Being an entrepreneur and starting a small business is about creating something new. You’re making your mark and giving the world a chance to see it and be a part of it. Small businesses are the engine of the economy, and you’re helping to create growth.
Starting your own business is an exciting prospect. You get to set your own hours and follow your own vision. If you’re sick of working on someone else’s goals and not doing anything that feels fulfilling, the life of a small business owner might be especially appealing.
However, that’s not to say that it’s easy. There are a lot of important things to know about starting and maintaining a business, and the risk of failure is always there. However, knowing the process and all the steps involved can help you increase your chance of success.
How to Start a Business
Every successful business is built on a vision. You start out with an idea, an insight, or a dream, and you decide to start a business and make that vision a reality. Every entrepreneur needs that kind of inspiration to build something that’s going to last.
But how do you take that vision all the way? There are a lot of individual pieces that have to fall into place. Having a good idea isn’t enough unless you’re willing to follow through and put in the work. A successful small business owner needs vision, determination, and expertise.
Are You Ready to Start a Business?
Starting a business and giving it a fighting chance of survival requires a significant investment of time, money, and effort. It’s all worth it, but it will take a lot out of you. So before you commit yourself and possibly your financial stability to a new business, you need to be sure you’re ready.
Maintaining a healthy work-life balance is important, but it’s not always easy or even feasible in the early days of starting up a new business. You need to be ready to focus on your business and set other things aside.
You also need to gather knowledge and learn about the process before you take the leap. You can prepare yourself and get a sense of your readiness by reading through these steps below and familiarizing yourself with all the ingredients necessary for a successful new small business.
1. Business Idea
The very first step in starting a new business is to develop your idea. Why are you starting a business and what are you going to do with this platform? What will your business be about? There are a couple of different ways to think about this as you hone your ideas. Your vision needs to be clear, specific, and focused.
Who Has a Need?
If a business is going to be sustainable, it needs a niche. It needs to provide something for a particular audience that they didn’t necessarily have before. What is a need that your business will address, and who are the potential customers that have that need?
What’s Your Passion?
Does your business idea tap into your passion? A new business will depend on your drive and dedication. It needs to be about something you care about! If you’re not excited about your business and what it offers, your employees and customers won’t be either.
Grounding your business in your own authentic passion and values will make your brand more human and compelling for customers as well.
What Will Turn a Profit?
Before you take an idea and run with it, you also need to stop and think about the logistics. What will you need to make it work? Is there enough demand to keep your business going? Are the raw materials affordable enough that you’ll be able to make a profit? Not every exciting idea is going to be possible in practice.
What’s Your Industry?
A promising business idea will offer something unique, at least among local businesses, but you still need to consider the industry you’ll be stepping into. What kind of good or service are you providing, and who will be your closest competitors? These are just a few of the industries your business might fall under:
- Food service
- Business services
- Hospitality and travel
- Health and fitness
- Automotive repair
- Legal and other professional services
By identifying your industry, you can compare your idea with local competitors. Will you be able to differentiate yourself enough to stake out your own niche? If your competitors are well-known and well-established, what might it take for you to break into the market?
2. Market Research
As you’re developing the basic idea for your business, you’ll need to start doing some research as well. You may think you’ve got a great idea, but that’s just speculation so far. You need data to back it up! Market research means learning more about your potential audience and competition so that you can better plan for success.
There are a number of different sides to market research. Competitive research involves studying your competition. What are your biggest competitors and what do they offer? Do they have a narrow specialty, or do they try to appeal to a general audience? These are the brands and marketing presences you’ll be competing with, so learn as much as you can.
Meanwhile, customer research should help you zero in on a particular audience demographic. Who are the customers you’ll be appealing to, and what characteristics do they share? What do they tend to look for in a brand?
Primary research refers to all of the competitive and customer research that you conduct directly or independently. This could mean running a survey or focus group with a couple of potential customers or simply studying a competitor’s product and online presence for yourself.
Secondary research, on the other hand, is already done by someone else. You can gather all sorts of data online from public surveys and local government entities and business associations. These resources will offer you valuable information about demographics and general market conditions.
