Dave Cain: Welcome to unsuitable on Rea Radio, the award winning financial services and business advisory podcast that challenges your old school business practices, and their traditional business suit culture.
Our guests are industry professionals and expert who will challenge you to think beyond the suit and tie, while offering you meaningful modern solutions that help enhance your companies growth. I’m your host, Dave Cain.
New entrepreneurs are faced with a lot of challenges, and frankly oftentimes they are unequipped to deal with many of the obstacles that stand in their way. On today’s episode of unsuitable on Rea Radio, we’re going to dive deeper into the journey of an up and coming entrepreneur, and uncover some of the hiccups they will encounter. Then we’re going to offer some pretty simplistic, but incredibly important tips from a very experienced business advisor to help you take your business endeavors to the next level.
We’re pleased to have Melane Howell, a senior tax consultant in Rea’s Dublin, Ohio office today. Melane has helped more than a few startups get on their feet, and she’s going to share her insights with us today. Welcome back to unsuitable, Melane.
Melane Howell: Thanks, great to be back Dave.
Dave: It’s good to see you. One of the things we want to do before we get started is we want to review your credentials.
Melane: Oh no.
Dave: And have our listeners get to know you a little bit better.
Melane: Okay.
Dave: So we have a couple of questions we want to ask you. Obviously, you have 20+ years experience in the CPA profession.
Melane: You’re giving away my age.
Dave: Sorry about that, oops. That was in your contract, wasn’t it?
So when you go on vacation, do you prefer camping or staying in a five-star hotel?
Melane: Oh, definitely camping.
Dave: Camping?
What about grilling in a campfire, or dinner with tablecloth and candles?
Melane: The campfire would definitely win.
Dave: Campfire?
Melane: Yep.
Dave: Do you prefer a cold long neck out of the cooler, or a brandy?
Melane: A cold long neck, no cans, it’s got to be a long neck.
Dave: Got to be a long neck?
You like acoustic guitars or electric guitars?
Melane: Ooh, acoustic.
Dave: Acoustic.
And do you play your music loud or soft?
Melane: It’s loud.
Dave: It’s loud. On a scale of one to ten, ten being the highest, is it like an eight? Or is ten, do you try to get to the ten?
Melane: Yeah, it’s at least an eight. The louder the better.
Dave: Okay. Now those credentials, that doesn’t sound like a CPA and consultant in business startups.
Melane: We’re as unconventional as you get.
Dave: There you go, I guess it’s kind of the unsuitable. But what we want to do today is talk about some of the challenges to start a new business. And you’ve been, over the course of your career, been involved with some who have succeeded, and some who have not, and I think we want to pick your brain on that topic.
Melane: Sure.
Dave: You know the challenge to starting a business, what’s the starting point? What’s the number one thing that you like to focus on when you’re consulting with a startup business?
Melane: So I like to talk to them first about doing their homework, or doing some research. Similar to all you parents out there, when you’re getting ready to have a baby, what do you do? You buy the books, you talk to other parents, you are excited about it. It’s a new unchartered territory for you, maybe not for some other people, but for you. And so you do your homework. You read everything you can, you talk to people, you look on the internet, you ask other parents. And then obviously you know it’s something you want to do, in many cases it’s already coming, and you’re just merely preparing as much as you can for what’s right around the corner.
So when I talk to people that are beginning a new business, I talk to them about what kind of research they’ve done. What kind of homework have they done? Is there a market for their product or their service? If there is a market, is anyone else doing it in their area? What’s your competition? Do you need to maybe fine-tune your idea or your service if something similar is being offered? What problem or solution is your product or service offering?
Dave: So you’re trying to head off any problems right at the start, and does the business idea serve a need? And what you’re saying is business research or market research, is a key.
Melane: That’s absolutely key.
Dave: What about how do you analyze the competition when you’re beginning a new business endeavor, or you start thinking about it?
