Starting a new small business? Find out where to start and how to succeed.
- You want to make sure you prepare thoroughly before starting a business, but realize that things will almost certainly get messy. To run a successful business, you must adapt to changing conditions.
- Conducting in-depth market research on your sector and the demographics of your potential customers is an important part of crafting a business plan. This includes conducting surveys, holding focus groups, and researching SEO and public data.
- Before you start selling your product or service, you need to build your brand and have a following of people who are ready to jump in when you open your doors for business.
- This article is for entrepreneurs who want to learn the basic steps to start a new business.
Tasks like naming a business and creating a logo are obvious, but what about less-obvious, equally important steps? Whether it’s deciding your business structure or devising a detailed marketing strategy, the workload can add up quickly. Instead of spinning your wheels and guessing where to start, follow this 10-step checklist to transform your business from a lightbulb above your head to a real entity.
How to start a small business
- Refine your thinking
- Write a business plan
- Assess your finances
- Determine the structure of your legal business
- Register with the government and the IRS
- Buy an insurance policy
- Build your team
- Choose your vendors
- Brand yourself and advertise
- Grow your business
1. Refine your idea.
If you’re thinking about starting a business, you probably already have an idea of what you want to sell online, or at least the market you want to enter. Do a quick search for existing companies in your chosen industry. Learn what current brand leaders are doing and how you can do it better. If you think your business can deliver something that other companies don’t (or deliver the same thing, only faster and cheaper), or you have a solid idea and are ready to create a business plan.
Define your “why”.
“In the words of Simon Sinek, ‘always start with a why,’” Glen Gutek, CEO of Awake Consulting and Coaching, told Business News Daily. “It is good to know why you are starting your business. In this process, it is wise to distinguish between the individual why the business serves or the why the marketplace serves. When you focus on meeting a need in the marketplace, the scope of your business will always be greater than a business that is designed to meet an individual need.
Another option is to open a franchise of an established company. The concept, brand following and business model are already there; All you need is a good location and the means to fund your operation.
Think of a name for your business.
Regardless of the option you choose, it’s important to understand the reasoning behind your idea. Stephanie Desaulniers, owner of Business by Design and former director of operations and women’s business programs at the Covation Center, cautions entrepreneurs against writing a business plan or thinking of a business name.
2. Write a business plan.
Once you have your idea, you need to ask yourself some important questions: What is the purpose of your business? Who are you selling to? What are your ultimate goals? How will you finance your startup costs? These questions can be answered in a well-written business plan.
Many mistakes are made by new businesses by rushing into things without thinking through these aspects of the business. You need to find your target customer base. Who is going to buy your product or service? If you can’t find evidence that your idea is in demand, then what’s the point?
Do market research.
Conducting thorough market research on your sector and the demographics of potential customers is an important part of formulating a business plan. This includes conducting surveys, holding focus groups, and researching SEO and public data.
Market research helps you understand your target customers – their needs, preferences and behavior – as well as your industry and competitors. Many small business professionals recommend gathering demographic information and conducting a competitive analysis to better understand the opportunities and limitations within your market.
The best small businesses have products or services that stand out from the competition. This has a significant impact on your competitive landscape and allows you to deliver unique value to potential customers.
Consider an exit strategy.
It’s also a good idea to consider an exit strategy when you compile your business plan. Generating some idea of how you will eventually exit the business forces you to look to the future.
“Too often, new entrepreneurs are so excited about their business and that everyone everywhere is going to be a customer that they have little, if any, time to show a plan to exit the business,” said Josh Tolley, CEO of both Shift Capital. Josh Tolley said. And of course.
“When you board a plane, what’s the first thing they show you? How to get off it. When you go to the movies, what do they point out before the feature starts? Where is the exit. In your first week of kindergarten, they line up all the kids and teach them a fire drill to get out of the building. Too many times I’ve seen business leaders who don’t have three or four predetermined exit routes. This has devalued the company and destroyed family ties.”
A business plan helps you understand where your company is going, how it will overcome any potential pitfalls, and what you need to sustain it. When you’re ready to put pen to paper, these free templates can help.
3. Evaluate your finances.
Starting any business has costs, so you need to determine how you’re going to cover those costs. Do you have the means to fund your startup, or will you need to borrow money? If you are planning to quit your current job to focus on your business, do you have the money to support yourself until you turn a profit? It is best to find out what your startup costs will be.