Finding secondary research is easier and cheaper than doing primary research, but the information you find may be less specialized and immediately useful for your purposes.
3. Business Name
Once you’ve done your research, you can fully articulate the vision you have for your business. Develop a mission statement and pick a final name for your business. You’ll want to check with your state and local business authorities to make sure no other company is using a similar or identical name.
If you plan to operate and advertise your business under a name other than you or your company’s official legal names, you will need to file paperwork to that effect.
Finding a unique brand name and (normal-looking) domain to go with it can be a bit of a time-sink for new business owners. This free tool from Business Name Zone generates name and domain combos for you based on your input – and it only takes a few minutes.
4. Business Plan
Now that you have the basic building blocks of your business figured out, it’s time to make it concrete and put it all down on paper. Your business plan is a formal document to guide you as you start your business. A good business plan will show investors that your company is worth the investment.
The business plan is principally for you to lay out your own vision and plan for this small business. You should describe your long-term vision, but also your short-term goals. Set clear and achievable goals you can use later as milestones along the way.
An effective business plan not only sets a clear plan for the future, but it demonstrates the work already done in the past. All of the preliminary research, brainstorming, and prep work you’ve put into this should show up and be put to good use in your plan.
Your business plan should be able to convince investors to give you a shot. However, some investors see countless business plans, and you may have just seconds of their attention to seal the deal.
Your plan should serve as the expanded and comprehensive version of your elevator pitch, which is the quick and concise description of your business intended to serve as a hook and grab the audience’s attention.
While you’re going through this planning process, you should also conduct a SWOT analysis for your small business. SWOT stands for strengths, weaknesses, opportunities, and threats. What is your business well-suited for, and what natural opportunities might be available? On the other hand, what are your weaknesses, and what are the biggest challenges facing your business.
And what about marketing? A developed marketing plan at this stage will lay out your initial marketing budget and the ways you plan to spend it. How will you market your business and where will you invest in the most advertising?
What Makes Your Offer Unique?
Why should customers come to you and your product? Your marketing needs to answer this question, and you’ll need to be able to answer that question for yourself before you can convince anyone else. How is your service unique, and how will you communicate that?
Do you have a guarantee? What are you giving your customers, and what are you promising? This is something else to consider as you prepare your initial marketing scheme.
The core of your business plan tells any would-be investors how much money you need and what you’ll do with it. What will you do with each dollar of your initial seed money in order to create something with the power to last?
Your financial plan should show the way toward profitability and self-sufficiency for your business. For that you’re going to rely on projections and estimated revenues and expenses for the future. Thorough research will help, but there’s no substitute for an accounting professional at this stage. Get help putting together your projections so they’re as reliable as possible.
5. Business Entity
As part of your business plan, you’ll need to decide how you’re going to organize your company. What sort of business entity do you want to use? Who will be responsible for the day-to-day work of the company, and who will be liable for any debts and financial losses?
Take all the time you need to consider your choices. The most common business entity is the sole proprietorship, which is a small business owned and operated by a single person. If you don’t officially file with your state authority, then you’re automatically running a sole proprietorship. You own everything, which means you’re also liable for everything.
Another common business entity is the LLC, or limited liability company. This is a very flexible business structure that can organize itself more like a corporation or a partnership as needed. It protects you and your assets from business liability, but you have to formally establish in your filing paperwork who is in control and how management decisions will be handled.
Then there are corporations. Corporations are owned and directed by stockholders, who may or may not be the same people managing the business day to day. If you want to form a c-corp, which is the most common kind of corporation, you’ll need to gather a board of directors to take on initial leadership decisions.
An s-corp is a corporation that files for a special tax status with the IRS. Smaller corporations that meet the requirements can request s-corp status and avoid corporate taxes. Stockholders will instead file their business profits directly on their personal returns.
A partnership is closer to a sole proprietorship in terms of simplicity. Instead of there being one owner, there are two individuals who will share all control and debt liability for the business according to the ratio they decide in their partnership agreement.
To form a tax-exempt nonprofit organization, you will first need to create a corporation or association and then apply for nonprofit status from the government. Like a corporation, a nonprofit will be led by a board of directors, but there are no traditional stockholders or profits to share.
