Good Business Plans, Reasonable Expectations Are Important Facets Of Starting A Business

By Susan E. Campbell

What determines whether a start-up flies or fails? A well thought-out business plan, reasonable expectations and enough capital to get through some down times are key factors, say some experts.

“To secure a start-up business loan, the lender requires the principals to provide a written plan,” said Paul Dowen, CPA, partner at Whittemore, Dowen & Ricciardelli LLP (WDR) of Queensbury and Saratoga Springs.

This need not be a formal 40-page document, but must provide research and details about what the company will need for its initial capitalization, he said.

“It should address, how long will it take me to make the first sale? What are my expenses and

debts? Who are my customers going to be? Am I targeting the right markets? How will I attract customers? If I think I can make $100,000 in sales the first year, how will the business get there month to month?” Dowen said.

These are questions WDR’s consultants ask their clients. The answers inform the plan and the plan not only launches the business, but also helps to keep it on a successful course.

“I had been talking to one client in the beverage industry for a full hour when I asked, how long will it take you to sell this product?” said Dowen. “His answer was 18 months, although his business plan showed sales posting in month six.”

“Facilitating a business plan is a process that makes business owners think,” said William Brigham, director of the Small Business Development Center affiliated with University of Albany’s School of Business.

The center serves as a public agency, offering no-cost consultation and training for companies and individuals around 11 cities in the Capital Region including Saratoga Springs. About 1,300 individuals a year use these services from its 24 centers in New York state.

Under-capitalization is a sure route to failure, according to both Dowen and Brigham, and is related to planning and financial projections. Either there were inadequate resources to start with, or sales did not happen as forecast, or expenses were underestimated, or a combination of the three.

“You have to ask yourself: If I have cash flow issues, how am I going to sustain myself on the personal side as my business gears up,” said Dowen.

Some tap into savings and retirement plans, often paying income taxes and hefty penalties to access the money.

“There is no turning back from that, and some later say it was a big mistake” to liquidate retirement assets, said Brigham. “They get enthusiastic and feel there is no way their new business can fail.”

Excitement about your product or service may be the first requirement for success, but Brigham has a more realistic approach in mind.

“The solution is to write an ultra-conservative estimate of the capital needed,” said Brigham. “It’s very difficult to go back to the bank once you’ve said what you are going to do. I’m not a believer in reparational writing.”

“Writing a business plan is about making the best estimates you can,” said Dowen. “Unfortunately, once the plan is written, many business owners never look at its pages again. You need to go back and analyze when has happened.”

Brigham concurred. “Problems occur when people circumvent the planning process,” he said. “We discuss with them the need for plans and projections, but they don’t want to do the work.”

But businesses have resources in both the non-profit and private sectors to help, as Dowen said, “stimulate the conversation” that can lead to a healthy business.

Lack of experience can also inhibit small business growth. Most new businesses start with a really good idea. But knowledge of the industry, its customers and competitors is also needed, said Brigham, along with basic accounting and bookkeeping.

“WDR helps clients get set up on some basic accounting software by wading through the charts and screens the client needs to track expenses and sales,” said Dowen. “If not set up correctly, the owner will never have the correct information about what their business is doing.”

The problem is how to post the data.“Users are not coached. There’s no manual for this,” said Dowen. The system looks overwhelming and perhaps the job goes undone.

That is why some administrative functions, like human resources and payroll, are often best outsourced, freeing the business owner to do what he or she does best: run the company. These industries are complex and ValueWise Corp., can provide expertise on the nuances of reporting and compliance.

‘The human resources and payroll components can be challenging for the first-time business owner,” said Frank Grant, CEO. “The minute the business employs people they need to comply with regulations and do filings.”

Setting up payroll tax, FICA and Medicaid, workers compensation, disability, and unemployment insurance all must be filed correctly and on time with both the federal government and the state to avoid penalty, Grant said.

Even something as simple as posting the minimum wage and health insurance information can be overlooked by the new business owner.

“Many business owners don’t realize they have to post the workers’ compensation policy,” said Grant. “Governmental agencies are aggressive about enforcement and inspectors will collect penalty fees for the state coffers” if found to be non-compliant.

Some chose to perform these functions on their own to keep costs down. But, said Grant, “You run the risk of spending more time and money down the road if you have to fix things.”

How frequently one must do filings is a function of the size of the payroll.

“If the payroll is $100,000, liabilities have to be filed the next day, and the frequency goes down from there,” said Grant. “Our software handles the tracking, whereas humans are prone to error.” Especially newcomers.

“Outsourcing payroll and the HR functions, such as maintaining employee manuals, company policies, ACA (Affordable Care Act) reporting, vacation time and the like, allows you to focus on your core business functions and what you’re passionate about,” said Grant.

The Small Business Development Center offers training that covers some of these administration functions. The intense courses are part of the center’s micro-loan funding program that can give a business owner up to $35,000, if qualified.

“The goal is to lower their risk of default,” said Brigham. “They may not ultimately receive the loan, but the training is very valuable in getting otherwise ‘unbankable entrepreneurs,’ who have no cash, credit or collateral, up to speed.”

“Each individual needs to ask, am I being reasonable about what I need to do as a business owner,” said Dowen. “For example, if I’m doing payroll instead of selling, will I get behind? If I get behind in paying my sales tax, there will be a big penalty.”

There are other legal aspects to consider. When filing for an employer identification number or EIN, Dowen says, “you have to know what you’re applying for.”

How one completes the form will determine the nature and timing of future filings. Check the wrong box, and the federal government will look for reporting on employees a company doesn’t don’t have yet.

“You need to be real savvy to read and do it all,” said Dowen. “Getting professional advice can save you money in the long run.”