Like building a home for the first time, setting up one's first business can create many frustrations.
The Most Prevalent Mistakes:
Being too dependent on others
This is particularly true of corporate successes who leave the corporate umbrella with some capital (say $100,000) and grand dreams. (Reason): They expect to have all the services and resources they had at their disposal at the corporation. (Reality): They must do most things themselves. Every step of the plan will probably take longer.
Picking the wrong banker for the first loan
A bank can be a first-time entrepreneur's best source of venture capital. However, many first-timers turn to their neighborhood banker. (Problem): Branch managers have no decision-making capacity. If cash flow isn't as good as projected, they may get nervous. (What entrepreneurs need): A lending officer at the bank's downtown headquarters to assure the entrepreneurs they will get cooperation if there is a positive long-term outlook despite periodic cash-flow problems.
Neglecting to write a business plan
Most entrepreneurs like to take action, not to write a business plan. Many prefer to farm the plan out or to hire a consultant to do it. (The trap): If they let someone else do it, they are most likely giving up the guts of their business. Entrepreneurs are usually natural salespeople. They are the best at generating excitement about their business for bankers and venture capitalists who say they want numbers but actually may be sold by an entrepreneur's enthusiasm. (Solution): Read a book (preferably several) about business plans and get advice from an accountant. Have the accountant review the plan.
What goes into a business plan? A statement about your background and why you feel qualified to start your business. Attach your resume.
A brief description of your proposed business.
Legal form of the business
Detailed background of the principles and their areas of expertise
Nature of the business
Demand for the product or service (based on your detailed market research)
How much business the firm has done already
A statement about how your business is financed, including your personal financial statement. Describe how much you want to borrow and how much you will be investing from your personal savings, if any. Be clear about how the rate of return is measured. Indicate how the money will be used and how you can repay a loan based on various rates of return. (Idea): You might want to use a computer package that makes those calculations and provides a model.
Summarize the business. Describe why you think it will be a success, and how you plan to operate and manage it. (Point): Here's an opportunity to sell potential lenders, investors, and key customers.
Assuming all-around expertise.
The entrepreneur's forte is usually their own field. They are actualizers and visualizers. Professional managers are better at managing people. (Essential): Once the business has taken off, the entrepreneur must find professional managers to take on the people-managing burden.
Selecting the wrong advisers.
The most successful entrepreneurs find a personality fit among themselves and their lawyers, accountants, and bankers. Competence isn't everything. Personal style is important in business. While the entrepreneur must learn to speak the language (numbers and money) of bankers and accountants, the best way to a long-term relationship is whether these people fit in with his personal style.
Carlos C. Johnson III
Author, Speaker, Business Consultant