With your business plan to show the way, it’s time to gather the seed money you need to get things started. You may need significant funding to establish your business and sustain your operations until you start seeing your first revenue.
There are many different ways you to get funding, and most businesses will rely on more than one stream of funding to support their initial work. A diverse array of investment sources will help you to stay afloat until your business becomes profitable.
Finding investors is a traditional route to funding for big new start-ups. You find other entrepreneurs willing to buy into your vision, and you use their funding to kick things off. Before you accept any money, however, be certain about what you’re agreeing to.
Some investors will want to share in collaboration and decision-making, while others may simply expect a regular cut of the money once your business is profitable.
Unlike some of these other streams of funding, loans are relatively simple. Whether you’re getting a loan from a bank or a wealthy entrepreneur, you first have to apply for the loan and show that you’re a worthwhile investment. Once you receive the loan money, the only requirement is that you comply with the plan for paying it back.
Grants are a common source of funding, especially for nonprofits, but they take some extra legwork. Grants usually don’t have to be paid back, but they generally require regular reporting and accounting for how the funds were used according to grant requirements. Depending on your field, you may be able to find and apply for federal or independent grants to support your work.
If you’re short on funds but you have a compelling idea for a product, you may be able to try crowdfunding. Instead of finding a few high-dollar investors, you try to gather many smaller investors. You won’t be offering these investors a share of the profits, but you’ll still need to offer perks and benefits to get them excited about supporting your rising brand.
Self-funding is exactly what it sounds like. If you use your own savings as a part or all of your initial seed money for starting a business, there won’t be any strings attached, and you won’t have to pay anyone else back. However, if the business fails, that money will be gone.
7. Business IDs, Licenses, and Registration
Before you hit the ground running, make sure your business has all the official paperwork and permissions to start operating. It may seem like a lot of bureaucratic busywork, but it’s crucial for your business, and it’s better to get it all set up ahead of time.
A lot of the specifics here will depend on the type of business you’re running and whether or not you plan to hire employees. While you might not strictly need to do all of this before your first day of work, it’s better to be prepared. There are a lot of licenses and permits you need to operate, even for a home-based business.
Federal Tax ID
In order to pay taxes for your company and your employees, you’ll need to register online for an employer identification number. The EIN will function as the social security number for your company, identifying the business for the government on all IRS forms and payments.
If you need to file a partnership agreement or articles of incorporation for your company, you will need to submit your paperwork to the secretary of state in the state or states in which your business will be operating. For business entities other than sole proprietorship, this registration is what officially creates your business structure.
Check with your state and local authorities to find out what specific licensing you may need to start working. You will often need a business license for your office, especially if you’re working out of a residential address. If you are working as a professional like a lawyer, electrician, or veterinarian, make sure you are fully licensed and qualified to provide services in your state.
State and Local Taxation
With your EIN, you can set up an account online to streamline your federal tax payments. You will also need to register and set up payment for any state and local taxes. These will vary by state and city, so you’ll want to check with an accountant or local authorities to help.
At this stage, you should also make sure you are properly insured. Starting a small business is already a risky endeavor. If you get business insurance, you can protect yourself from risks beyond your control, like lawsuits and natural disasters.
8. Bank Account
If you don’t yet have one, you should establish a bank account specifically for your business. Don’t include business expenses and personal expenses in the same account. Having your own business account will make accounting easier, and it will let you start to set up and automate billing and payroll processes.
9. Accounting and Bookkeeping
As soon as your business really gets going on, you’re going to see a lot of money going in and out of your business. It’s hard to keep track of everything, but it’s so important that you do. Precise and efficient recordkeeping for a small business will serve you immensely. Set up your accounting and bookkeeping processes early so nothing falls through the cracks.
You need to have an established accounting system to keep track of your expenses and revenues and help you stay in control. This can be as simple as a spreadsheet at the start, but your needs will grow along with your business. You can buy bookkeeping software or just work with an accountant to set everything up.
Every business must have a registered agent to represent the company and to receive important legal and government documents at any time during business hours. One easy option is to pay a fee for an independent accountant or accounting firm to serve as the registered agent for your company.
