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180 Days Before Launch

Any successful business requires a solid plan and enough capital to get started

Aug 1, 2013

Launchpad Next

story-header-180daysEvery business starts with an idea, but not all good ideas make for good businesses. The first step is evaluating the viability of your concept. Start by doing market research. Map out who your customers are and develop the characteristics of your target market. Then, look at the competition. Is somebody else already providing the product or service you want to offer? That doesn’t necessarily mean you should toss your idea, but you need to think about how you will provide something better and cheaper. Lastly, look at the trends in the market and industry you’re trying to enter. Are you joining a growing or declining market?

If you’ve gone through this process and your concept seems viable, it’s time to draft a business plan and your financial plan, with the help of an accountant or financial advisor (see sidebar).

TIP: If there’s one thing that most of the businesses and experts we talked to agreed on, it’s this: one of your very first steps should be engaging an attorney and accountant for counsel as you set up your business.
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Learning from your customers

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Airworks president and founder Darryl Weflen

Airworks Compressors, founded in 2008, provides mobile air compressor units for service trucks and drilling. And it all got started because president and founder Darryl Weflen, who owned another business, listened to customers when they asked for something. “We saw a need evolve in the market. Customers were starting to request different types of equipment that just didn’t exist,” he says.

From there, Airworks was born. The company started manufacturing and distributing their compressors and saw success right from the start. The demand was so great for the products that some of Airworks’ suppliers had trouble meeting the production needs. Weflen recommends sourcing from multiple suppliers to avoid this very problem. “When you don’t have an accurate projection of how much you’re going to sell, it’s pretty hard to know what quantities you’re going to need,” he says. “Multiple suppliers is certainly something I would make sure I had in place beforehand.”

But his best piece of advice for a growing business? Look into the viability of your business before you invest any money. “Make sure there is a need and it’s going to be accepted,” he says. “Talk to your target market. If people need something they’re going to tell you what they need.” Weflen says Airworks grew rapidly because he listened to his customers and made sure that his products were going to fill a need in the market.

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It’s all in the plan

You’ve done the research, and you’ve got an idea, a prototype or a service you’re sure will be profitable.

Now it’s time for a plan. Having a business plan is essential to secure financing, but even if you’re going to fund your business yourself, it can save you from all sorts of disasters. Your typical business plan is around 30 pages long and lays out everything you (or a potential investor) need to know about how you’re going to run your business. The exact structure of a business plan can vary, but here’s what you need to cover. Don’t worry – we’ll help you out with all of these.

Introduce your management team, your business and your value proposition. Give a brief history of your company, a description of the product or service you are selling and what you hope to accomplish.

Examine the current marketplace and your competition. Who are your competitors, and what makes now the right time for your product? Lay out how many potential customers exist for your product and the current state of the industry you’re planning to enter.

How are you going to convince people to buy your product, and how and where will they buy it? Lay out the basics of your marketing plan, including elements such as tradition and social media, as well as how you plan to sell your product, whether that’s online, through your own store or wholesale.

You can’t do it alone. Who have you already got on your team and what are their (and your) strengths? How are you and the rest of the management team being compensated? Then take a look at what roles you’re going to need to fill in the short and long term and how you’re going to go about hiring, training and paying your staff. You’ll also want to include a list of any advisors you’ve retained such as accountants, bankers, lawyers or consultants.

On a day-to-day basis, how is your company going to operate? Consider elements like location, which suppliers you’ll use and how you’ll track business metrics.

Your financial plan should include both your personal finances and your business finances, since they’re very closely tied together. What finances do you have, what do you need, and how much do you need to make for the business to be profitable?

In every section of your business plan, make a point of considering what could possibly go wrong, and what you could do to mitigate those risks. That’s the beauty of having a plan – knowing not only what to do if things go well, but what to do if they don’t.

Money, money, money

It’s no secret that starting a business costs money, but to the uninitiated, where to secure that financing can be a mystery.

It doesn’t help that there are a plethora of options, each with their own advantages and drawbacks.  Financing generally falls into one of two categories: equity financing, which is capital that you, your partners or investors put into the business in return for a share of the profits, and debt financing, which is capital that you borrow and that has to be repaid.

So what are your options?

