Starting a small business is hard work, and in a tough economy, it can be even harder. This is partly because when credit markets are tight, it can be tough to get financing. That's why it's crucial for small business owners to hone their business plans. In other words, if you want a slice of the financing pie, you had better work your cash projections really hard and know your bottom line down to the penny: how much money you need to put into the business, how much you will need to charge to meet your operating costs and, hopefully, what you need to do to realize a profit. If you're thinking about making the leap into entrepreneurship, consider the following tips to successfully build your business in a difficult economy.
1. Find Financing
Before applying for a loan, ask trusted friends or professional advisors to review your business plan to make sure you're not overlooking anything critical or making inaccurate assumptions. You could ask:
- a friend who owns their own business
- a loan officer at the bank where you do business
- an accountant (ask for an estimate for reviewing your plan first)
In addition to securing financing for your new enterprise, come up with a financial back-up plan both for your business and your personal finances if you fail to hit your initial revenue projections. You should also build up your personal cash reserves so you have enough to live off of for six to 12 months and budget carefully to make sure you can continue making your most crucial payments (e.g., rent/mortgage, insurance premiums, etc.). Finally, check your gut—and your bank balance—to make sure you're ready to start your new venture.
2. Market Smartly
Starting a new business when the economy is on the downturn takes creativity and ingenuity. Marketing is vital to getting ahead of the game and your competitors. Take your business plan and really flesh out the marketing components. What exactly are you going to sell, who are your targeted customers, how will you price your products or services, and what is your plan for promoting your business?
You stand a better chance of succeeding by thinking niche. Slice and dice your original customer base to come up with smaller segments to market more strategically. For example, if you offer a professional service geared toward women, could you narrow it to target women within a specific age range, career type or geographic location?
Or, alternatively, think about ways to alter your products or services to broaden your business appeal and customer base. For example, if you opened a make-your-own-dinner company, could you also offer dinner delivery or premade/prepackaged dinners for customers who want grab-and-go?
Remember to keep a close eye on the competition. Do ongoing competitive analysis and watch what other providers are doing and what marketing techniques they're using to build their business. Are they tweaking the product? Lowering the price? Using creative promotional tactics? You'll need to know where your competitors are so you can differentiate yourself and gain market share. For example, think about where your competitors aren't operating or which potential customers they're missing, then capture that segment of the market.
3. Start Small…With a Plan to Expand
Manage your expectations and your expenses by starting as small as possible, then plan to expand when business takes off. Review your business plan and reconsider what you need to start. For example, could you start in a smaller and less expensive location, or stay virtual by eschewing a physical office completely?
After deciding the best, most affordable space for your business, think about your staffing needs. Before hiring full-time employees think about filling needed positions with independent contractors, temporary workers or part-time staff. If you're opening a business in an area that has seen local businesses fold, you may be able to pick up some great talent for less compensation than in an positive market.
Be realistic about what employee benefits you can offer and shop competitively for the best prices. It's better for your employees to offer fewer benefits upfront and add them as your profits increase than it is to offer too much right away and find out you can't afford to maintain them.
4. Use Technology to Your Advantage
Technology can provide you with numerous ways to save money and increase profits. For example:
- Expand your market by selling through multiple online channels.
- Do email marketing instead of more expensive electronic or print advertising.
- Use websites like Entrepreneur.com or BusinessInfoGuide.com to get ideas from fellow entrepreneurs and successful business leaders.
- Optimize your website for search engines to keep your site coming up at the top of your customers' searches.
- Produce affordable marketing vehicles like podcasts or webinars through your website.
- Create an online customer loyalty program offering advanced notices of sales, discounts, referral bonuses and coupons.
5. Network, Network, Network
Get to know other people in your community who can refer customers and help build your business. Don't know where to start? Find a local business networking group or contact your chamber of commerce. Look into joining a professional association – either a local one where you can meet people in person or even an online group – to tap into others' ideas.
6. Ideas for Lowering Costs
A gloomy economy can actually disguise some great ways to save money. Creative ideas to lower your start-up costs include:
- Using the economic situation as leverage when negotiating rents, equipment leasing agreements, etc. Lessors, developers, and vendors need businesses to pay their rent and fulfill their contracts. You may be able to get a lower price if you can demonstrate an ability to pay on time and in full at the lower rate.
- Buying supplies from businesses that are closing or need to reduce inventory, particularly for big-ticket items like electronics, office furniture, etc.
- Bartering with other business owners. Look for business alliance possibilities and suggest offsetting costs by trading products or services.
- Doing your own legal homework. Before shelling out big money to a lawyer for business startup costs like incorporating or obtaining a trademark, use online sources like Findlaw.com or Legalzoom.com, which provide free resources and low-cost services.
- Comparison shopping for the best deal on a business credit card. Find the card offering the best terms, conditions, rates, and benefits for your business credit needs on sites like Creditcards.com.
The Bottom Line
There are unique benefits associated with starting a business in a tough economy. If you do your homework, think strategically and take advantage of every opportunity to minimize costs while maximizing the value you add for customers, you can build a foundation for long-lasting business success.