Bookkeeping is about keeping records of every financial transaction and balancing a company’s financial accounts. You balance an account by following this basic equation: Assets = Liabilities + Equity. All of your company’s finances should fall into these three categories:
- Assets: Everything of value to the business, including revenue, inventory, and equipment.
- Liabilities: The opposite of assets, including expenses, debt, and regular bills.
- Equity: The value of the business for owners or stockholders.
With the basic infrastructure in place, you can find other people to fill out your team. Some businesses wait a while to do any hiring, but it depends what you need for your company.
Bringing on another employee at the beginning gives you someone else to collaborate and plan with. Hiring an employee now can also help you cover skill areas you might be lacking in, like accounting, marketing, or other field-specific expertise.
Employees should care about the overall success and growth of a business, but they won’t see the benefit of that success if you don’t share it with them. Supporting your employees and investing in their roles means setting up and maintaining a regular payroll. This should be as automated as possible so that employees get paid on time.
Whenever you have a new staffing need, you have a choice to make between an employee and a contractor. An employee will be a full member of your company team with benefits and a reason to care about and stick with your company for the long term. Contractors are more temporary or external staff appointments you can rely on for specific, contained tasks.
For every staff member you hire, you’re taking on the responsibility of filing the appropriate state and federal paperwork and paying the relevant payroll taxes. For contractors, you only have to pay them and report their payments, but for employees, you will also need to pay several taxes on their behalf through withholding.
Next comes marketing. How are you going to get new customers if they don’t know you exist? Marketing is about spreading the word about your business among the people that matter to you. You need to find your target audience and show them what they’re missing.
Your marketing should focus on building name recognition and developing your brand. You want people to not only know your business but know what you’re about. Your marketing should reflect the unique brand identity you’re aiming to create.
Just because your business is up and running doesn’t mean you’re past the need for research. You should always be listening and adapting to your audience. Regular surveys are a good way to get feedback from your customers and find out what they perceive to be your brand’s greatest strengths and values.
An organic marketing strategy is meant to lay the groundwork for your target customers to find you and naturally get to know your brand over time. It’s about developing your visible online presence and engaging authentically with your online community.
You need to get on your target customers’ wavelength. What are they looking for, and what language do they use to describe it? SEO, or search engine optimization, is about using keywords and search terms in your links and content to help your audience find you.
Social media engagement is absolutely necessary for online marketing. Developing your profile on various social media platforms is a great opportunity to build your brand and connect directly with potential clients. Authentic engagement on social media is a great way to invite buy-in from customers, and it’s a good way to find out how your audience perceives your brand.
Content is an essential ingredient for both SEO and social media marketing. Using keywords and showing up on popular platforms isn’t enough without grounding it in interesting and worthwhile content grounded in your authentic brand identity.
Organic marketing online makes a big difference, but it can be time-consuming and slow to show big results. Paid advertising online or offline can be a powerful tool to increase your visibility in the short term, but it needs to be targeted to be cost-effective. How can you focus your marketing so as to put your brand in front of your niche target audience?
Email marketing is most often used for following up after people first express interest in your company or make a purchase. Once they’ve given you their email address, directly sending them content and special sales offers can keep them engaged and increase the likelihood they’ll keep coming back.
Take your time getting your business established and figuring out how you want to do things moving forward. There’s always more to do, but don’t get ahead of yourself.
Once your business starts to stabilize and you see regular revenue, you can start looking ahead and considering different avenues for growth. Keep your ears to the ground for opportunities or market shifts, and keep brainstorming new products and advertising ideas to take your company to the next level.
Ready to Get Started?
There’s a lot to consider, and it’s ok to feel overwhelmed at times. You can take it slow, and you don’t have to do it alone. If you’re looking for help with business planning and entity formation, don’t hesitate to seek help.
A professional accountant can work with you to start laying out your dream and putting your concrete business plan together. There are certainly a lot of steps and so many variables involved, but if you’re ready to get started, there are experts that can help you through it.
This post is to be used for informational purposes only and does not constitute legal, business, or tax advice. Each person should consult his or her own attorney, business advisor, or tax advisor with respect to matters referenced in this post. 1-800Accountant assumes no liability for actions taken in reliance upon the information contained herein.