Melane: Right, so as you know there’s all kinds of resources. You get on the internet, you can find anything and everything. So a, you probably want to see is your research, or is what you’re finding credible? You may want to touch base with your local chamber of commerce to see what other types of businesses like yours are out there. You might want to talk to others or tap into some professional, or entrepreneurial associations in your area to try and see if they have any research, or credible research, as to if your product is out there, or going to be viable in the area.
Dave: Well many prospects that we talk to, it seems like the first thing they want to do is go out and form a corporation or an LLC, and you’re saying wait a minute, time out, let’s put the brakes on. We’re not ready for that, we’ve got to test the market.
Melane: Right, absolutely.
Dave: So what other things in the market testing can you target or suggest to a prospect?
Melane: So as far as to test the market, obviously your biggest resource, and your easiest resource, is friends and family. Tap into them, say “Hey, I have this new idea,” or “this new product. What do you think?” You can go and obviously visit your chamber of commerce, say “I have this new idea, what do you think? Is it out there?” If you’re looking at starting a business, you may even want to try and gather your team together, meaning your trusted business advisors. Talk to them about your idea, see if it’s anything that they’ve ever heard of.
Dave: What about ego’s? How are ego’s? And how do they come into play as you start this up. Obviously, you’re talking to me, I’ve got a huge ego, I’m not failing, but I think I can bypass the homework.
Melane: Right, so
Dave: You’re turning up your nose [crosstalk 06:58], ready to [inaudible 07:00] me on that one.
Melane: What comes to mind is, I don’t know if any of you watch Shark Tank? But sometimes you see someone come on that show and they’re so excited about their idea, and then the panel obviously says “we’ve seen it,” or “it’s out there,” and they don’t have any idea, and they’re kind of deflated. But then the takeaway is maybe they again fine tune it. Sometimes entrepreneurs are so excited about their idea or their product that they’re less objective than they need to be, which is why it’s so important to put that aside, and really dive into the research, and then make a business decision.
Dave: We’re going to talk about business plans here in a minute, but obviously before you go into deep dive about business plan, this market research has to be done, it’s a given.
Melane: Right, correct.
Dave: No negotiation there, you’ve got to do it. And I’ve heard you talk to prospects and folks who are thinking about it, and you won’t even go any further unless you know about the market research.
Melane: Correct, yeah, absolutely. I don’t want them to waste a bunch of money and dollars and time and effort on something that may not be successful, if they haven’t really, really done their homework.
Dave: Okay. Let’s talk about the business plan, where does that fall in your thinking? Is that maybe the second item out of the gate after the market research has been done? It has to follow pretty high up in your priority.
Melane: I would say so. Sometimes when you say business plan, that’s kind of a … You’re like what does that mean, right? And when I think of business plan, I’ve seen business plans that are 60, 75 pages, which it certainly doesn’t need to be that long, right? It needs to be focused, I think that’s the important piece of it. And if you’re trying to raise and maintain capital, that certainly is an important piece of the process, meaning in getting a loan a lot of times banks will say “do you have your business plan? We’d like to see it.”
Of course some resources for that are out on the internet, small business administration has some resources for developing your own business plan. And again, it doesn’t have to be lengthy, it just has to be focused. And it does have to have three main components, which are your business concept, your marketplace research, and then your financial sections, meaning how do you intend to get the capital that you need? And then what are your projections going forward?
Sometimes obviously this is ever evolving, but you need to start somewhere.
Dave: So brevity I guess is maybe a key of the day.
Melane: Yeah, and your banker would be able to tell you, or someone that’s advising you, on the loan process, as to what needs to be in there, and obviously what is essential versus maybe what’s some fluff that you could certainly put in there, but it’s more for you than for the bank.
Dave: Okay. You mentioned cash flow and capital, let’s go directly there. How do I obtain, and maintain capital and cash flow?
Melane: So that certainly is a huge challenge. Cash is key, especially in a new business. And oftentimes an entrepreneur will save his own money or her own money, and obviously put that into the business. Some obviously go to friends and family. Some seek out loans. Some are private investors. Maybe you have someone that’s involved that you know about that’s in a related business that you go to and they say “hey, that’s a great idea, I never thought about that. I want to invest in your product or your service.” It’s complimentary to their business, so it just makes sense.