Many startups fail because they run out of money before making a profit. It’s never a bad idea to overestimate the amount of startup capital you’ll need, as it may take some time for a business to bring in sustainable revenue.
Perform a break-even analysis.
You can determine how much money you need to perform a break-even analysis. This is an essential element of financial planning that helps business owners determine when their company, product or service will be profitable.
The formula is simple:
- Fixed cost ÷ (average cost – variable cost) = break-even point
Every entrepreneur should use this formula as a tool because it gives you information on the minimum performance your business must achieve to avoid losing money. Additionally, it helps you understand exactly where your profits are coming from, so you can set production targets accordingly.
Here are three of the most common reasons for doing a break-even analysis:
- Determine profitability. This is usually the highest interest of every business owner. Ask yourself: How much income do I need to generate to cover all my expenses? Which products or services turn a profit, and which products sell at a loss?
- The price of a product or service. When most people think about pricing, they consider how much their product costs and how competitors are pricing their products. Ask yourself: What are the fixed rates, what are the variable costs, and what is the total cost? What is the value of any physical goods? What is the cost of labor?
- Analyze the data. What quantity of goods or services must you sell to be profitable? Ask yourself: How can I reduce my overall fixed costs? How can I reduce the variable cost per unit? How can I improve sales?
Keep track of your expenses.
Don’t overspend when starting a business. Understand the types of purchases that make sense for your business and avoid overspending on fancy new equipment that won’t help you reach your business goals. Monitor your business expenses to make sure you stay on track.
“A lot of startups tend to spend money on unnecessary things,” said Gene Paldon, founder and CEO of Rare Form New Media. “We worked with a startup that had two employees but spent a fortune on office space that could fit 20 people. They also leased a professional high-end printer that was more suitable for a team of 100; It contained key cards to track who printed what and when. When you start, spend as little as possible and only do things that are necessary for the business to grow and succeed. Luxuries can come when you get established.
Consider your funding options.
Startup capital for your business can come from a variety of sources. The best way to get funding for your business depends on many factors including creditworthiness, amount required and available options.
- Business Loans. If you need financial assistance, a commercial loan from a bank is a good starting point, although it is often difficult to secure. If you are unable to get a bank loan, you can apply for a small business loan through the US Small Business Administration (SBA) or an alternative lender.
- Business grants. Business grants are similar to loans; However, they don’t have to pay it back. Business grants are usually very competitive, and come with conditions that a business must meet in order to be considered. When trying to secure small business grants, look for ones that are specific to your situation. Options include minority-owned business grants, grants for women-owned businesses, and government grants.
- Investors. Startups that require significant upfront funding may want to bring in an investor. Investors may provide several million dollars or more to a new company, with the expectation that they will play a supporting role in running your business.
- Crowdfunding. Alternatively, you can launch an equity crowdfunding campaign to raise small amounts from multiple backers. Crowdfunding has helped countless companies in recent years, and there are dozens of reliable crowdfunding platforms designed for different types of businesses.
Choose the right business bank.
When you choose a business bank, size matters. Marcus Anwar, co-founder of OhMy Canada, recommends small community banks because they are attuned to local market conditions and will work with you based on your overall business profile and character.
“They are unlike the big banks that monitor your credit score and will be more selective in lending to small businesses,” said Anwar. “Not only that, but small banks want to build a personal relationship with you and ultimately want to help you if you run into a problem and miss a payment. Another good thing about small banks is that decisions are made at the branch level, which can be faster than in big banks, where decisions are made at a higher level.”
4. Determine your legal business structure.
Before you can register your company, you need to decide what type of entity it is. Your business structure legally affects everything from how you file your taxes to your personal liability if something goes wrong.
- Sole Proprietorship. If you fully own the business and plan to be responsible for all debts and liabilities, you can register for a sole proprietorship. Be warned that this route can directly affect your personal credit.
- partnership. Alternatively, a business partnership, as its name implies, means that two or more people are held personally liable as business owners. You don’t have to go it alone if you can find a business partner with complementary skills to your own. It’s usually a good idea to add someone to the mix to help your business grow.
