How to Start a Business
Interested in how to start a business? Then this guide is for you!
Many people have the dream of running their own business. The allure of having control over your schedule, of being the one who makes the decisions, and of doing something you truly enjoy can be very powerful.
If you have been considering this yourself, you may have done enough research to realize that starting a business can be complicated.
However, if you take it one step at a time and seek out helpful advice, it is definitely a goal that you can achieve.
The following eight steps will help show you the way to meet this goal.
EIGHT STEPS TO STARTING A SUCCESSFUL BUSINESS
1 -> Set the Right Foundation
Your Strengths and Weaknesses
There are a number of things you can do long before you open the doors of your business that will make it more likely to succeed.
One of the most fundamental tasks is to assess your personal strengths and weaknesses.
- What do you enjoy doing that other people will pay you a living wage to do?
You need to identify a skill that you possess or can acquire that will enable you to produce a large enough income in few enough hours to provide a realistic lifestyle.
It’s important that this skill be something you either enjoy or can at least tolerate for long hours.
Do not try to start a business doing something you have no interest in just because you think it’s going to be “hot.”
If all you want is a job you hate, there are already plenty of those out there that you can choose from.
- Your strengths include not only what you like, but what you know.
If you have a long career in a particular industry behind you, you may be thinking about pursuing an aspect of that on your own. For example, if the company you work for routinely contracts out a particular service, you may want to become one of those contractors.
Maybe your years of experience have shown you an area of the industry that is under-served and ripe for development, and you would love to be doing that type of work. Look at what you know and what the opportunities may be to use that knowledge.
- It is also important to consider your personality.
Do you thrive on public interaction or do you prefer the Rumpelstiltskin approach, where you are locked in a room with a spinning wheel and a pile of straw and left alone to do your thing?
Do you know how to do one thing very well and just want the opportunity to do that for the rest of your life, or would that bore you to death because you need to be constantly learning something new?
Do you like to have a dozen things going on at once, or do you need to complete each task before you move on?
Everyone can work against their personality, and many people spend their entire working lives doing just that. However, if you are going to take the leap of running your own business, this is your chance to make it something that truly works with you, rather than against you.
Really give this some thought, as it will have a bigger impact than you may think on your job satisfaction.
Define Your Customer
Your business will require customers. You need to develop a clear idea of who the people or companies are that you will be doing business with. This will depend in large part on what kind of business you choose to open.
- One of your basic decisions is whether you will offer a product or a service.
This can make a huge difference in your customer base. If you are selling a product, the internet has opened a wide door of options that didn’t exist before it became developed for commerce.
You can have a brick-and-mortar store, an online store, or a combination of the two. Depending on your choice, your customer base may be the neighborhood or the world.
- If your business is going to be offering a service, you will usually be thinking much more locally.
Some services, like house cleaning or auto repair, cannot be shipped across the country. On the other hand, some service businesses, like restaurants, can generate products that can be sold remotely.
Even if you begin by offering your services locally, if you develop expertise that is recognized in your industry, you and your employees could be called upon to travel across the country or around the world to teach or employ your skills.
In a nutshell, determining your customer base requires knowing who wants what you are selling and where they are.
If you are drawing from a neighborhood, you will need a popular product that a significant portion of the people want and can afford.
If you intend to have a large online presence, you can afford to do business in a smaller niche market, as you will be drawing from a much larger pool of potential customers.
Validate Your Idea
You may think that your business idea is a sure winner, but it is wise to do a little research to confirm that it really is viable.
- To revisit the topic of defining your customers for a moment, determining that there is a demand for your product or service is key.
You can find some of this information online, but to really get a feel for the local market, you need to do local research.
Find out who your competitors will be, where they are, and how they are doing. Stop by their stores and see who comes in.
Don’t get too excited if there is no competition. This may just mean that there is no demand.
You can also check the demographic data for your community to see if the age and income groups that you will be targeting are large enough and stable enough to support your business over the long term.
For example, if you live in a college town and want to serve that market, don’t forget that they all leave in the summer.
- Be realistic about money.
You will not just need enough to stock the shelves and pay the first month’s rent. Experts suggest that you have a year of business expenses in the bank before you open. This includes stock, rent, supplies, taxes, and payroll.
You should also have at least three to six months of personal expenses on hand.
