You want to make sure you’ve done your homework before establishing a company, but you also recognize that things will almost certainly go wrong. You must adapt to changing circumstances in order to manage a successful company.
Conducting extensive market research on your industry and the demographics of your target market is a crucial element of developing a business plan. Surveys, focus groups, SEO, and public data research are all part of this process.
Before you begin selling your product or service, you must first establish your brand and cultivate a fan base of individuals who will be eager to buy when you open your doors.
This essay is intended for entrepreneurs who are interested in learning the fundamentals of starting a new business.
Tasks like naming the business and creating a logo are obvious, but what about the less-heralded, equally important steps? Whether it’s determining your business structure or crafting a detailed marketing strategy, the workload can quickly pile up.
How to start a small business
Rather than spinning your wheels and guessing at where to start, follow this 10-step checklist to transform your business from a lightbulb above your head to a real entity.
1. Refine your idea.
If you’re thinking about starting a business, you probably already have an idea of what you’d like to sell online, or at the very least, what market you’d like to enter. Perform a quick search for existing businesses in your chosen field.
Find out what existing brand leaders are doing and how you may improve on it. If you believe your company can provide something that other companies cannot (or can provide the same service but at a lower cost), or if you have a strong idea and are ready to develop a business plan.
Define your “why.”
Always start with why, as Simon Sinek puts it. Business News Daily spoke with Glenn Gutek, CEO of Awake Consulting and Coaching. It’s important to understand why you’re starting your company.
At this stage, it’s important to distinguish whether the firm is serving a personal or a market-driven reason. The scope of your business will always be broader than a firm that is built to address a personal need when your why is focused on meeting a market need. “
Another option is to open a franchise of an established company. The concept, brand following, and business model are already in place; all you need is a good location and the means to fund your operation.
Brainstorm your business name.
Regardless of which option you choose, it’s vital to understand the reasoning behind your idea. Stephanie Desaulniers, owner of Business by Dezign and former director of operations and women’s business programs at the Convention Center, cautions entrepreneurs against writing a business plan or brainstorming a business name before nailing down the idea’s value.
Clarify your target customers.
According to Desaulniers, too many people rush into starting a business without first considering who their consumers will be and why they would want to buy from or hire them.
“You should explain why you want to collaborate with these consumers—are you passionate about making people’s lives easier?” According to Desaulniers, “Or do they love creating art to provide color to their surroundings?
Identifying these responses aids in the C. Third, you’ll need to figure out how you’ll deliver this value to your customers and how you’ll express it in a way that they’ll pay for.”
The essential details must be ironed out during the ideation process. If your concept isn’t something you’re enthusiastic about, or if there isn’t a market for it, it’s time to come up with new ones.
2. Write a business plan.
Once you’ve nailed down your concept, you’ll need to ask yourself a few key questions: What is the goal of your company? Who are you trying to sell to? What are your ultimate objectives? How are you going to cover your initial costs? A well-written business strategy can provide answers to these questions.
New firms make a lot of blunders because they rush into things without thinking about these components of the business. You must identify your target market. Who will purchase your goods or service? What’s the purpose of pursuing your idea if you can’t prove that there’s a market for it?
Conduct market research.
Conducting detailed market research on your profession and possible client demographics is a crucial element of developing a business plan. Conducting surveys, convening focus groups, and analyzing SEO and public data are all part of this process.
Market research allows you to learn more about your target client, including their wants, tastes, and behavior, as well as your industry and competitors. To better identify potential and constraints in your industry, many small company specialists recommend obtaining demographic data and doing competition analysis.
The finest small businesses offer unique products or services that set them apart from their competitors. This has a big impact on your competitive landscape, and it helps you to communicate distinct value to potential consumers.
Consider an exit strategy.
When putting together your business plan, it’s also a good idea to think about an exit strategy. Making a plan for how you’ll eventually quit the firm requires you to think ahead.
“Too frequently, new entrepreneurs are so enthusiastic about their business and so certain that everyone everywhere will be a customer that they give very little if any, time to illustrate how they want to exit the firm,” said Josh Tolley, CEO of both Shyft Capital and Kavana.
“What is the first thing they show you when you board an airplane?” What’s the best way to get off it? What do they point out before the movie starts when you go to the movies? Where are the exits? They line up all the kids the first week of kindergarten and train them in fire drills to get out of the building.
