Organizing a new business based on established standards and guide lines used in your industry is unequivocally necessary to insure a high probability of achieving success. As with any endeavor, starting strong will increase the probability of success. Here are a few crucial ideas that can make a difference in the strength of you new business.
1. CHART OF ACCOUNT: The first step is to adopt the standard chart of accounts that is used in your industry. This is critical because the initial operating budget can be prepared based on what each category of income and expense is as a percentage of the Gross Income for comparable businesses. The utilizing the ratios of income and cost being experience by other operating business in your industry as a basis of your budgeting is referred to as “benchmarking”. Your budget becomes a reliable guide for planning and decisions making. The high rate of failure of new business is primarily due the improper disbursements of the start up expenses in relation to the actual income being achieved.
2. MARKET ANALYSIS: The second critical step is the development of a realistic appraisal of the size of the market, how the current volume is being shared and what would be a realistic expectation of sales you hope to capture on an annual basis. This requires a study of each company to determine not only what their market share is but also to evaluate why their share is high or low. The degree of market penetration is limited by the amount that has been budgeted for marketing and advertising. This knowledge provides guidance for your planning and positioning of your product or services. For manufacturers the analysis is the essential information needed for scheduling the rate of production.
3. POLICIES AND PROCEDURES: The third organizational requirement is the establishment of policies and procedures to be used in the training and education of the employees as they come together for the first time. To accomplish this it is important to assign responsibilities and to define standards for how the day to day decisions are to be made in a manner that establishes a uniform method for performing the day to day tasks.
4. NET OPERATING INCOME: Preparing a ten year projection of the Net Operating Income (NOI) is the fourth step in establishing a business. The NOI projection is calculated according to the Chart of Accounts and is based on projected sales volume outlined in the Market Analysis. Interest, taxes and depreciation are shown below the NOI, producing the Net Cash Flow.
5. BUSINESS PLAN: The Business Plan includes all of the planning developed in first four steps and a description of how the plan is going to be implemented including the organization and assigning responsibilities. Business plans also include a statement of goal and schedule milestones for their accomplishment.
Integrated Accounting Services provides continuing consulting and education programs for new and established businesses whereby management and employees can continue develop as the business thrives and expands.