GREAT IDEAS FOR ENTREPRENEURS FROM THE THOUGHT LEADERS AT CASEY NEILON
HOW TO ACCELERATE EARLY-STAGE ENTREPRENEURIAL SUCCESS
FIVE KEY AREAS TO BUILD YOUR PLAN
By CN Team
Over the last few years, I’ve had the great privilege of working with successful entrepreneurs. I’ve also watched people launch businesses and then struggle. Starting a new business is a risky venture. Sometimes it can feel as if there are secrets successful entrepreneurs know that the rest of us don’t know. That can be frustrating.
The high-risk zone for nearly any business is within the first 24 months. If you can survive or thrive within that early-stage period, your chances of long-term success are much improved. After serving hundreds of entrepreneurs, I’ve come to recognize five key areas that tend to accelerate early-stage success. Here are my lessons learned.
What Is An Early-Stage Entrepreneur?
There are several characteristics that define an early-stage entrepreneur. I tend to think of this as an entrepreneur who has not yet achieved the level of success that they know they can achieve. By my definition, this could mean:
- They’re thinking about starting a business and are in the planning stages.
- They’ve already launched a business but it’s not more than 24 months along.
- They have limited entrepreneurship experience and are learning as they go.
- They are early in their careers but are willing to take risks.
- They’ve been in business for more than 24 months but are now finally realizing success and wanting to know what to do next.
- They’re an experienced entrepreneur, but they’re entering an exciting new field that is unfamiliar to them.
I think it’s important to recognize that not every early-stage entrepreneur is a new entrepreneur. At Casey Neilon, we serve primarily business owners, many of whom are serial entrepreneurs. Many of our clients participate in more than one business entity. But just because someone has had success in one type of business, this does not mean they will automatically be successful in another type of business.
I also think it’s important to note that the advice I’m about to offer is not really intended for venture-capital backed start-ups. These types of enterprises are often fostered and led by a team of professionals who examine every aspect of the opportunity. Venture-backed deals usually require certain levels of financial controls and oversight. While my ideas will certainly benefit these types of ventures, they probably already have a team of lawyers, CPAs and CFO-level experts to help them.
I want to share ideas that will help the little guy or gal. I want to help you think about and make a plan for accelerating success when it might be just you, or a business partner or even a family member. Entrepreneurs who are boot-strap-oriented usually don’t have a big team of lawyers, bankers, CFOs and other professionals to help them. They usually can’t afford it.
But this doesn’t mean you have to go it alone. You don’t have to learn primarily through trial and error. You can bypass a lot of mistakes that might slow you down or even sink your boat. To help you do this, let’s take a close look at risks that are common to early-stage entrepreneurs.
Just because someone has had success in one type of business, this does not guarantee success in a different type of business.
Common Challenges Of Early-Stage Entrepreneurs
When an entrepreneur is starting a new business, they have to make a lot of decisions. Some of those decisions can have long-term consequences that might not be apparent on day one. I don’t have space in this article to describe all of the decisions and the pros and cons of each option. So instead, let me simply divide the challenges into two phases: start-up and early success.
Start-up challenges describe those situations you will encounter as you are launching your business and likely within the first 6 months of operations. Early-success challenges describe those situations you will encounter once you’ve had a bit of success. Most successful entrepreneurs will face these somewhere between 12 and 36 months of operations.
The first challenge involves what type of business structure to adopt. The options are usually to operate as a sole proprietorship or to incorporate. Corporations provide protection of personal assets but also come with filing and tax requirements that can be burdensome.
The most common types of corporate structures include S-Corporation, C-Corporation, Limited Liability Corporation (LLC) or professional corporation. There are other types of corporations that might make sense for your business structure. But this decision needs to be made in consultation with a professional advisor. This is especially important as it relates to taxes.
A second challenge is licensure. Securing licenses can range from being very easy to very complicated, depending on the industry. Some industries require entrepreneurs to obtain licenses and the process of doing so can feel very foreign. Licensure is nearly always managed by some type of regulatory body. Some governing bodies can be challenging to navigate and don’t seem to want to make it easy on start-ups.
A third challenge is raising capital. Very few businesses can get started today with absolutely no capital. The funding options for most small business include the personal savings of the entrepreneur, borrowing money from friends and family or seeking a bank or Small Business Administration loan.
Once a company is launched and becomes a going concern, a new set of challenges emerge. How an entrepreneur responds to these challenges usually determines how quickly they race toward their next level.
The first early-success challenge, and one that will remain a challenge, is cash-flow management. If you run out of cash, it’s over. The business ceases to operate. This is what some management consultants call the death line. It is imperative that entrepreneurs build accurate financial forecasts, manage expenses to forecasts and consistently track cash-on-hand.