- Corporation. If you want to separate your personal liability from your company’s liability, you may want to consider forming one of the various types of corporations (eg, an S corporation, C corporation, or B corporation). Although each type of corporation is subject to different guidelines, this legal structure generally makes the business a separate entity from its owners, and therefore, corporations can own property, assume liability, pay taxes, enter into contracts, Can sue and be sued like anyone else. “Corporations, especially C corporations, are particularly well-suited for new businesses that plan to ‘go public’ or seek funding from venture capitalists in the near future,” said Derrick Jordan, managing attorney at Individual Jordan Counsel.
- A limited liability company. One of the most common structures for small businesses is the limited liability company (LLC). This hybrid structure has the legal protections of a corporation while allowing for the tax benefits of a partnership.
5. Register with the government and the IRS.
Before you can legally operate your business, you will need to obtain various types of business licenses. For example, you need to register your business with federal, state and local governments. You have to prepare several documents before registering.
Articles of Incorporation and Operating Agreement
To become an officially recognized business entity, you must register with the government. Corporations require an “Articles of Incorporation” document, which includes your business name, business purpose, corporate structure, stock details and other information about your company. Similarly, some LLCs will require the creation of an operating agreement.
(DBA) trading as
If you don’t have articles of incorporation or an operating agreement, you’ll need to register your business name, which can be your legal name, a fictitious DBA name (if you’re a sole proprietor), or the name you came by. together for your company. You may also want to take steps to trademark your business name for added legal protection.
Most states require you to obtain a DBA. If you are in a general partnership or operating a proprietorship under a fictitious name, you may need to apply for a DBA certificate. It is best to contact or visit your local county clerk’s office and ask about specific requirements and fees. Usually, there is a registration fee involved.
Employer Identification Number (EIN)
After you register your business, you may need to obtain an Employer Identification Number from the IRS. While this is not required for a sole proprietorship with no employees, you may want to file anyway to keep your personal and business taxes separate or to save yourself trouble later if you decide to employ someone. The IRS has provided a checklist to determine if you will need an EIN to operate your business. If you need an EIN, you can register online for free.
Income Tax Forms
You also need to file certain forms to fulfill your federal and state income tax obligations. The form you need is determined by the structure of your business. You will need to check your state’s website for information about state-specific and local tax obligations.
“It can be tempting to wing it with a PayPal account and a social media platform, but if you start with the right foundation, your business will have less trouble to worry about in the long run,” said Natalie Pierre-Louis, licensed attorney and was Owner of NPL Consulting.
Federal, state and local licenses and permits
Some businesses may also require federal, state, or local licenses and permits to operate. The best place to obtain a business license is at your local city hall. You can then use the SBA’s database to find licensing requirements by state and business type.
Certain trades require businesses and independent contractors to hold a professional license. An example of a professional business license is a commercial driver’s license (CDL). Individuals with a CDL are allowed to drive certain types of vehicles, such as buses, tank trucks, and tractor-trailers. CDLs are divided into three classes: Class A, Class B, and Class C.
You should also check with your city and state to see if you need a vendor’s permit that authorizes your business to collect sales tax from your customers. A seller’s permit goes by a number of names, including resale permit, resale permit, permit license, reseller permit, reseller ID, state tax ID number, reseller number, reseller license permit, or certificate of authority.
It is important to note that these requirements and names vary from state to state. You can register for a seller’s permit through the state government website of the state(s) in which you are doing business.
Jordan says not all businesses are required to collect sales tax (or obtain a seller’s permit).
“For example, the sale of most services (such as professional services, education and capital improvements to real estate), medicine or food for home consumption generally does not require New York sales tax,” Jordan said. “So, for example, if your business only sells medicine, you don’t need a New York seller’s permit. But New York sales tax must be collected with the sale of new tangible personal goods, utilities, telephone service, hotel stays, and food and beverage (in restaurants).”
6. Buy an insurance policy.
It may slip your mind as something you’ll eventually “get around to”, but buying the right insurance for your business is an important step to take before you officially launch. Dealing with incidents like property damage, theft or consumer lawsuits can be expensive and you need to make sure you are properly protected.
Although there are different types of business insurance you should consider, there are some basic insurance plans that most small businesses can take advantage of. For example, if your business will have employees, you will need to purchase workers’ compensation and unemployment insurance at a minimum.
