How to Start a Business
Creating and launching your very own business is a great step towards financial freedom. Currently, more than 600,000 new small businesses are created each year in the US alone, providing more opportunities for millions of independent entrepreneurs and employees alike. If you are thinking of starting your very own small business, it is important to understand the necessary steps involved in the process to increase your chances of achieving success.
To better understanding how to start a business, researching business opportunities and becoming familiar with standard business models is essential. Before you begin drafting your business plan and outlining your profit margins, it is imperative to gain a thorough understanding of the market and industry you are entering. Consider the following questions while becoming more familiar with the process of launching a business:
- What is the market I am targeting? What are the demographics of the individuals who are likely to purchase the products or services I offer? Is there a high demand for the current products and services I intend to promote?
- What does the future outlook of the industry I am entering look like? Will people still find a need for my small business 5, 10, and 25 years from now? How can I ensure my business will still remain during tough economic times?
- How will my customers discover my business? Will I thrive with a local business or is an online eCommerce solution better for the products and services I am offering?
- How much capital will I require in order to start my business from the ground-up? What are my options for financing my small business idea?
- Who are my top competitors? Do my competitors currently have a monopoly on the market and industry I am interested in? How do I plan to outperform my competitors by providing prospective customers with a better and more improved solution?
- Is it difficult to break into the market I am interested in, or is it possible to turn a profit within the first year of entering my new small business?
- How will I scale my business and grow the revenue I am generating? Is it smarter to stick to a smaller offering of services and products, or does my competition thrive based on the diverse number of products that they sell?
- If my business is slow and is not thriving, how will I sell or exit the business altogether? Devising an exit plan is imperative before you launch a small business to ensure your financial and legal stability throughout the process.
Create a Business Plan
Drafting a business plan is one of the most important elements of launching a new company. Traditional business plans outline profit predictions, profit margins, marketing strategies and necessary information for prospective investors and banking institutions. If you are not seeking funding for your small business, it is also possible to utilize a one-page business plan to get started. Spend time researching and comparing business plans of both online and local small businesses to gain valuable insight into the process while reviewing various page formats and important sectors of information to include.
Finances and Funding
Figuring out funding for your small business will help alleviate stress while allowing you to move forward with seeking investors and getting your business up and running. While some entrepreneurs may not require funding if they are launching an eCommerce shop or using their own skills to provide services, most entrepreneurs need assistance to get started. Some of the most common ways to obtain funding for small businesses include:
- Traditional financing: Traditional finance loans require background checks and financial history checks to verify an individual’s ability to pay for the financing they required. A personal loan and financing may have higher interest rates than alternative options, depending on your financial history and current credit score.
- Small business loans: Small business loans are loans designed for independent entrepreneurs and business owners. With a small business loan, you will be required to prove profits while also providing information that ensures you are capable of paying off the loan yourself. Small business loans will also require a good credit score and a positive financial record, similar to traditional financing.
- Grants for small businesses: In some cases, grants for small businesses are available. Applying for a small business grant depends on the type of business you are running and who the business will benefit. Nonprofits along with businesses that provide medical resources or health-related items are more likely to receive small business grants that are currently available.
- Crowdfunding: Crowdfunding is a new way to collect funding from other individuals who have a genuine interest in supporting and following your business idea. Every day individuals have the opportunity to fund a business opportunity if it is relevant and useful to their everyday lives.
- Angel investors: Angel investors are investors who actively seek new business ideas to invest in, often with fewer strings than traditional financial institutions. Angel investors can be found online and typically prefer to own a percentage of the small business they invest in for the capital they provide.
What to keep in mind when starting a small business and calculating the funding you require:
- How much money you require to keep you business up and running for the next 12 months
- Your own personal salary
- Any salaries of employees you hire
- Business expenses: Location expenses, rental payments, utilities, licensing, etc.
- Inventory costs and restocking costs
- Travel expenses
- Marketing and advertising costs
Consider the Structure of Your Business
Choosing the right structure for your small business is another factor to keep in mind as it directly correlates with the type of business plan you have created. Understanding the basics of business structures is extremely beneficial to ensure you choose a structure that is optimal for you. The most common business structures to learn more about before starting your own small business include:
- LLC: An LLC, or a limited liability company, is one of the most simple business structures for new business owners and independent entrepreneurs. An LLC protects business owners from legal and financial liability, while also providing you with the ability to file bankruptcy without taking on the personal responsibility and burden of debt to your name.
