Fact checked for accuracy by Billie Anne Grigg, a bookkeeper and Mastery Level Certified Profit First Professional.
Choosing to become an entrepreneur can be an exciting yet challenging adventure. The success of your business depends on the plan, market, location, and a host of other factors.
In the U.S., more than thirty million small businesses exist, which indicates fierce competition. If you have plans to build a successful business in any location, you need to start the right way.
Below is a detailed guide to starting a business. Let’s get started.
Step-By-Step to Starting Up a Business
One of the important virtues you need to build a business is patience. Before you start the company, you must have the patience to create a viable business plan.
According to a recent Bureau of Labor Statistics report, around 20% of businesses fail before a year runs out. You can avoid being a part of that statistic by following this detailed step-by-step guide:
Choose Your Business Idea
Every business, big or small, starts with an idea. The obvious first step is to decide on the business idea before you begin to plan. A business idea can come from just about anywhere. You can get an idea from a recurring personal need or a conversation with a friend.
Likewise, you can also get an idea from your experience on the present job. Regardless of what inspires your concept, what’s important is that you have a good idea.
A good idea is one that there’s an immediate market for it. The purpose of business is to make a profit, but people won’t buy what you sell if they don’t need your service or product. You have a double advantage if your business idea intersects at the point of your passion and target market needs.
Write a Business Plan
A business plan is vital if you want to succeed with your business. It will help you outline your goals, identify potential pitfalls, and make a plan to execute.
Think of the business idea as an architect’s imagination looking to construct a duplex for a client. The architect will imagine what he wants the home to look like, then design the building before actual construction starts.
There’s no better person to help you plan your business idea than yourself. However, it’s always best to consult an expert with your business plan (SCORE is an excellent resource for experts).
With their experience and analysis, they can forecast possible situations and help you plan for them. A business plan needs to be an all-encompassing document that contains your plans from start to finish. Your business plan needs to have yearly, monthly, and daily goals.
Before you start to pick out your team, you should look for investors if you need them. You may have a brilliant business idea that solves problems for millions of people. Still, you need funding to actualize the plan.
A business plan should have a financial section. The financial section should detail possible funding sources.
For first-time business owners, there are many factors to consider with funding. Ideally, after you have your business idea, you’ll need to conduct market research.
Market research will give you a reasonable estimate of how much you’ll need to fund the business. The funding you need for your business should be enough for operations until the company can support itself through revenue.
When you have an estimate of the funds you need, you can start to secure the funding. If your estimate says you have the financial backing from yourself or your family to sponsor your idea, go ahead with the business.
There are many other methods you can employ to fund your business. A popular tactic most companies use is investments. Some companies and large outfits offer entrepreneurs seed fundraising programs, while some act as angel investors into businesses.
The amount of money you need and the persona of the investor determine the types of investors you choose. The persona of investors is crucial because their influence can help market your product and service.
You can also try out some other options like grants and loans. You’ll need to have a repayment plan if you’re taking a loan.
Choose the Right Business Structure
Asides from choosing a great business idea and securing funding, how you run your business is essential to the business’ success. The choice of structure influences the taxes, operations, and development of the firm.
The business structure you choose determines the benefits your business will enjoy and the potential risks. Because you can’t know it all, it’s always best to consult a lawyer before choosing a business structure.
Here are the standard options you have:
- Partnerships: If you have someone or some people that share your idea and passion for a business, a partnership is the best structure for the business. There are two types of partnerships; limited partnerships and limited liability partnerships. You can choose anyone that suits the business best.
- Sole Proprietorship: This type of business structure is not a structure at all but has zero formation costs since everything flows through your personal taxes. However, it can be limiting as you may not exactly have access to investors that aren’t friends or family.
- Limited Liability Company: A limited liability company is the best option for most people. With your company running an LLC structure, profits and losses will flow through to the personal return as opposed to being paid by the business. Likewise, your personal properties are safe even during bankruptcy if the LLC is operated properly.
- Corporation: If you want your company to run on shares, then a corporation may be your best business structure. It may be costly to register your business as a corporation, but its benefits are endless. Getting an investor wouldn’t be much of a struggle with a corporation because the business structure offers more accountability.
Understand Your Tax Requirements
From your business structure, you already have some tax obligations to pay as a business owner. Except you’re running a nonprofit organization, there’s a tax on doing business in the U.S.
