In The Sound of Music, Julie Andrews famously admonished her charges through song with “…start at the very beginning.” In business planning, however, this isn’t a “very good place to start,” as the lyric states. After all, if you don’t know where you’re going, you can’t determine how to get there.
I often have clients bring me a predetermined structure for a company or even a transaction. The first question I always ask is, “What are your goals?” Often, this question is met with considerable pause.
When beginning to scale a business, it’s very important to have an end game in mind, as it will impact everything you do. For example, if your goal is to sell the business in three to five years, the way in which you grow the business may be different than if you anticipate long-term ownership.
The questions to ask during the initial planning stages are:
- Do you have the skills to continue to run the business as it grows or will you need to find other leadership? (Be honest here. Also, ask others for their opinions.)
- Do you envision being able to scale by purchasing other existing businesses in other geographic areas or will you have to actually start up new businesses in these areas? No matter which option you choose, you’ll have to learn what opportunities exist in a specific geographical area.
- What is your ultimate business objective? To grow a business you can leave to your family? To grow a business to sell? To grow a business you can continue to own, but spend less time running?
- How will you finance the growth of your business? Some possibilities are bank financing, third-party angel investors or third-party funds. Since financing is very difficult in today’s current economic market, have you determined whether your industry is one in which funds are available?
- What is the current structure of your business and will it work in context with your goals? For example, if your company is currently organized as an S Corp, only individuals and certain trusts can be shareholders and therefore you cannot seek third-party funds. You may be better off organizing some sort of limited liability company (LLC) that maintains the pass through aspect of your company for tax purposes. Or consider whether your investors have more of an appetite to invest in a C Corp even with its double taxation aspects—that is, the corporation itself pays income tax and the shareholders pay tax on their dividends.
- Should you seek out someone to help you find funding? If so, what’s a reasonable amount to pay them? How long is their contract, when can you terminate it and how long will they get paid if you make a deal with someone to whom they’ve introduced you?
- How do you want to spend your time during the next five years? The next 10 years?
- If you’re interested in building a profitable business to sell, do you have an ultimate sales price in mind and is it realistic in the business you’re seeking to scale?
Oftentimes, these are not questions you can answer yourself. As the business owner, you must make the decision about how to scale the business, but you cannot do so in vacuum. You may need advisors to review your ideas, challenge them and help you refine them.
If you haven’t set up a board of advisors, now is a good time to consider doing so. Identify the skill sets you would like on such a board and perhaps reach out to a seasoned entrepreneur who has been through this process. Provide the group with your plan and ask them to review and “pick it apart.” Then, get together with this group and listen. After you’ve gathered their feedback, give yourself some time to process and reflect on what you’ve heard.
By thinking about the end at the beginning, you’ll be able to determine a much clearer path to get there. It really is a “very good place to start.”