- S-Corp: An S-corporation business has fewer requirements than a c-corporation, but it is also similar in many ways. With an s-corp, a business owner is able to receive profits directly without being taxed at a traditional corporate rate (depending on the size of your business).
- C-Corp: A C-corporation is a corporation that provides the most protection for business owners while also requiring meticulous record-keeping and accounting. With a c-corp, you are less likely to be held liable for any financial or legal issues you encounter while running your business, although it is more expensive to maintain an active c-corp than alternative options.
- Non-Profit Organization: A nonprofit organization, known as a 501(c)(3), is not required to pay state or federal income taxes due to the service(s) it provides. Nonprofits must be approved through the state and are only possible if the service is deemed beneficial to the public.
- DBA: A DBA, or Doing Business As, is simply a way to conduct business as another individual or entity as to protect your real name. A DBA is not an entirely separate business structure, but is used for small business owners to appear professional while protecting the owner’s real identity.
- Operating Agreement: An operating agreement is typically used with LLC (Limited Liability Company) businesses to outline financial provisions, budgets, and plans.
Register Your Company Name and File Appropriate Paperwork
Research the name you want to use for your business to ensure it has not already been trademarked and copyrighted. Registering your business name as a sole proprietor will require you to do so officially through a county or state clerk, depending on your location. If you are planning to open an LLC or a traditional corporation, selecting and registering the business name of your choice is done while filing the official paperwork to begin conducting business.
It is also highly advisable to research domain names and potential websites that are using your business name prior to filing the necessary paperwork in your state. If you want to create an online presence for your business, having a relevant website name is a must. In some cases, applying for a trademark and copyright for your business may provide you with the ability to obtain a domain name that is parked or not yet in use. Always choose a business name that is available when registering a new domain to minimize confusion while sharing products and services with prospective customers.
Pull Permits and Necessary Licenses
Depending on the type of business you intend to launch, there may be permits and licenses you need to obtain. For food service companies, health permits, inspections, and serving licenses are often always required. Before you begin conducting business, be sure to verify that you are not breaking any laws to prevent fines and penalties.
The Importance of Proper Accounting
Without a proper accounting solution in place, running a business can quickly become too overwhelming to continue. Devising an accounting strategy is essential for managing inventory, setting markups, and managing revenue. Additionally, it is also important to have an accounting strategy in place when hiring employees, working with independent contractors, and when paying quarterly taxes as a business owner. Before you settle on an accounting solution to help manage your budget, take some time to research the top accounting software programs available for small businesses and independent entrepreneurs.
Location, Location, Location
How do you intend to run your business? Do you plan to work out of your own home office, or are you seeking retail or warehouse space for your business? Consider the rent, utilities, and overall investment required for your business along with its location before launching. Location matters when it comes to foot traffic, especially when you are running a local brick and mortar business. It is also important to consider whether purchasing a property outright or simply signing a short-term lease is best for your business when starting out from the ground up.
Hiring Employees Vs. Independent Contractors
Do you have plans to hire employees for your small business, or do you prefer to work with independent contractors as you go? If you intend to hire employees, keep in mind that you are also responsible for payroll taxes in addition to business (and self-employment) taxes. Choose a payroll system and program that helps to automate the process of keeping track of employee pay as well as the taxes you are required to pay for each part or full-time individual you hire. Working with independent contractors is also possible as a small business owner, especially if you are not interested in hiring part or full-time employees. When working together with independent contractors, you are required to send a W9 to those earning more than $600 from you annually.
Marketing and Scaling Your Business
Once you have a clear understanding of how to start a business and you have completed the steps to do so, it is time to develop a working marketing strategy. Marketing is one of the most important sectors of any business, whether you choose to market by networking, locally, or even online. Some of the most effective ways to market a brand new small business include:
- Email Marketing
- Social Media Marketing
- Content Marketing
- Local Marketing
- SEO/Local SEO
- Networking Events
The key to digital and local marketing is to remain consistent at all times. Create a calendar to stick to while sharing products and services to garner new followers and prospective customers. Build and cultivate the relationships you have with your followers to maintain a positive reputation in the market and industry of your choice.
While managing and operating your own small business is never easy, the hard work is extremely rewarding due to the financial rewards, freedom, and flexibility you receive. Whether you are thinking of launching a local brick and mortar business or if you are interested in providing a service that is only available online, taking the right steps to launch a business is a must. With the right business plan and a complete understanding of the target audience you want to reach, ensure you are on the right track to achieving true financial freedom.