As a financial planner, if there’s one thing I’ve learned about financial success, it’s this – No dream is beyond planning. With the right mindset and a realistic approach, building a business out of your passion or hobby is a great way to diversify and increase your income potential.
The opportunity for success in business is unprecedented in the online marketplace. A 2015 study by Pew Research Center showed that 79% of Americans now shop online, compared to the mere 22% who shopped online in 2000. As even more people become comfortable with making their purchases online, more retailers are adjusting their platforms to include an online presence.
The old business adage used to be “location, location”, but when it comes to being an online business, you could be located anywhere and still drum up as much (if not more) sales than a brick and mortar store in a prime shopping center downtown.
Getting Started With An Online Business
The process of writing a business plan allows you to literally invent a world from scratch, taking into consideration not just what gets done, but how everything in your business happens.
Sections of a Business Plan
- Executive summary: This section comes first, and should summarize the key points of what your business aims to accomplish. Be concise, but persuasive. Often, you’ll be able to write this last (after you’ve thought through the other sections). The executive summary introduces and highlights all other sections of your plan.
- Business description: Describe what your business will do, what problem will it solve and for whom. This is where you get to know your ideal customer, and find a way to solve a problem that currently exists for them. This section will also look at the industry and competition within that industry. How do your competitors currently operate? How will you fit in that space?
- Marketing: What is your plan to generate new business? Where is your audience currently hanging out? How will you get people interested, and then how will you convince them that your product or service is right for them? Will you provide better services, or something that’s totally new? Will you compete instead on price, providing existing services more efficiently or products at a lower cost? How will you price your product or services?
- Management Team: Even if your business is a one-person show, it’s helpful to think about yourself critically (and objectively!) as a member of management. What are your strengths and weaknesses? If there are other people on your team, what are their strengths and weaknesses?
- Operations: What is the organizational structure of your business? If it’s just you, what roles and responsibilities need to get done? Give some examples, if you run an online store, you’ll need to make or source the product, ship it, handle all orders, handle bookkeeping, customer returns/service, marketing, etc. Most importantly, you must learn to do each process in the same way each time and record this process so that when you hire someone, you can simply hand them the training materials to take over the job. Operations manuals have been proven to expedite training and ensure that your customers have a consistent experience with your business. Take a tip from the big box retailers and make one of your own.
- Financials: You should have projected cash flow statements, for the first year, you should have monthly projections. After the first year, helpful to have the next 3-5 years projected out annually. What expenses are you anticipating? Often there are one-time startup costs to get going, even with a relatively low-cost online business (URL registration, website design, etc.). When do you expect the business to generate income? Doing this part of your business plan will give you peace of mind when things get slow, because it takes time to build a business, and as you learn to think in terms of quarters and years, you’ll have a better forecast (and mindset) when you have projections to compare to your actual numbers.
- Risk Analysis: Starting a business always involves risk. What are the possible risks to your business? What is the worst case scenario? How will you react in that case? What can be done now to minimize these risks? What are your contingency plans? What is your exit strategy?
- Milestones/Targets: Even if you’re just starting this business almost as a hobby, it’s still a helpful exercise to think about where you want it to go in the future. What are your goals? Where do you want to be in 3, 5, 10 years? Is this something that you see generating significant income to the point you’d be able to cut back on your day job or even quit your day job? What needs to happen in the future with your business for that to happen?
Important Points To Remember
Starting an online business is very similar to setting up a brick and mortar shop in some ways more than others. The best way to start a business, whether it be an online business or a physical retail location remains the same – start with a solid plan, and don’t underestimate the value that having a plan in place will provide.
Don’t forget about taxes!
Have a plan for filing taxes in advance (that’s right, although I no longer prepare tax returns I’m still a tax guy at heart). But in all seriousness, if you start correctly from the beginning and do the research upfront, tax time will be so much easier.
Sales made within your state will likely require you to pay sales tax, which will require you to obtain a sales tax account for your business. A quick Google search can provide most of the info you’ll need here.
Perhaps some of the items you will be selling require an upfront purchase of materials (cost of goods sold), in which case having a resale certificate will help to maximize your profits by allowing you not to pay sales tax on your initial purchase of goods.
While the road of any business is full of unexpected twists and turns, a business plan becomes the roadmap to guide you on your journey. Being in business opens the doors to all sorts of opportunities. Having a solid plan in writing will ensure that you make informed decisions, maximize your returns, and get to where you want to go.
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