I’ve seen far too many corporate leaders who don’t have three or four exit strategies in place. This has resulted in a decrease in corporate value as well as the severance of family ties.”
A business plan can help you figure out where you want to take your firm, how you’ll get there, and what you’ll need to keep it going. These free templates might assist you when you’re ready to put pen to paper.
3. Assess your finances.
Starting a business comes with a cost, so you’ll need to figure out how you’ll pay for it. Are you able to fund your startup on your own or will you need to borrow money? Do you have enough money set aside to support yourself until you generate a profit if you want to leave your current employment to focus on your business? It’s a good idea to figure out what your initial expenditures will be.
Many businesses fail because they run out of cash before becoming profitable. It’s never a good idea to overestimate the amount of startup capital you’ll need because it might take a long time for a business to start generating consistent revenue.
Perform a break-even analysis.
One way you can determine how much money you need is 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 Costs ÷ (Average Price – Variable Costs) = Break-Even Point
Every entrepreneur should use this formula as a tool because it informs you about the minimum performance your business must achieve to avoid losing money. Furthermore, it helps you understand exactly where your profits come from, so you can set production goals accordingly.
Here are the three most common reasons to conduct a break-even analysis:
- Determine profitability. This is generally every business owner’s highest interest.
How much revenue do I need to generate to cover all my expenses? Which products or services turn a profit, and which ones are sold at a loss?
- Price a product or service. When most people think about pricing, they consider how much their product costs to create and how competitors are pricing their products.
What are the fixed rates, what are the variable costs, and what is the total cost? What is the cost of any physical goods? What is the cost of labor?
- Analyze the data. What volume of goods or services do you have to 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?
Watch your expenses.
When launching a firm, don’t go overboard with your spending. Understand the types of purchases that are appropriate for your company and avoid splurging on expensive new equipment that will not help you achieve your objectives. Keep track of your business spending to make sure you’re on target.
“A lot of businesses waste money on things that aren’t necessary,” said Jean Paldan, CEO of Rare Form New Media. “We worked with a two-person startup that spent a lot of money on office space that could fit 20 people.
They also rented a professional high-end printer with key cards to track who was printing what and when which was more appropriate for a crew of 100. When you first start out, spend as little as possible and only on the items that are absolutely necessary for the firm to grow and succeed. When you’ve established yourself, you may start to enjoy the finer things in life.”
Consider your funding options.
Startup capital for your business can come from various means. The best way to acquire funding for your business depends on several factors, including creditworthiness, the amount needed, and available options.
- business loans If you need financial assistance, a commercial loan through a bank is a good starting point, although these are often difficult to secure. If you are unable to take out a bank loan, you can apply for a small business loan through the U.S. Small Business Administration (SBA) or an alternative lender.
- business grants Business grants are similar to loans; however, they do not need to be paid back. Business grants are typically very competitive and come with stipulations that the business must meet to be considered. When trying to secure a small business grant, look for ones that are uniquely specific to your situation. Options include minority-owned business grants, grants for women-owned businesses, and government grants.
- Investors Startups requiring significant funding upfront may want to bring on an investor. Investors can provide several million dollars or more to a fledgling company, with the expectation that the backers will have a hands-on role in running the business.
- Crowdfunding Alternatively, you could launch an equity crowdfunding campaign to raise smaller amounts of money from multiple backers. Crowdfunding has helped numerous companies in recent years, and there are dozens of reliable crowdfunding platforms designed for different types of businesses.
Choose the right business bank.
When it comes to selecting a business bank, size does matter. Smaller community banks, according to Marcus Anwar, co-founder of OhMy Canada, are more in tune with local market conditions and will work with you based on your entire business profile and character.
“They’re not like major banks, which look at your credit score and are more discriminating when it comes to lending money to small enterprises,” Anwar explained. “Not only that, but tiny banks want to develop a personal relationship with you and, in the end, assist you if you have problems and fall behind on payments.
Another advantage of smaller banks is that decisions are made at the branch level, which can be faster than judgments made at a higher level in larger banks.”
Anwar believes that you should ask yourself these questions when choosing a bank for your business:
- What is important to me?
- Do I want to build a close relationship with a bank that’s willing to help me in any way possible?
