does it this way!” I said: “No, you are fine. I got it!”

Then I went to the place in town where bums were sitting all the time waiting for work and for barely any money I hired them to take care of this potatoes situation and it was done by the end of the day.

I don’t think I ever told my family what happened, because it would be almost a crime, what I did!

Plus, they were so proud of me!

And, eventually, in college, I learned that I was right, when I read in the book the words that I remember by heart:

“A world of individual self-sufficiency would be a world with extremely low living standards.

Trade allows people to participate in activities they can do well and to buy from others goods and services they can not easily produce.

Specialization and trade go hand in hand because there is no motivation to achieve gains from specialization without being able to trade goods and services produced for goods and services desired.

That’s why economists use the term “gains from trade” to embrace the results of both.”

So I was right!

It sounds like poetry to me!

One more time: you don’t have to do everything in your business and you don’t have to be good at everything in your business!

As John Assaroff taught me: “Hire people who play at what you have to work.”

The faster you learn how to delegate, the faster you will be able to develop your business to the point where you can finally move to Costa Rica, learn how to surf and get to spend day after day on the beach with your family relaxing and drinking those fruity drinks with little umbrellas!

You are a business owner! That’s what you do: you own your business!

Let somebody else handle the technical aspects and that’s when you will experience the freedom you started your business for in the first place!