Sometimes, the best source of money is the closest to home. The people who know you best already know you have what it takes to succeed, and may be willing to either give you a loan or invest in your fledgling company. Just because it’s your mom or your best friend, however, don’t skip the necessary paperwork – get a shareholder agreement or put down in writing how and when the loan will be repaid. After all, nothing sours a friendship faster than unpaid debts.

Both the federal and provincial governments offer financing loans to new and established businesses through a wide variety of programs. Some loans are targeted towards particular sectors, regions or types of entrepreneurs (for instance, there are specific loans for businesses owned by women, or businesses in rural Alberta), while others are available to all businesses. A number of the programs targeted towards new businesses also offer education and other resources to help you get your business get off the ground, such as advice on business planning or entrepreneurship. The government can also provide loan guarantees to help you secure financing from banks.

There are also a number of grants available, which don’t require repayment, although these tend to be more targeted towards particular sectors.

To see a list of loan, grant and loan guarantee programs, go here.

Getting financing from a bank can be challenging, but it’s not impossible. You’ll need a business plan, which you should have in place by this point anyway. Banks judge eligibility for a loan based on the “5 Cs of credit, which are

  • Character: Are you the kind of person who pays their debts?
  • Capacity: Are you likely to be able to afford payments on the loan?
  • Capital: What’s your net worth?
  • Collateral: What assets do you have to use as collateral?
  • Conditions: How is your proposed business sector faring? The economy overall?

Having an existing relationship – for instance, a personal banking account or a mortgage – with the bank you approach will help your case, since they’ll have a better idea of your character and your ability to deliver on your business plan.

Shows like Dragons’ Den and Shark Tank have popularized the idea of financing a business by finding angel investors to buy a stake in the company. This can be a good way to finance a business, but it’s not for everybody. Investors may expect a certain amount of say in the company in exchange for their money – a seat on the board, for instance. Many angel investors and venture capitalists are also looking for an exit strategy, which means they want to profit on the eventual sale of the company.

If you plan on being in it for the long haul, you’re probably better off looking for investors who share your goals.

Another popular financing solution, crowdfunding websites like Kickstarter and Indiegogo let businesses approach consumers directly for funding. ATB even launched a made-in-Alberta crowdfunding website especially for businesses called Alberta BoostR. It works like this: You post your project, product or business proposal and consumers who want to see it become a reality can pledge money towards it. If you reach your goal, you receive the money (minus a cut for the site). This works best for companies with a tangible product with mass-market appeal.

Caution is necessary, however. A successful crowdfunding project requires a successful marketing campaign, and many fall short. Many of those that meet their goals then fail to deliver the product they promised. Make sure your business plan is solid (and scalable) before you launch your campaign, so you don’t risk overselling yourself.

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Meghan McConnan and Rick Martens, Senior Managers, Grant Thorton LLP

A. You want to look at the size of the organizations you’re dealing with. It goes both ways – if you’re a very small organization and you’re working with a very large accounting firm, you may get a little bit lost amidst some of their bigger clients. You’re looking for a firm where their clientele matches what you are in terms of size and complexity, or where you want to be in two years. You also don’t want to be in a position where you outgrow your advisors.

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Rick Martens, Senior Manager, Grant Thorton LLP

A. Sometimes it’s not necessary to incorporate a company. There’s two reasons to incorporate: first, if you’re not spending all the money you’re making, and second, if you have exposure to legal liability. When we have someone come to us with a business idea, we ask them some general questions about what they expect to make from the business. If it’s a small amount, you can get all the same tax advantages running it as a proprietorship, through your personal tax return. Where the company benefits you is that it has a lower tax rate for income that’s not spent. Also, if you’re doing construction and something could fall on someone and you could be sued, that’s when you want to have a company, because it provides a separation between your personal assets and the company.

A. In the fiscal quarter in which you go over $30,000 in revenue, you must register for GST. If you have a small business and you’re only going to making $20,000 in revenue, then it’s not necessary. But as soon as you go over $30,000 in a year, or any 12-month period, then you need to register. Often you might as well do it right off the bat. The penalties if you do this incorrectly can be very unpleasant – the CRA will come out and audit you if they think you’ve done something wrong.

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