ECC Talk #8 – Partners, Strategy, and Cost Structure

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No business operates in a vacuum. You need partners, suppliers, skilled key personnel, licenses, and equipment to run a business. All of these resources drain cash from your business and get paid first, before you.

As a new comer in your industry, you have few contacts and even fewer resources. Partnering with an established company can provide both access to a market and the credibility boost to really make headway in that market.  Finding the right partners for your industry can make or break your business. Selecting a partner will also have an impact on your business strategy, since your business partnership will need to be a benefit to both partners.

The single biggest point of failure in businesses in the cost structure and finances. Finances are not sexy, fun, or interesting for most people, especially entrepreneurs. Doing the books is not the dream of an entrepreneur, but failing to do so is the fastest way to end the dream. There are a lot of costs that take first time entrepreneurs by surprise. Payroll taxes (you know those taxes taken out of your paycheck? Businesses match that and must pay the IRS every quarter or face fines and liens), business insurance, permits, and up front lease payments for a year are some of the more common errors that inject chaos in to business finances. Luckily there are always some free or low cost services nearby that will help review your financial projections and make sure you are not forgetting to budget for that $10,000 annual insurance policy. Organizations such as SCORE and the local economic development organizations, such as the Indiana Small Business Development Center, Dubois Strong, Radius, Greene County Economic Development, the Bloomington Economic Development Corporation, and the Davis County Economic Development Corporation are there to help and know all of the local resources and programs that you can take advantage of as you start your company.

One interesting tidbit to note is that investors pay very careful attention to your financial projections. In fact they think it is the most important section beyond the executive summary. Even though they think it is always wrong. And it is. Any projection is a guess, hopefully its a very well educated guess, but it is still a guess. Investors use this section as a test to see how well an entrepreneur has thought through the business and to see if they understand all of the costs involved in the business. It also helps them determine if the entrepreneur is realistic in their assumptions on sales numbers, costs, etc. An entrepreneur that is too far divorced from reality will have a hard time finding funding.