The tax levies differ depending on the state you’re operating the business. Thus, you’ll need to contact a lawyer or a tax accountant who’s familiar with the tax regulations of the area.
When trying to pick a professional to help with your business’ tax, you need one with experience. Tax regulations are a crucial part of your business that can put you in trouble with the government. Likewise, you’ll need a tax I.D. to run your business seamlessly.
You can get a tax I.D., also known as an Employer Identification Number, for your business from the IRS. The Employer Identification number is important for many reasons.
Mostly, banks will request an EIN before you can open a bank account for your company. Similarly, some states in the USA may require you to present your state tax I.D. for operations.
Form the Business
When you decide on the best business structure and understand tax regulations, you can start business operations. First off, you have to give your company a name and identity. As much as possible, ensure the company name is short, catchy, and explainable.
After deciding on a business name, your next thought should be the location of the business. Your business location needs to be in an area where your target customers reside. Likewise, before you pick a location, you should understand the business and tax regulations that come along that area.
While you’re choosing the location of your business, you need to find a registered agent along in the same vicinity. The registered agent is a professional whose job is to ensure you don’t miss important documents.
When your LLC or corporation has an important document (mostly legal or tax), it doesn’t come to your address. Instead, the documents get delivered to your registered agent, who receives them and ensures you get them.
Forming a business doesn’t stop when you get a registered agent. Other initial procedures are dynamic and depend on the type of business structure you want to run. Thus, it’s best if you consult a professional lawyer to form and launch your business perfectly. Here are our more specific guides on setting up different types of businesses.
- How to form an LLC
- How to form a series LLC
- How to form a professional LLC
- How to form a general partnership
- How to form a limited partnership
- How to start a sole proprietorship
Set Up Your Business Bank Accounts and Accounting Systems
Never combine your business and personal finances in one account. Asides from the increased chances of money mismanagement, you’re at a higher personal risk if you combine both your personal and corporate accounts.
Suppose there’s a legal battle against your business. In that case, you may lose your personal property if you mix personal and business accounts because you pierced the corporate veil.
Your best option to keep personal properties safe is opening a bank account for your business. After opening your bank account, you should get a credit card for your business. You can use this card to carry out business transactions and also launch your business accounting.
Choosing a specific business structure already protects your assets from some form of liquidation. But, there are some properties and equipment that you’ll purchase for operations and in the business’s name. These assets are at risk if the company faces a legal battle and loses.
Business insurance is the best route to protecting company assets and interests. Most business owners should look into three primary business insurance policies: general liability insurance, professional liability insurance, and workers compensation insurance. Depending on the nature of your business, you could need more policies, so make sure to consult with an insurance broker to see what you need.
Get Any Necessary Permits or Licenses
Legal compliance is essential if you want to run a business seamlessly. Before you start any business in any industry, you may need an official permit to start.
Likewise, to own a business in some states, you may need a permit or license. Be sure to complete the requirement and get the necessary licensing before your start operations. More importantly, keep an eye on your permits, making sure to renew them before they expire.
Develop a Hiring Strategy If You Need Employees
If you want your company to blossom in any location, you need the best employees. Asides from choosing employees that understand their job descriptions perfectly, you need passionate employees.
If you need an employee at the beginning stages of the business, you require a good hiring strategy. If you don’t need a full-time employee, you may choose to engage freelancers on platforms like Fiverr and Upwork. You can easily make good choices through reviews and recommendations from previous customers.
Build a Website for Your Business
A website is more like an online identity for any business. A website should contain information about the company, including location, contact details, about section, service offerings, and potentially a blog.
Your website is more than just an online identity. It can also be a powerful marketing tool. You can grow an online audience for marketing your business services through search engine optimization and other online channels.
Promote and Market Your Business
When you have a good product or service that aligns with legal compliance, you need people to know about it. You don’t want just anyone to know about your services.
Instead, you want the people who need your product or services to know about it. Thus, you have to define your target audience and market to them aggressively.
You can also run adverts on billboards and online platforms. Some promotional tools like active social media pages and Google My Business platform are free!
The Last Word
Starting a business can be a challenging task. If you take it step-by-step, completing due requirements as you go along, it can be less complex than expected.
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