052: 5 Steps to Starting a New Business
Aug 25, 2021
Here at The Retirement Trainer, we’ve spent the last few months focused on giving back to small businesses. Along the way, you’ve been asking us two questions more than any other: “What’s most important as a business owner,” and “how can I start a new business of my own?”
If you’re a small business owner (or want to launch one), today’s episode is especially for you. We start from the very beginning, walk you through a five-step process, discuss the importance of creating a plan for succession (even if you plan to stay a part of the business for years to come), and how to find the help you need as you get started at any age.
Here are just a handful of the things that we'll discuss:
- The things business owners need to start–or restart–to best position themselves for success.
- Why there’s no magic bullet when it comes to building a thriving business–and why that’s okay.
- The importance and power of mentorship.
- Why you need a written plan to turn your dream into a living, breathing business.
- How to find balance between your work life and your family life–and why this needs to be part of your initial plan to maintain your sanity.
- “You’ve got to have goals, but unless they’re written down, they’re just dreams.” – Ed Siddell
- “Cheap is when you expect everyone else to pay” – Ed Siddell
LeAnne Siddell: It's The Retirement Trainer with Ed Siddell, a podcast about finding ways to help you become financially fit for your future no matter what financial shape you're in now. We've been doing a campaign called Giving Back to Small Business and today we're going to change things up a little bit because we've been getting a lot of questions about what's most important as a business owner and starting a new business. So, today we're going to focus on what that looks like. I'm LeAnne Siddell and here to help us with all our questions and to give us some guidance to help us stay in the best financial shape possible, the retirement trainer, Ed Siddell.
LeAnne Siddell: Hi, Ed.
Ed Siddell: LeAnne, what is going on? How are you?
LeAnne Siddell: Well, I am doing well. As we started working our way through a lot of these podcasts with these small businesses, I think the same questions kept coming up.
Ed Siddell: A lot of questions over and over and over again. You know, how do we start? What do we do? I'm already in business. What's the most important thing?
LeAnne Siddell: Exactly. So, we're kind of backing things up a little bit and I guess we're going to basically start from the beginning. So, what do you think business owners need to do in order to start or restart to be successful?
Ed Siddell: Yeah. So, that's a loaded question, right, because there are so many different ways that we can go. And the theme that we got across all the business owners so far is it's a process. It's about the process. Everyone had their target market. They had a passion for what they were doing but the reason that they were successful was because of the process that they had. And so, I mean, we have a process, our five-step process and it's kind of the same thing. When it comes to businesses, there's no magic bullet, right?
LeAnne Siddell: No. It's being able to replicate a process over and over again.
Ed Siddell: Yeah. And so, whether you're starting a business from scratch or franchise, right, you've got all these different aspects but the most important thing is you've got to have a written plan. You know, I was taught at an early age you got to have goals but unless they're written down, they're just dreams. And so, in that written plan, what does that mean? Understand your numbers. Have a pro forma. Your projections, what is that going to look like? So, that's kind of step one. Step two is what’s your exit strategy? What's the purpose of you wanting to do the business? Is it just because you have a passion? Is it to generate enough income to live now? And then what happens when you're done? What's your exit strategy? What are you going to do with it? Now, I'm going to go through these, and then we're going to come back and talk about them in detail, okay? Step three is to assemble a good team, a team of fiduciaries, CPA, your attorney, your financial advisor, that have your best interest at heart, that can make sure that you're protected and get you to where you need to go.
LeAnne Siddell: In most cases, a lot of the CPAs, the financial advisors, they've all walked those walks before you and they've been there. They’ve done that.
Ed Siddell: And they’re business owners for the most part. Yeah, absolutely. And then so developing your process. I mean, what is your process? What separates you from your competition? And last but definitely not least, and I think that probably one of the most important things is balance, right, that work-life balance. So, we'll get into that. Let's go back and really talk about having that written plan. You know, we had a guest, an attorney, Logan Phillips, a while ago that he was interviewing us for the CFP class that he was teaching at Ohio State. And he said, "You know, what's one thing if you had to do all over again that you would do differently?” And do you remember what I said? “Yeah. I’d have a mentor.” Right? Someone who's already been through the fire, has already walked the walk, who knows. Maybe not in that particular industry but if you can find one in that industry, that's probably the best thing because they can help you with that written plan.