Again, I’ve seen it all over, but the point is that you have to reach out and talk to people.
Dave: You know we hear an awful lot of funding ideas, like GoFundMe, Crowdfunding, Kickstarter, RocketHub. Is that a resource worth looking into in the early stages?
Melane: It certainly is, and I know it has a lot of buzz right now. It’s been talked about. What I have learned is that oftentimes while you think that’s going to be your cash cow and you’re going to raise all this money with a GoFundMe, oftentimes that’s enough maybe to launch your service or product. It’s certainly not enough to sustain your product or service, and that’s really where the long-term planning comes into effect.
Dave: So you’re looking at sustainability as that? What would you suggest, again in the early stages of funding, with the capital. You talked about family members, but you’ve got to get maybe in front of some traditional lenders, the banker?
Melane: Yeah, absolutely. And you know, some of it is industry driven. Certain lenders are more comfortable lending to you if your business is in a certain industry versus others, based on their market research. They’ve done their homework and they realize hey if you usually have a service in this industry, a lot of times it’s more successful. there’s less loan default, blah, blah, blah. And so they’ll discuss that with you.
Again talking to multiple lenders, sometimes the larger banks, if you have a nontraditional idea, sometimes the larger banks aren’t willing to loan you money. You may have to go to a smaller bank, and they will cater sometimes to your smaller business, and really run with you, with the idea.
So, again tap into both your smaller and larger banks when you’re looking for capital.
Dave: How do you handle when you’re looking at a project for an entrepreneur, how do you handle when the capital is way short? And that happens frequently.
Melane: That’s a tough one, right. That is a tough one. It depends what stage they’re in, right? If they’re in the business development stage and they haven’t actually launched their service, their product, maybe it’s pulling back. Maybe it’s looking at their market a little bit better, tweaking their product or service.
If they’re already launched their product or service, that’s obviously harder, in that cash is key. If your business is already up and running, then you have to talk about strategies to either a, raise some cash pretty quickly, or maybe even stop and kind of rethink and regroup, and go back to the drawing board.
Dave: Well that’s a good point, and maybe we talk about what are my expectations? Or what are the expectations? I have an idea, do the market research until I launch. What are realistic expectations should I have between the time I start the plan and actually get into the first day of business?
Melane: So it’s funny you should ask this question because I just looked at something that said: “you can go from your business idea to actually launch your business in two weeks.”
Dave: What?
Melane: We’ve all got some funny faces around here. That’s not very realistic, right? So that’s probably not a realistic expectation. I would say market research, that could take you a month, then gathering your advisory team, setting meetings up with them, really talking about the nuts and bolts of starting your business, resources, to filing the paperwork to start your business. What sort of legal paperwork do you need? Meeting with the attorney. All of that can take quite a few months, so I would say at a minimum maybe six months would probably be somewhat realistic. Sometimes it’s a year.
Dave: So your role as a trusted advisor, a lot of times you have to slow the process down, and you have to be very honest with that individual that “hey, we’re not ready to launch. We’re not ready to go. We’re undercapitalized.” Have you found that to be a very difficult conversation?
Melane: Not exactly, when I explain why we’re pulling back. There’ve been times when clients have come to me, and they’ve organized their business in such a way that is not advantageous for tax reasons, and they don’t have any idea. Meaning they were talking to their neighbor, and their neighbor had a business and was maybe set up as an when really it would be ideal for them to be set up as a single member LLC. They don’t understand all the compliance issues with each sort of entity type.
So when I talk to them about why it’s so important to have all the pieces of the puzzle on the table, and that sometimes that can take some time, then they kind of understand. And that the end result may be that if they’re profitable, they may end up paying more in either tax or even legal fees, or tax fees to kind of fix, to get the type of structure that they should have received, and should have formed if we would have slowed down the process and kind of talked about that earlier.
