Taking an idea you are passionate about and turning it into a business is exciting, but starting a business is also not without risk or difficulties. Starting a business allows you the freedom of being an entrepreneur and the ability to grow as far as you can envision.
With 28 million small businesses in the United States, starting a business might seem simple and easy to attain success. Seeing huge startups such as Uber or Airbnb turn into multi-million dollar companies can be encouraging. Despite these success stories, in reality, there are many legal, sales, financial, marketing, HR, and liability aspects that you should consider before jumping in headfirst.
If you want to be realistic, only a bit over 65% of businesses with employees survives for longer than two years while 50% survive five. But, not every business fails, and you need to prepare before taking the plunge to prevent yourself from becoming a statistic.
If you are considering starting a business of your own, then it is time to focus. Prepare and educate yourself on the steps you need to take to make your business dream a reality.
If you are looking to start a business, you will most likely have already brainstormed a business idea. Whether this is something you have been dreaming of starting for many years, or recently dreamt up, you need to think realistically.
For your business to be successful, the age-old rule that entrepreneurs follow is that there should be a problem that your company is offering a solution to solve. Whether that is opening a pizzeria because people are hungry, or an online marketplace to purchase pet water bottles, your business needs to solve a problem.
Performing market research is an excellent way to identify the need that you are looking to solve. While doing this research, seek to answer the following questions:
By asking yourself these questions, you will not only understand the market you plan to enter but also correctly prepare.
Your business plan is essentially a map that outlines the goals you hope to achieve in your business and the way you plan to achieve those goals. Your business plan will help you navigate the beginning stages while you establish your business, and carry you through to future growth.
Just as there are many different types of businesses, there are also different types of business plans. For entrepreneurs seeking financing from an investor or bank, it is imperative to create a traditional business plan. The plan should include various standard sections that are typically looked at by investors or banks. This type of business plan should leave no question unanswered and be very thorough.
If you have already secured funding, or are not planning to seek any form of financial support, a simple business plan will be enough. This type of business plan should have what you plan to achieve and the method you will use.
Always remember, a business plan can continually be improved upon and changed over time. Regardless if you do not stay on the path of your business plan, it is imperative to start with one.
Although many people might believe that starting a business requires a lot of money, this is not always true. It is good to note that this is highly dependent on the company, but starting a business will typically involve an initial investment. It will also require some form of a line of credit or funds to back up the company before generating profit.
One great way to sort your finances before starting a business is to put together a spreadsheet, which can help you fully organize all your investments and start-up costs.
You should include:
It is also imperative to include at least enough cash flow to cover 12 months of business. Expenses should consist of all overheads such as rent and utilities, marketing costs, supplies, payment for employees, and even your salary.
After creating this spreadsheet, the combined number will equal your initial investment. There are a variety of ways to gather funding if you are unable to cover the cost yourself. Some of these include financing, small business loans, grants, angel investors, and crowdfunding.
There is no "right" way to fund your business venture. Many new business owners use a combination of funding paths that work for them! The primary goal is to find the best route that works for you and get you the capital you need to succeed.
When choosing a business structure, you have four options, a sole proprietorship, a partnership, a limited liability company (LLC), or a corporation. Selecting the correct business entity structure is very important, and might be the most critical aspect of starting a business. Be aware that you can choose one business structure initially, and change it as time goes on.
It is always a good idea to consult with an attorney regarding the proper structure for your business.
It has to do with protecting your assets because choosing a business structure is hugely important. The best business structures to choose from, if you hope to avoid personal liability for debts of your business, are either a limited liability company (LLC) or a corporation.
According to Forbes, starting your business as an S corporation will give you more of a "favorable flow through tax treatment." Alternatively, if you plan to request funding from venture capital investors, you might choose to start as a C corporation.
It is straightforward to begin as an S corporation and then move to a C corporation, so do not put too much stress on this aspect of your decision.
Limited Liability Company (LLC)
You need to protect your assets, and another structure that will protect your assets is a limited liability company (LLC). Most of the time, the LLC will protect you and your assets from any lawsuits or claims against the business.
If you own a car, house, possessions, or have a family, your LLC will separate your private world from your business world.
If you plan to go into business with a partner, then you might form a business partnership. A business partnership means you share the ownership of the company between you and another individual.