LeAnne Siddell: But what's even more important in that definition of mentor is somebody who is not going to deliver you a line of B.S. And I hate to be very blunt about that but a lot of times we get caught up in getting a rosy picture of the way things were. And I hate to say it, you do not need rosy pictures. You need the raw detail.
Ed Siddell: And that's why the plan is so important, right? So, you can project out. You know what, if someone says, "Yeah. Just go ahead and do it. Yeah. Just go ahead and do it. That sounds great,” well, that's not a mentor. A mentor is like, “All right. What are your numbers? What do you need for income? What’s your profitability? Do you know what your margins are?” All these things. And this is why these all sound like separate steps but they're all kind of conjoined together because you have to have those advisors there that can tell you, "Hey, this idea is going to work,” or, "No, it's not.” And even sometimes when certain advisors say, "Yeah. I don't know if it's going to make sense or not,” sometimes you just have such a passion and you take risks then that's what being an entrepreneur is all about. I mean, it really is.
LeAnne Siddell: A lot of time, that mentor is going to actually give you some guidance so that when the time comes, a lot of people have to go to banks and speak to and they're going to be able to, in essence, help you shape how you're going to present this dream that you have or this goal that you have.
Ed Siddell: Yeah. How are you going to fund it? And so, can you imagine going to a bank and saying, “I want a loan?” “For what?” “Well, I'm going to start this business.” “Okay. Tell me about it.” Well, how much easier would it be if you actually had a written plan? This is what we're going to do in the first 30 days.
LeAnne Siddell: It’s required.
Ed Siddell: The first quarter, the first six months, the first year, this is what our operations are going to look like. These are our systems, this is our process, having all that, but having that written plan is so, so very important because it takes a lot of the guesswork out. It's a moving, you know, it's a living, breathing document because it never, ever goes as planned.
LeAnne Siddell: I'm going to compare this to something completely off-base but you in prepping your kids to do their eagle project and as they're going through an eagle project, they have to do a proposal. They have to do a plan. And when you go through and you read the nitty-gritty about this, it's everything. It's a drawing. It's step one, step two. What do you need? Those same things.
Ed Siddell: This is why I've been in Boy Scouts my entire life, 35 years of summer camp.
LeAnne Siddell: I know.
Ed Siddell: I have the back to prove it. But the Eagle Scout that's why that's so important because it just tells people you finish what you started and that's that written plan, that eagle project, that workbook. And that's what these banks and lenders and franchises, right? So, if you go by the way of a franchise and decide to go that route, which we've had some guests on the podcast that have gone that route, which is great because they've already done the target market analysis, the location analysis. I mean, it's a written plan that's already done for you and that's really what you're buying, right? But if you don't have that and you're starting your own, you actually have to do that upfront. So, that goes kind of hand-in-hand with step two, which is what's your exit strategy? Understanding when you want to leave and how are you going to leave. Are you just going to walk away? Are you going to try and sell it? Is it going to be a partnership? Are you going to bring other people in as far as your succession plan so that you can gracefully bow out and maybe still get income? And how are you going to do that transition over what period of time? And that is so important.
The number one reason when the next generation takes over, the succession plan, is it really isn't a formalized succession plan. There's no written plan that says, “Okay. It keeps going on and on and on and on and on.” And so, that is so important because that goes right to having the right advisors which is step three. I can't stress enough having CPAs, the right attorneys, the business attorneys, and estate planning attorneys. We'll get into this, too, and having the right financial advisor to protect you and people would try to do so much themselves, not to say that they can't, but all these professionals, like you said before, they've already done this not once or twice but dozens and dozens of times. So, they can protect you from the pitfalls and you got to think of it as value. So, it's one thing to get a good deal. It's another thing to be cheap. What do I always say, right? Cheap is when you expect everyone else to pay.
LeAnne Siddell: And when you start a business, the last thing you have is a lot of money to throw at things that aren't going to bring value to you. But protecting yourself from what could.
Ed Siddell: And your family.