- Do I want to be just another bank account, like big banks will view me as?
Ultimately, the right bank for your business comes down to your needs. Writing down your banking needs can help narrow your focus to what you should be looking for. Schedule meetings with various banks and ask questions about how they work with small businesses to find the best bank for your business.
4. Determine your legal business structure.
Before you can register your company, you need to decide what kind 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 own the business entirely by yourself and plan to be responsible for all debts and obligations, 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 into the mix to help your business flourish.
- Corporation. If you want to separate your personal liability from your company’s liability, you may want to consider forming one of several types of corporations (e.g., an S corporation, a C corporation, or a B corporation). Although each type of corporation is subject to different guidelines, this legal structure generally makes a business a separate entity from its owners, and, therefore, corporations can own property, assume liability, pay taxes, enter into contracts, sue, and be sued like any other individual. “Corporations, especially C corporations, are especially suitable for new businesses that plan on “going public” or seeking funding from venture capitalists in the near future,” said Deryck Jordan, managing attorney at Jordan Counsel.
- limited liability company. One of the most common structures for small businesses is the limited liability company (LLC). This hybrid structure has the legal protection of a corporation while allowing for the tax benefits of a partnership.
Ultimately, it is up to you to determine which type of entity is best for your current needs and future business goals. It’s important to learn about the various legal business structures available. If you’re struggling to make up your mind, it’s not a bad idea to discuss the decision with a business or legal advisor.
5. Register with the government and IRS.
You will need to acquire a variety of business licenses before you can legally operate your business. For example, you need to register your business with federal, state, and local governments. There are several documents you must prepare before registering.
Articles of incorporation and operating agreements
To become an officially recognized business entity, you must register with the government. Corporations need 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 need to create an operating agreement.
Doing business as (DBA)
If you don’t have articles of incorporation or an operating agreement, you will need to register your business name, which can be your legal name, a fictitious DBA name (if you are the sole proprietor), or the name you’ve come up with for your company. You may also want to take steps to trademark your business name for extra legal protection.
Most states require you to get a DBA. If you’re in a general partnership or a proprietorship operating under a fictitious name, you may need to apply for a DBA certificate. It’s best to contact or visit your local county clerk’s office and ask about specific requirements and fees. Generally, there is a registration fee involved.
Employer identification number (EIN)
After you register your business, you may need to get an employer identification number from the IRS. While this is not required for sole proprietorships with no employees, you may want to apply for one anyway to keep your personal and business taxes separate, or simply to save yourself the trouble later if you decide to hire someone.
The IRS has provided a checklist to determine whether you will require an EIN to run your business. If you do 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 forms you need are determined by your business structure. You will need to check your state’s website for information on state-specific and local tax obligations.
“You might be tempted to wing it with a PayPal account and social media platform, but if you start with a proper foundation, your business will have fewer hiccups to worry about in the long run,” said Natalie Pierre-Louis, licensed attorney, and 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 search for licensing requirements by state and business type.
Businesses and independent contractors in certain trades are required to carry professional licenses. One example of a professional business license is a commercial driver’s license (CDL). Individuals with a CDL are allowed to operate certain types of vehicles, such as buses, tank trucks, and tractor-trailers. A CDL is divided into three classes: Class A, Class B, and Class C.
You should also check with your city and state to find out if you need a seller’s permit that authorizes your business to collect sales tax from your customers. A seller’s permit goes by numerous names, including resale permit, permit license, resale ID, state tax ID number, reseller number, reseller license permit, or certificate of authority.
It’s 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) you’re doing business in.
Jordan says that not all businesses need to collect sales tax (or obtain a seller’s permit).
For example, “New York sales tax generally is not required for the sale of most services (such as professional services, education, and capital improvements to real estate), medicine, or food for home consumption,” Jordan said.
“So, for example, if your business only sells medicine, you do not need a New York seller’s permit. But New York sales tax must be collected in conjunction with the sale of new tangible personal goods, utilities, telephone service, hotel stays, and food and beverages (in restaurants).”
6. Purchase an insurance policy.
It might slip your mind as something you’ll “get around to” eventually, but purchasing the right insurance for your business is an important step to take before you officially launch. Dealing with incidents such as property damage, theft, or even a customer lawsuit can be costly, and you need to be sure that you’re properly protected.