When one individual owns a business solely under their name, it is a sole proprietorship.
Not only will your business name be used in virtually every aspect of your business, but it will also be the first impression that the world sees. Meaning you need to be careful when choosing your business name and consider any connections it might already have.
Unfortunately, the process of choosing a business name is not as simple as it sounds. After deciding on a business name, you will need to check if that name is either trademarked or if it is already in use by someone else.
After deciding on a unique name that is not trademarked or used by another business, you will need to register your name. You can do so with either your state or country clerk. As a general rule, corporations, LLCs, or limited partnerships tend to register their business name when the formation paperwork.
Tip: Create and register your domain name (website URL) as soon as you have selected your business name.
When you begin your own business, paperwork is inevitable, and it's best to be as accurate as possible when completing it. When getting a business license or permit, the initial step is to know what you are required to have for legal operation.
Both business permits and licenses authorize you to do something, but they are not the same.
A government agency always grants business permits and typically implies an inspection. For example, a permit might get issued after a building, health, or fire safety inspection has occurred.
Business licenses permit us to practice an activity or use something. Licenses can be issued and granted by government agencies, but can also be sold by individuals or companies that own the rights to a trademark or copyright.
Depending on what type of business you plan to start, and the location you the company is based in, you could apply many different licenses and permits to your situation.
Federal Licenses and Permits
For businesses regulated by a federal agency, it is impossible to do business without a federal license or permit. For example, those requiring a federal license or permit might include a company that sells guns, processed meat, or TV stations.
State Licenses and Permits
Depending on your state of operation and type of business, you may require a state license or permit. State tax permits are for any company that sells a product or services in a state that employs state sales tax.
State licenses are also necessary for professionals such as barbers, doctors, cosmetologists, and more.
Local Licenses and Permits
Almost every locality in the United States holds licensing and permit requirements. These might include health, zoning, building, or construction permits.
Maybe you're starting a Shopify store to sell your fitness for life clothing and apparel. Perhaps you're securing funding and launching a Fintech company. Either way, you need a business bank account.
Your business bank account will separate personal and business funds to protect your assets. It also makes it simpler to maintain bookkeeping, process payroll, and file your taxes. Plus, it can help you develop a rapport with your bank or credit union, which could be essential if you decide to apply for a business loan.
You need to create a reliable and organized accounting system if you are running any type of business. An accounting system will help you to manage your budget, set your prices, and, most important.file your taxes. Accounting systems can either be put into place by an accountant or with accounting software.
Setting up your place of business is essential for operating your business. You will need to decide if you want to run the company out of a home office, a shared space, or a private office space. You can also opt for a retail location, depending on the type of business you are starting.
Location is essential, as well as the equipment you hold within that location, and where you place that equipment. Decide whether or not you will purchase or lease the commercial space in which you operate.
With many businesses moving online, creating a place of business does not need to be physical. You may also set up the logistics of your business online, including designing the website and contact email address.
Insurance is not the first thing that comes to mind for those starting a business, but it is not something that you should bypass.
You need insurance for your business in case of accidental property damage such as a fire, theft from a break-in, or even a lawsuit brought upon you by an angry customer. All of these incidents can be extremely expensive without insurance, and you need to be protected.
Most businesses choose to purchase general liability (GL) insurance, which covers bodily injury, personal injury to themselves or customers, and property damage.
If you plan to hire employees, you will need to purchase worker's compensation and unemployment insurance legally. Other forms of insurance coverage vary from state to state.
You may also want to consider purchasing professional liability insurance if you offer a service to protect you against bad decisions, poor actions, or neglect.
Your business is only as strong as the team behind it. Although every business does not need to hire employees, you need to begin the process early on if you plan to do so.
Take the time to write an outline of all the positions you need to fill, including the responsibilities and expectations regarding the employee position.
You might also choose to outsource work to independent contractors (or freelancers) rather than hiring employees.
Make sure to always have a legal contract in place for anyone who works with you.
After you complete all the other stages of starting a business, you will need to attract customers and clients. And the best way to do this is to begin marketing, advertising, and promoting your business.
Promoting your business can be a fun process. Just try to be aware that success happens at different paces for everyone.
As long as you create a thorough plan and are willing to continue to put the work into your business, you will continue to increase the chance for a successful business.