LeAnne Siddell: Yeah. Those things are never something that you should consider not a value.
Ed Siddell: So, the reason that I had the written plan as number one is because everything kind of flows right into it. So, we do the same thing with the retirement fitness plan for individual wealth management families that we help clients. Now, the income plan is step number one because everything kind of flows into it. So, that's why having that written plan is so important but those CPAs, they're going to help you with your numbers, your sales projections, your return on investment, your marketing. You know, all these dollars, they're going to be able to help with that. Why do you need an attorney? Oh, and here's the other thing the CPA is going to help with, your structure. What's your formation of your company? You're going to be sole proprietor. Are you going to be an LLC? Are you going to be incorporated? And inside of an LLC, you can be a sole proprietor. You can be a partnership. You can file as an S Corp or even a C Corp and what's the difference? And those CPAs, they're going to be able to walk you through step by step because you can change it from one year to the next depending on where you're at in the business and what's going to give you the biggest bang for your buck in tax dollar savings.
LeAnne Siddell: Well, I'm going to ask you, back you up a little bit when it comes to that team that you need to have on board. If I was starting a new business, depending on where people are in their lives, whether this is something that is a new career for them, whether this is something where they've retired and they're starting something new, what do you recommend the first step outside of the first person to go to, to even discuss the early stages of a business?
Ed Siddell: The mentor. I mean, that's why that is so important. All right. So, a couple of weeks ago, we had Rudy from King Flips and he says, "Look, I don't go through the numbers. I just know the numbers.” And why does he know the numbers? Because he's been doing it so long. So, if that's the kind of business that you're going to go into, that's the kind of mentor that you want. If you're going to get into the landscaping business, Jordan, when he was on there, you want to find someone that has been in business for years and years that’s successful and understands the pros and cons and can kind of walk you through it. Like Chris, he went by way of doing a franchise because that written plan was already there. He had done a ton of research. And that franchise that's that built-in mentorship. I mean, because their reputation, their brand is on the line and so they want to make sure that you're as successful as possible. And that's why when I said to have a written plan and work with a mentor, I think that is probably the most important step just to make sure that you're setting yourself up in a position to succeed.
LeAnne Siddell: So, basically, when you take it to a CPA or financial advisor at that stage in the game, you're fine-tuning some of the things that you've already put together. You're not walking in there with a blank slate saying, "Hey, Mr. CPA, can you please help me construct this?” because that's not what they're there for.
Ed Siddell: Well, some firms are, but they're limited. They're not experts on everything, and no one is. So, having a mentor that is specific to that industry in that locale or type of location that you're in, the metro surrounding area or, if it's on a national level, with a CPA, obviously we're not, but a lot of the CPAs that we work with, they'll go through and say, “Okay, this is really good, but I don't think it's going to work because these numbers are maybe a little too rich. I think your profitability, you're expecting too much.”
And so, they're going to go through and look at your pro forma, and a pro forma is really just a projection. That's all it is. It's a projection based on numbers and sales, cost of materials, labor, all those things for the first 6, 12 months, three years, five years, ten years so that you can kind of project what that growth is. And that's part of that written plan, but they're going to kind of help look through and make those adjustments as you go along, just to make sure that you're on that right path, but they're going to be able to see things because that's what they're so good at, is looking at the numbers and saying, “Yeah, that just doesn't make sense,” just like with an attorney.
So, once the CPA is like, okay, this is what I recommend for your entity structure, an LLC, whether you're going to elect filing as a sole proprietor or partnership, S-Corp, C-Corp because they all have advantages and disadvantages. There's nothing that's perfect, it just depends on where you're at. Having that attorney draft that legal document is so very important because if it's an LLC, you're going to have an operating agreement. If it's a corporation, whether it's an S-Corp or a C-Corp, you're going to have articles of incorporation. And there are pros and cons to both, but having that operating agreement for the LLC, it's going to outline specifically what everyone's duties are as far as the owners of the company. And that's really important.