Dave: Earlier you mentioned about gathering an advisory team. Whose on that advisory team?
Melane: So, of course, your CPA should be the advisory team.
Dave: One that likes acoustic guitars?
Melane: Yeah.
Dave: And long necks.
Melane: Right, right. You’re right. I can have a beer and talk to you about this, that’s alright.
Your banker obviously, talking about raising capital. An attorney, You’re going to need to put together a good agreement for yourself. And then it would also be great to have a business mentor, meaning someone that’s kind of been there through that process, that may be able to talk to you about some of the things that are coming ahead.
Also a lot of times with new businesses, there are peer groups that you can tap into that maybe have seen some struggles that you haven’t. Or maybe they have a great insurance agent that they can refer you to. So again, an insurance agent would be another great piece to your team.
Dave: That’s a lot of horsepower in the room. How can I afford that as a business startup?
Melane: Usually consultations are free. And that is really important, because when you’re starting your new business, and you have this great idea. It’s kind of like your baby, you want to work with someone that you’re really comfortable with, and that can be candid with you, that’s timely, that’s responsive, and you know, meeting with someone and talking with them through that process and asking them what they’re going to do for you is really an important piece. And most people initially will meet with you for free to talk to you about that.
Dave: You know we’ve got to bring this podcast home, so in the next few minutes we want to just touch on some of the highlights. We’ve just covered a couple of the areas that you consult with, with startups businesses. But I want to jump to the time management, and the lack of work-life balances that creep into everybody’s position. How do you talk to an entrepreneur about those very things? About time management, and lack of that work-life balance?
Melane: So we all know that … I’m assuming that entrepreneurs, in the beginning, expect to put in a lot of hours. It takes a long time, and a lot of effort, and time to get your business up and running. And I think they’re fully expected to put in that time. One of the upsides of having your own business is that does offer you some flexibility. So I think in the beginning, sometimes, people think “Oh I own my own business, I’m going to have time off, and I may have to work a little bit at night, or overtime, but not like I was in the traditional work environment.”
Usually that’s not the case, and in the beginning, they do put in a lot of time. However, once it’s up and running, then they pull back, and they say “you know what, maybe it’s time to add more people.” Maybe it’s time for someone else to shoulder some of the responsibility for what they’ve been carrying the whole time themselves. So that’s when you meet with your advisors and you talk about acquiring talent, searching out people that you can bring in to help shoulder some of that workload, so that you can obviously have some sort of balance in your work and personal life.
Dave: There’s only 24 hours in the day.
Melane: And you won’t die at your desk, right?
Dave: Yeah, that’s correct. So really keep time management top of mind, that’s one of your keys. Seek expert advice, and market research is a key among any other things that you consult with. And probably the fourth takeaway that I came up with calls Melane Howell, CPA.
Melane: Right?
Dave: Yeah, and listen to music. But that’s very helpful because you helped that individual relax, and put some sense of order to a very chaotic process.
Melane: Right, absolutely. And you know, I guess the takeaway is make yourself a checklist. There’s a lot of things on here, and I’m a big list maker, and make a list and just plow through it. There are people out there to help you do this.
Dave: We’re hitting the season where you’re checking that list twice, aren’t you.
Melane: Oh yeah.
Dave: So our guest today has been Melane Howell with Rea & Associates, a tax consultant in the Dublin, Ohio office.
Thanks again for joining us on unsuitable today Melane.
Melane: Thank you.
Dave: You’ve given our listeners some great tips to help them overcome their business challenges. Listeners, do you have any questions about a topic that we didn’t cover today? Let us know and we’ll address it. Send your questions and comments to podcast@reacpa.com, and remember to check out videos of our podcasts on Rea’s YouTube channel.
And of course don’t forget to subscribe to unsuitable on ITunes, and anywhere else podcasts are available. Until next time, I’m Dave Cain, encouraging you to loosen up your tie, and think outside the box.
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