Although you should consider several types of business insurance, there are a few basic insurance plans that most small businesses can benefit from. For example, if your business will have employees, you will at least need to purchase workers’ compensation and unemployment insurance.
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 you 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 something you should have done while operating your business.
7. Build your team.
Unless you’re planning to be your only employee, you’re going to need to recruit and hire a great team to get your company off the ground. Joe Zawadzki, CEO, and founder of MediaMath said entrepreneurs need to give the “people” element of their businesses the same attention they give their products.
“Your product is built by people,” Zawadzki said. “Identifying your founding team, understanding what gaps exist, and [determining] how and when you will address them should be a top priority.” Figuring out how the team will work together is equally 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 down the line. “
8. Choose your vendors.
Running a business can be overwhelming, and you and your team probably aren’t going to 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 you run your business better.
When you’re searching for B2B partners, you’ll have to choose carefully. These companies will have access to vital and potentially sensitive business data, so it’s critical to find someone you can trust.
In our guide to choosing business partners, our expert sources recommended 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 will need the same type of vendors, but there are common products and services that almost every business will need. Consider the following functions that are a necessity for any type of business.
Taking payments from customers: Offering multiple payment options will ensure you can make a sale in whatever format is easiest for your target customer. You’ll need to compare options and find the right credit card processing provider to ensure you’re getting the best rate for your type of business.
Managing finances: Many business owners can manage their own accounting functions when starting their business, but as your business grows, you can save time by hiring an accountant or comparing accounting software providers.
9. Brand yourself and advertise.
Before you start selling your product or service, you need to build up your brand and get a following of people ready to jump when you open your literal or figurative doors for business.
- Company website. Take your reputation online and build 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 utilize will depend on your target audience.
- CRM. The best CRM software solutions allow you to store customer data and 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 will want to strategically build your email marketing contact list.
- Logo. Create a logo that can help people easily identify your brand and be consistent in using it across all of your platforms.
Also Related: Why is Email Marketing so Important?
Also, 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, too many startups have the wrong mindset about their websites.
“The issue is they see their website as a cost, not an investment,” Bowen said. “In today’s digital age, that’s a huge mistake. The small business owners who understand how critical it is to have a great online presence will have a leg up on starting out strong.”
Creating a marketing plan that goes beyond your launch is essential to building a clientele by continually getting the word out 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 by using opt-in forms. According to Dan Edmonson, founder, and CEO of Dronegenuity, these are “forms of consent” given by web users, authorizing you to contact them with further information about your business.
“These types of forms are typically used in e-commerce to request permission to send newsletters, marketing materials, product sales, and other information to customers,” Edmonson added. “People get so many spam emails and other messages these days that getting them to opt into your services in a straightforward way helps you create confidence with them.”
Opt-in forms are an excellent place to start when it comes to establishing trust and respect with potential clients. Even more crucially, these documents are legally needed. The Federal Trade Commission’s CAN-SPAM Act of 2003 establishes regulations for commercial email. This rule applies to all commercial messages, which are defined as “any electronic mail message whose principal aim is the commercial advertisement or promotion of a commercial product or service,” according to the law. Each email sent in contravention of the law will be investigated.
10. Grow your business.
Your launch and first sales are only the beginning of your task as an entrepreneur. To make a profit and stay afloat, you always need to be growing your business. It’s going to take time and effort, but you’ll get out of your business what you put into it.
Collaborating with more well-known businesses in your field is a terrific strategy to expand your business. Request a promotion from other businesses in exchange for a free product sample or service. To get your name out there, team up with a charitable organization and donate some of your time or products.
While these pointers will assist you in starting your business and getting it ready to develop, there is no such thing as a perfect plan. You want to make sure you’ve done your homework before beginning a business, but things are bound to go wrong. You must adapt to changing circumstances in order to manage a successful firm.
“Be ready to modify,” Fiddlestix Party + Supply founder Stephanie Murray warned. “In the military, there’s a saying that ‘no plan survives first contact,’ which means that you can have the best plan in the world, but once it’s inaction, things change, and you’re out of luck.”
As an entrepreneur, your value lies in solving problems, whether that is your product or service solving problems for other people or you solving problems within your organization.”