The second early-success challenge has to do with profits. Once a business is generating profits, it can be very challenging to decide what to do with them. Building cash-reserves, investing in technology, buying new equipment, upgrading office space, opening a new site: the options seem endless. Usually there is not enough money to invest in everything.
A third early-success challenge is tax planning. Far too many entrepreneurs are surprised, in years one and two, by how much they owe in taxes. Just because a business is operating in a profitable manner, this does not mean the business owners will realize a high net income. To achieve that goal, they need a solid tax strategy.
Five Key Areas To Focus On
Now that I’ve identified the challenges, let’s look at the five key areas that I believe you should focus on to overcome these challenges:
- Choose the right advisor.
- Choose the best business structure for your needs.
- Institute the right financial disciplines.
- Develop an investment strategy that aligns with your goals.
- Plan for your tax bill.
Choose The Right Advisor
Choose a business advisor who will take the time to get to know you, your dreams and your situation. This person should work collaboratively with you to develop a plan that is designed to realize your goals. The choice in who you trust in the early stages of your business could determine your ultimate success or failure.
My recommendation is that you work with an advisor who gets entrepreneurs. Business owners are risk-takers and this can make a lot of advisors uncomfortable or even unsympathetic. If an advisor does not understand why you’ve made certain decisions, the relationship may not work out.
The three core advisors you need from the start include a CPA, attorney and insurance specialist. The right early-stage advisor can often bring to the table all of the professional advisors you need. Of course, as you might expect me to say, I believe the CPA should be the quarterback of this team. My colleague Suzanne Olsen wrote a wonderful article that explains why your CPA should be your quarterback.
Choose The Best Business Structure For Your Needs
The first big decision you’ll likely need to make is whether to incorporate or to operate as a sole proprietorship. This decision has a substantial bearing on your tax planning down the road. My colleague Nicola Neilon recently wrote an article about how the new tax laws benefit different types of business structures.
My advice is that you carefully examine all of the options available to you and balance out what matters most to you. If you have substantial assets you need to protect, then incorporating probably makes sense.
Institute The Right Financial Disciplines
The first financial discipline to develop is a financial forecast that includes monthly income and expenses for at least 12 months. You can easily develop this resource using Excel or some other type of spreadsheet. The fatal flaw for any early-stage business is running out of cash. If you have an accurate financial forecast, you greatly reduce this risk.
The second discipline to adopt is a tool like QuickBooks. These are relatively inexpensive and are usually fairly easy to learn. These tools allow you to accurately track income and expenses and compare this against your projections. These tools also allow you to synchronize your data with a CPA for cash-flow oversight.
The most important thing is to track your burn rate and make adjustments to operations so that you stay on-plan. These simple financial disciplines can help you prevent a financial disaster.
Develop An Investment Strategy That Aligns With Your Goals
Remember this key point. The investments you make this year will lead to the successes you realize next year and the years to follow. So invest wisely. Do not wait until your business is generating profits to develop your plan for what to do with them. There will be far too many temptations to spend your profits on things that might look good in the moment but will produce buyer’s remorse down the road.
No one can predict with certainty how your business will perform. But this does not mean you shouldn’t have a plan. The most successful entrepreneurs are the ones who have a plan and stick to it over time. So as you launch your business, make three plans:
- What to do if things do not go according to plan.
- What to do if things go according to plan.
- What to do if things go better than according to plan.
Plan For Your Tax Bill
There is almost nothing more disheartening to an entrepreneur than to have a successful year in business, stack up a pile of money in the bank and then pay it all out in taxes. This hurts. It’s demoralizing. This is why I recommend that you carefully plan for your tax bill.
With the Tax Cuts and Jobs Act (TCJA) of 2017, there are more ways to save money on taxes than you might realize. My colleague Darsi Casey wrote a great article about this topic that I recommend. As with your investment strategy, my recommendation is that you develop your plan long before the tax bill is due.
The Biggest Risk You’ll Face
Early-stage entrepreneurs are more at-risk from discouragement more than from actually failing in business. Tenacity matters. You have to keep slugging away. Every business starts with the kernel of a great idea, something the entrepreneur is passionate about. But the passion can be dissipated.
Guarding your energy to focus on the kernel is crucial to long-term success. To be successful in business, you need to intensely focus over time. The right advisor can help you spot and prevent disasters. The right advisor can also help shoulder the burden so you can focus on what you love and why you started the business in the first place.
If you are looking for that kind of business relationship, let’s have a conversation soon.