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The 6 Questions You Really Need to Ask Yourself Before Starting a Business

The 6 Questions You Really Need to Ask Yourself Before Starting a Business

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Starting a small business is a risky proposition. Twenty percent of small businesses fail within the first year, according to data collated by LendingTree from a variety of U.S. Bureau of Labor Statistics surveys. Half are gone by the end of their fifth year of operations.

The same report explains the 20 most common reasons businesses fail, and of those reasons, more than half relate to insufficient planning.

The bottom line: before you start your business, you need to ask questions and find the answers, whether you like those answers or not. Let’s take a look at six of the most important questions for small businesses that want to open this decade.

6 Pre-Opening Questions to Ask About Your Business

Every business is unique. What you’ll find below is a breakdown of essential factors to consider, along with a list of more detailed queries you can use to identify more specific issues.

1. How Early Should You Make Your Financial Plan?

On the one hand, the earlier you set up your financial plan, the better. Having your best estimates of what cash flow will look like helps inform almost every other business decision, ranging from how to price your product to what kind of facilities you can afford. It’s been found that 82 percent of businesses fail due to poor cash flow.

On the other hand, if you plan too early, you run the risk of operating on projections that were solid when you made them but are out of date when you finally move forward. This mistake can kill your business from the start.

Ask Yourself:

  • What is the length of the typical product cycle for your business and industry?
  • How long will vendors and suppliers need to ship to you?
  • Are there holidays or other events that change your business model temporarily at different times of the year?
  • How long will it take you to move from the first day of operations to the first sale?

One Last Consideration:

Never plan for failure, but go into business with a clear idea of how long you can operate with zero income before closing your doors. This sets a clear timeline you can use to determine your other deadlines and schedules.

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2. What Should You Plan For?

We don’t know what we don’t know. Many small businesses that fail do so because the owner got blindsided by something they didn’t expect. Michael Gerber, the author of The E-Myth, calls this the Technician Problem: many small business owners have excellent technical skills in their field but limited managerial or entrepreneurial experience.

You’ve probably covered some of the basics, but making a list of everything you should plan for in your first years of operations can help you identify your weakest and most vital points. Once you’ve done so, you can build plans to capitalize on the latter and mitigate the former.

Ask Yourself:

  • What are the individual steps of moving from no product to getting the product in your customer’s hands?
  • How will you handle marketing and publicity in the first year, and how will you capitalize on the attention it garners?
  • What staff will you need early on, and how will you acquire the best team members?
  • Are there regulations, licenses or memberships mandatory for doing business in your field? If not, will any give you a competitive advantage or help you avoid a disadvantage?
  • What is the first significant goal you want to achieve in your operations and growth? What are the benchmarks between now and attaining it?

One Last Consideration:

Author and businessman Steven Covey’s advice is to begin with the end in mind. From the first iteration of your company, know your exit strategy.

It doesn’t matter if the plan is a multimillion-dollar corporate buyout or IPO, selling your business at retirement age to your manager or just working on the business until you don’t want to anymore. Have an end plan, and make your decisions from the start with that plan in mind.

3. What Should You Do Differently?

Ask this question in one of two ways, depending on how long you’ve been operating.

For companies already in operation, look for the places where your finances or procedures consistently bubble up as problematic and find the best changes in those areas.

If you’re brand new, you haven’t done anything, so you have nothing to change. However, you can look at how previous businesses you worked in or on ran, and decide what you will do differently from their operations. It’s usually much easier to change an existing plan than to come up with one from scratch.

Ask Yourself:

  • What are the most significant pain points in daily, weekly and monthly operations, and how can you eliminate them?
  • What are the three assumptions about your business that, if changed, would most greatly increase profits?
  • What is the most significant expense for your company, and how could you reduce it?

One Last Consideration:

While considering differences, look at your competition. How can you change your operations to mimic how the most successful operators do business? What will you do differently than the others to stand out in the market?

If your business is brand new, ask yourself what you should do.

4. How Should You Organize Your Finances?

There are many ways to organize finances. Each business has its own needs and realities to help determine the right way to do this, but that doesn’t mean there aren’t better or worse ways to go about it.

Organizing your finances incorrectly can leave you with unanticipated surprise cash flow shortages, unprepared for expansion opportunities and falling flat when looking for a loan. Almost half — 44 percent — of small businesses obtain loans from banks. Organizing them the best way for your business realities can help you bootstrap rapidly.

Ask Yourself:

  • What does cash flow look like for your business and industry? Can you structure and schedule some money moves to maximize cash on hand at any given time?
  • Will you need to prepare for seasonal shortages?
  • What is your growth strategy, and how will it interact with your financial organization?
  • Will you handle your financial details in-house or hire a contractor or firm to do it for you?

One Last Consideration:

If you plan to rely on investors at this stage or later or to take out a large loan for expansion, organize your finances with this in mind from as early as possible. That way, you can watch the best performance indicators and have the most relevant information ready when it’s time to pull that trigger.

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5. What Post-Pandemic Ramifications Should You Consider?

This issue is specific to opening your business in the next year or so, but it can matter significantly. Given the unprecedented nature of the past 12 months, many assumptions that might have been solid in 2019 can steer you wildly wrong for a startup in 2021 or 2022.

Almost every industry took some kind of hit during the lockdowns. Some of the top concerns of business owners post-pandemic include revenue loss, employee safety and a prolonged sales cycle. Consumer trust and confidence look different than they did two years ago. Government supports, stimulus programs and bailouts further muddy waters that seemed very clear just two years ago.

Ask Yourself:

  • Is your industry expected to bounce back slowly or rapidly after lockdowns end?
  • Does your business rely on a supply chain that was compromised by the pandemic?
  • Did your industry experience an uptick in revenue because it could operate during the pandemic, and will that uptick disappear as things return to normal?
  • Can you access PPP loans and other small-business support measures to help you with early operational funding?
  • How will you handle hiring, staffing and office operations until things reopen fully?

One Last Consideration:

Over the past year, we’ve seen that remote work is productive, cost-effective and improves many team members’ quality of life. What can you apply from this discovery to streamline operations, reduce costs and improve employee loyalty and morale?

6. Should You Increase Your Emergency Fund?

The knee-jerk answer to this question is yes, but the truth is not that simple. Having more operating capital and reserve funds is always good, all other things being equal. If one company has $1 million in reserve and its competitors have $100,000, the one with a million bucks is positioned to win.

However, your emergency fund is money you’re not using. A million in an emergency fund might not be as valuable as $500,000 kept back, $200,000 in inventory and $300,000 on marketing. There is a balance to be struck.

Ask Yourself:

  • How many months of run-rate expenses do you have in reserve already?
  • How large is your business line of credit?
  • What other opportunities to spend extra money exist currently or will exist in the near future?
  • How certain are those investments to pay out?

One Last Consideration:

Ask some of the same questions about your personal emergency fund. More than one business owner has gone through a few months not taking their salary or personal draw to keep the business afloat.

Final Thought: Is it Too Late?

What if you’ve already started operations and don’t have answers to the questions above? Does this mean your business is doomed to failure?

Not at all. But it does mean you should take whatever time you need to answer them as quickly and accurately as possible, then compare what the answers are to what you’re doing with your business. Be poised to pivot if this work says you need to make changes. The faster you can execute them, the better your chances of ultimate success.

Delaney Olingerton is a business consultant in Tampa Bay, Florida.