You may also need other types of coverage depending on your location and industry, but most small businesses are advised to purchase general liability (GL) insurance or a business owner’s policy. GL covers property damage, bodily injury and personal injury to yourself or a third party.
If your business provides a service, you may also want to consider professional liability insurance. It covers you if you do something wrong or neglect to do what you should while running your business.
7. Build your team.
Unless you’re planning on being your only employee, you’ll need to hire a great team to get your company off the ground. Joe Zawadzki, CEO and founder of MediaMath, said entrepreneurs need to give the same attention to the “people” element of their business as they do to their products.
“Your product is built by people,” Zawadzki said. “Identifying your founding team, understanding what the gaps are, and [determining] how and when you will address them should be a top priority. Figuring out how the team will work together … is just as important. Defining roles and responsibilities, division of labor, how to give feedback or how to work together when not everyone is in the same room will save you a lot of headaches.”
8. Choose your vendors.
Running a business can be overwhelming, and you and your team likely won’t be able to do it all on your own. That’s where third-party vendors come in. Companies in every industry from HR to business phone systems exist to partner with you and help your business run better.
When you’re looking for B2B partners, you have to choose carefully. These companies will have access to important and potentially sensitive business data, so it’s important to find someone you can trust. In our guide to choosing business partners, our expert sources recommend asking potential vendors about their experience in your industry, their track record with existing clients, and what kind of growth they’ve helped other clients achieve.
Not every business needs the same types of vendors, but there are common products and services that almost every business will need. Consider the following functions that are essential for any type of business.
Taking payments from customers: Offering multiple payment options will ensure you sell in whichever format is easiest for the target customer. You’ll need to compare options to find the right credit card processing provider to make sure you’re getting the best rate for your type of business.
Financial management: Many business owners can manage their own accounting tasks when starting their business, but as your business grows, you can save time by hiring an accountant or comparing accounting software providers.
9. Brand and advertise yourself.
Before you can start selling your product or service, you need to build your brand and gain a following of people ready to jump in when you open your literal or figurative doors for business.
- Company website. Take your reputation online and create a company website. Many customers turn to the Internet to learn about a business, and a website is digital proof that your small business exists. It is also a great way to interact with current and potential customers.
- Social media. Use social media to spread the word about your new business, perhaps as a promotional tool to offer coupons and discounts to followers once you launch. The best social media platforms to use depend on your target audience.
- CRM. The best CRM software solutions allow you to store customer data to improve how you market to them. A well thought out email marketing campaign can do wonders for reaching customers and communicating with your audience. To be successful, you want to strategically build your email marketing contact list.
- the logo. Create a logo that helps people easily recognize your brand and is consistent across all your platforms.
Plus, keep these digital assets up to date with relevant, interesting content about your business and industry. According to Ruthann Bowen, chief marketing officer at Eastcamp Creative, many startups have the wrong mindset about their websites.
“The problem is they see their website as an expense, not an investment,” Bowen said. “In today’s digital age, that is a big mistake. Small business owners who understand how important it is to have a great online presence will be off to a strong start.”
Creating a marketing plan that goes beyond your launch is essential to building clients by consistently talking about your business. This process, especially in the beginning, is just as important as providing a quality product or service.
Ask customers to opt-in to your marketing communications.
As you build your brand, ask your customers and potential customers for permission to communicate with them. The easiest way to do this is to use an opt-in form. According to Dan Edmonson, founder and CEO of DroneGenuity, these are “consent forms” given by web users, which authorize you to contact them with more information about your business.
“These types of forms are typically associated with email communications and are often used in e-commerce to request permission to send customers newsletters, marketing materials, product sales, etc.,” Edmonson said. “People get so many emails and other messages these days that, to get them to choose your services transparently, you start building trust with your customers.”
10. Grow your business.
Your startup and first sale are just the beginning of your career as an entrepreneur. To make a profit and stay afloat, you always need to grow your business. It will take time and effort, but you will get out of your business what you put into it.
Collaborating with more established brands in your industry is a great way to achieve growth. Reach out to other companies and ask for some promotions in exchange for a free product sample or service. Partner with a charity organization and volunteer some of your time or products to get your name out there.