How To: start up a business

General facts Nowadays, business plans are indispensable in US business life. If you take any sort cuts, you will often be left empty-handed. In the US, more than one million new business are created every year. However, only every fourth enterprise survives the first four years. Most of the other disappear again, mostly within the first twelve months. There are many reasons for that, but the most frequent reason is mistakes in the business plan.

Many company founders seem to avoid this one step, because even though it is fun thinking about a new business idea and imagining the kind of money you are going to make, a detailed and patient planning process takes a lot of planning effort and often goes hand in hand with a certain cognitive dissonance. For example, it is obvious that there are no sufficient financial means, but the company will be set up anyway, because "it's all going to work out some way or other." However, this doesn't usually seem to be the case. US experts have a saying for this: "A business owner who fails to plan, plans to fail." There are other reasons why companies fail. However, neglecting the planning stage is the most frequent and also the factor that is easiest to control.

Contents of the plan So how does a business plan look that guarantees success even in the intermediate and long term? There's no real consensus on that, but most proposals have certain common denominators. They agree, for example, that before starting up the business there should be several plans with several time frames. For the starting up of the business, you should have a one-year plan that is as detailed as possible and should allow you to check your progress along the way by comparing it to the plan. Furthermore, during the initial phase you should draw up plans for the years 3, 5 and 10 and regularly adjust them or compare the actual development of your company (including all wrong turns) to these plans.

You will usually have to count on something between three weeks and six months to draw up a business plan for the first year of a small company. You should take more time the bigger the company is, since it will probably already take you several months to determine the market potential alone. Especially foreigners setting up medium-sized companies should wait six months after drawing up the first business idea before actually setting up the company to avoid deceiving themselves.

You should honestly answer questions such as "How much money do I have available and what are my loan options for this concept?" "Will I find private investors?" "What kinds of profits can I count on?" "What are my strengths and weaknesses?" "What do I like to do most?" and "Am I prepared to work long and hard in case I don't make high profits or even losses?" before beginning to plan in detail. You don't necessarily have to plan from A-Z. You may do some things simultaneously, especially since you will sometimes have to wait for information that is not immediately available.

Provided that you already have a business idea - the quality of this idea is a decisive factor of your later business success - your company first of all needs a name. In the US, this step is considered one of the most important ones. The name should describe your company and should also be distinctive, but it shouldn't be too pompous. Nothing is more ridiculous and thus counterproductive then a medium-sized company named "Universal Trading Co." If possible, the name should describe what your company offers and be as precise as possible. "Rainer's Enterprises" is much less exact than "Rainer's dry cleaning" and "Embassy Pizza" better describes the purpose of your company than "Embassy Foods." Furthermore, most states require an appendix such as "Incorporated" "Corporation" or "Limited Partnership" etc. for company names. Some states require that the company and the owner can be identified as belonging together in some way.

Business purpose One important point of each business plan is the formulation of the business purpose and the business objective. Other people may advise you on this. In the US, a good option is asking the experts of SCORE (Service Corps of Retired Executives), who - as former executives or company owners will offer there advice more or less for free. SCORE has offices at hundreds of places throughout the US and works together closely with the probably most important authority for founders of medium-sized companies in the US, the Small Business Administration (SBA). On first sight, the emphasis placed on formulating the business purpose and the later chapters of mission statement in which the business operations will be formulated in a way speaking to the customers seems a little exaggerated. However, US experts believe that these two points can not be worked out precisely enough. Not only to work out for yourself what the purpose of your business is going to be and how your mission statement should sound.

More important even is that future investors and most of all usual money lenders such as banks etc. read these two chapters of the business plan carefully in order to evaluate the company's chances of success. Anyone who doesn't take these chapters seriously may have to do without certain investors who see through this weakness in the plan. And for Germany companies who want to set up a branch in the US it is important that the Bureau for Citizenship and Immigration (formerly INS) or the US consulate also evaluates the company's chances for the decision on the visa allowing you to start up a company or conduct business in the US. Apart from the financial part and the business idea itself, these chapters are decisive factors as well for the process. Because without a valid visa, your business plan will be worth nothing to you.

Business overview The business overview is a detailed description of your business operation in several steps. Important are the sub-chapters about location, staff, and description of products/services. This should also include short-term goals (to be reached within one year) and the ways to get there. For your staff requirements you should describe the respective tasks and performance profiles. Include the management in that as well. For "one person companies" you should point out that there will be only this one person, but draw up a performance and requirements profile as well. The "economic analysis" describes the economic situation of the location as far as it is important for the new company. You should, in a detailed way, describe opportunities for growth, seasonal fluctuations, legal and other special characteristics, trends, strengths and weaknesses of the sector, and your influence on the start-up.

Budget and fundraising The chapter "financial analysis" will be dealing with your ways of gathering and using funds. You should describe the financial situation of the company and the initial spending as detailed as possible. You have to list all the capital you already have, since banks will use this also to determine whether to give you a loan or not. Projections about future profits/turnover should be made rather conservatively and, as far as possible, be cemented by stating other statistics from the same sector (How are competing companies doing?). The cash-flow chart is especially important, it should cover two-week intervals for the first six months. This will show the banks and the future investors the way cash flow and turnover will go together. Furthermore, it is considered to be one of the most important indicators of the company's economic success.

In this chapter, you should also include the budget for one year, listing the fixed and variable costs for business operations. Another important part is the opening balance sheet listing, among other things, assets, liabilities and equity stock (if existing). The "break even analysis" is supposed to demonstrate what kind of turnover has to be generated to earn the costs. In the last section of this chapter you have to say some things about your accounting method and general loan policy of the company. In the chapter "market analysis" you have to include price policies of the company, advertisement, competitive situation etc. Describe marketing strategies for goods and services in as much detail as possible. It is also important to describe your marketing channels.

Resume At the end of your business plan, you give a short resume (just a few sentences) followed by documents and attached statistics containing additional information that doesn't necessarily have to be included in the business plan itself. This part is less important, but it kind of rounds off the plan. Our visa department will be happy to help you out with more information about business plans in connection with obtaining the correct visa. Best use the contact form on our website.