So, if you decide to go into business with somebody else in a partnership, you really need to look at it is, it's like a marriage. I mean, it is a long-term relationship. And this is why having attorneys are so valuable because if it's not in writing, it never happened. And it can't be ambiguous. It's got to be very explicit and specified and specific just to protect everyone, I mean, right, all the way through. And that's why I said fiduciaries because fiduciaries, their whole job is to protect you, whether they make a penny on it or not, CPAs are, attorneys are, not all, but most financial advisors are, like we are, right?
And so, having that financial advisor is also imperative for your success because the CPA is doing what they do best, the attorney is doing what they do best, and the financial advisor is going to do what they do best, but they all need to work in conjunction for that client to ensure success and make sure that they're saving their money, they have the ability to achieve their goals for that exit strategy at the end of the day, alright.
LeAnne Siddell: Good information. So, you're going on to step number 4.
Ed Siddell: Yeah. And this was pivotal for us because we had been doing this, the same thing, for years and years and years, but having that unique process, understanding what it is, being able to communicate that so that that way, it separates you from your competition. And do you remember the movie The Founder, the McDonald's movie? Everyone says that, the McDonald's movie, right? So, what did they do? They took probably one of the most commoditized commodities, the hamburger. And they named it, and it was unbelievably unique, and this was the Big Mac, okay.
LeAnne Siddell: That’s exactly.
Ed Siddell: And so, Ray Kroc, who came in, so if I'm spoiling this for everyone who hadn't seen it, you got to see it, especially if you're going to go into business or if you already are, it's so important because it's all about developing a process, naming it, that's going to separate you from everyone else, and then building systems around those. So, like you said earlier, that you can replicate it, you can duplicate it. And that's where you turn from doing something and making money to a real business. So, you know that you have a business if you can go on vacation and things are still working, and you're making money. Yeah, I mean that’s…
LeAnne Siddell: I can honestly say that that's a turning point.
Ed Siddell: It is.
LeAnne Siddell: It’s a major turning point.
Ed Siddell: And the only way that you can do that is to have a written plan. And so, that's why that's kind of number one, it just incorporates all that.
LeAnne Siddell: But it's not just about the written plan, it's about following the plan. There's a lot of people who write things down, for whatever reason, they write down a process, but actually sticking to the process and doing it over and over and everybody that…
Ed Siddell: Well, they’re building that culture.
LeAnne Siddell: Yeah.
Ed Siddell: So that everyone understands they're all buying in when you bring people on, and when you have a process and it systematized, everyone, it just makes everyone's job so much easier because it takes all the guesswork out.
LeAnne Siddell: Yes. There's not a lot of people getting in trouble for not– something gets forgotten along the way, and you might talk about it, but inevitably, what happens is it gets forgotten, and then somebody feels responsible for dropping the ball, so yep.
Ed Siddell: Always, always. Now, mistakes are going to happen here because lives happen.
LeAnne Siddell: Yes, but there’s a lot less…
Ed Siddell: A lot less and…
LeAnne Siddell: Likelihood that it will.
Ed Siddell: And as I tell the boys all the time, bad things are going to happen, and that's not nearly as important as how you deal with them, so…
LeAnne Siddell: So, you were talking about the Big Mac. I want you to finish that, about the Big Mac, though.
Ed Siddell: Yeah. So, Ray Kroc looked at McDonald's, the McDonald brothers, and as part of the movie, not to spoil this, as I said before, but he went to different locations, the original location, he's like, “Oh, my gosh, this is the best hamburger I ever had.” And so, he went to another location. They had the Golden Arches, but it was completely different. The service was horrible, and the food tasted different.
LeAnne Siddell: Special sauce wasn't there.
Ed Siddell: The lettuce, cheese, on a sesame seed bun, right? However, that is.
LeAnne Siddell: I could still sing it.
Ed Siddell: Hold the pickles, hold the lettuce. And so, this is why they call it Ray Krocking, have you Ray Krocked it because he was really the founder of franchising. He developed the systems and the process to replicate that Big Mac in every single store. So, it doesn't matter what McDonald's you go to around the country, a Big Mac is a Big Mac is a Big Mac. They all taste the same, right?
LeAnne Siddell: Yep.
Ed Siddell: And that is so important because when you bring on new employees if you have that process and those systems in place, they're already going to know. Training that new employee, that new team member, is going to be so much easier because everyone's bought in. And you can tell with a lot of the folks that we've been talking to this year, all these small business owners, these entrepreneurs, look at the length of their staff, how many years they've been there, 10, 15, 20-plus years. So, that goes to culture, that goes to the process. They may not even realize that they have a formalized process and systems in place, but obviously, you can be that successful and have employees for that long of a period without having those processes and systems in place.
LeAnne Siddell: And I think some people recognize it in different formats. They either recognize it as a job description, and that job description is well established. And so, it goes from one person to the next, but nonetheless, it's a process under that job description for each individual. And there's a process at which it goes from one person to another, so…
Ed Siddell: And everyone knows what they're supposed to do.
LeAnne Siddell: And everybody knows what they're supposed to do.
Ed Siddell: So, the last thing is, I think it's probably one of the most important things, balance, that work-life balance, and family. For us, I mean, that's been really important. Now, we've tag teamed, right? I mean, we've missed a game here and there because we were at one kid's game while the other one was at another, but I don't think we've ever missed a game.
LeAnne Siddell: Well, the reason that you have this as a step, and what's really important for people to understand as to why it fits into the step of a small business owner is because without building that in to your overall plan, without that being a component…
Ed Siddell: You're going to lose it out.
LeAnne Siddell: You can squish it. And that is kind of why we do what we do.
Ed Siddell: Yeah. I mean, it's all about lifestyle and fitness, The Retirement Trainer, the retirement fitness plan, being financially fit, physically fit, healthy, I mean, that is so important. I say this all the time. It doesn't matter how much money you have, you can have all the money in the world, but if you don't have your health, it doesn't matter, right?
LeAnne Siddell: Well, I can honestly say, in the early stages of your firm, of the firm that you built here, I can honestly say that it was one of those things where you obviously don't ever want to see that something that you built is…
Ed Siddell: Those hours, yeah.
LeAnne Siddell: That you fail at, so you work your tail off, but what's important for people to see, you're 20-plus years into this, is that I think what you look at as your forecasting of the business has changed over the years because you now realize that what we built into this business incorporates the family. So, what is the size of the business, how much time goes into it, how your schedule comes together, how we laid out a calendar, that all has the family built into that and that has to be part of it.
Ed Siddell: Well, that's why it's so important to have those advisors because they can help you achieve those things because so often, we’re myopic, right? You can't see the forest through the trees.
LeAnne Siddell: Yep.
Ed Siddell: Okay, you're just so one-dimensional, you're so fixated, which is why entrepreneurs are so successful because they're fixated on that thing. And having that mentor, those advisors, give you a completely different perspective, maybe a different way of– it's a puzzle. You got all these pieces and parts, and it's not a one size fits all, and sometimes just kind of rearranging the parts and the pieces, it paints a different picture and something that we may not have seen before. We were just talking to somebody this week, a family, and she's turning 62 next year and she's like, “Look, I know, I got to keep working because I said, until 67.” I was like, well, no, we kind of rearrange some things and look at a couple of different things. And, yeah, I mean, she is going to have the ability to be able to retire next year on her 62nd birthday, June 3rd.
So, why is that important? Because she was looking at it one way, but having advisors, those fiduciary advisors, can help you look at things differently, put it into a different perspective. I mean, it's all about the math. The success of the business, you can quantify it in a whole lot of different ways, or actually, you can qualify success in a whole lot of different ways, but when you quantify it, it's really about the numbers in the math. So, they will help you do that to get to your goals and retire sooner.
LeAnne Siddell: Well, I know they probably have generated just as many questions as we provided answers in this podcast. So, if you have questions, if you have feedback, we'd love to hear from you. You can reach us through our website at www.EGSIFinancial.com. You can email us at email@example.com or give us a call at the office at 614-526-4118.
Again, we believe in building plans. We believe in setting our clients up to avoid the anxiety of what comes next because bad things happen. It's what you do as the next step. And those plans that Ed puts together here for our clients, they are providing the next steps. So, give us a call at EGSI Financial. And thanks, Ed.
Ed Siddell: Hey, thanks, LeAnne.