On top of all of this, it is a good idea to have an emergency source of cash that you can call on in a pinch.
This sounds like a lot, and it is. Many, many new businesses fail because they are not properly capitalized.
Everyone thinks that their idea is so great that the customers will be beating a path to their door, but it rarely turns out that way. Lasting success takes time.
- It is important to validate your idea by running it by other people.
The first group you should talk to is your family. Anyone who will be affected by long hours and tight finances needs to be on board.
If they tell you that your idea is ridiculous and they aren’t willing to make sacrifices to support it, you need to rethink.
You should also talk to people that are in business. Your local Chamber of Commerce may have a program that gives free advice to start-ups. There may be a professional organization for your industry that will let you come to a meeting as a guest and meet people who can give you an inside view.
There may also be local branches of organizations that cater to specific sub-groups of the business community.
Any group of current or retired businesspeople can give you valuable insight into the state of the local economy, and they may know inside information about the kind of business you want to open.
2 -> Write a Business Plan
Once you have decided that you have the right stuff to run the business you want to open, have determined that there is a solid customer base for your product or service, and have talked to enough other people to feel confident that your idea is viable, it is time to write your business plan.
This step is essential if you will be asking a bank or investor for capital. Even if your business will be self-financed, your plan will help you organize the details and lay out a clear map for the first three to five years of its operation.
Entire books have been written about business plans, so let’s just take an overview of what you should include.
- Opening summary. This will include a brief “about me” section for both yourself and your proposed business. It is a snapshot that will quickly tell the reader who you are and what kind of business you are proposing to open.
- Company description. This is a more detailed description of your business. It includes what, exactly, your business will do and who it will serve. You should spend some time discussing why your business is unique and how that will help it succeed.
- Products and services. This can be included as part of the company description section if you prefer. You should describe in detail the products or services you intend to offer.
- Market research. This is the place to outline the research you have done on the customer base, location, competition, and any other market factors that will affect the success of your business.
- Marketing plan. Detail how you plan to reach your customers. Include research on the cost of the methods and how much of a return you can expect from each.
- Sales and growth predictions. Where will you business be in six months? Where will it be in two years? You will need to have these sorts of projections mapped out, and make sure they are reality-based. These projections are not what you hope will happen, but what your research tells you is realistic.
- Personnel. In this section, tell the investors how your company will be set up as a legal entity. In other words, will it be a sole proprietorship, a partnership, or a corporation? List all the owners and partners and give a brief biography of each so your investors can evaluate the expertise of the people who will be spending their money.
- Financial plan. If you are presenting your business plan to potential investors, this is where you will lay out what you are asking for and how it will be used. Also list any other sources of income that will be available to the business. This should be a complete accounting of how much money your company will require over the next three years and where it will come from.
- Appendix. This section is optional. If you have things like certifications, permits, intellectual property registrations, or other relevant paperwork, include it here.
If you have done the work to write a detailed business plan, you have probably already found a few pitfalls that needed to be worked around.
This is ideal!
The more problems you can identify and solve in the planning stage, the less likely your business will fail because of unforeseen complications.
3 -> Brand Your Business
Branding is not just picking a name for your company, although that is important. It includes tangibles, like the design and color of your logo and any slogan that you develop.
It also includes intangibles, which are the perceptions your customers have about your company.
Think about this carefully because these perceptions can be very difficult to change once they have become entrenched in the minds of your customers.
The following are examples of brand perceptions that can limit your customer base.
- Your brand is only a luxury brand, mid-range brand, or discount brand.
- Your brand is only for men or only for women.
- Only people on the political left or right use your brand.
- Your brand is only for one ethnic or cultural group.
- Your brand is only for kids, or old people, or Millenials.
If you want to target a specific group, that’s fine, but don’t let your brand be hijacked by inaccurate perceptions.
4. Determine the Legal Structure of Your Business
There are several different ways you can legally structure your company. This is just a brief overview, and your final decision should be made with the advice of an attorney.
- Sole proprietorship. With this option, you will be the sole owner of your company. It will essentially be considered an extension of your personal finances. You are liable for all debts, and the income will be included with your personal tax filing.
- Partnership. One or more people are the owners of the company in a partnership. Each partner is liable for the company’s debts, and each partner includes the appropriate fraction of the income on their personal tax return. Legal provisions must be made to deal with the potential breakup of the partnership.
- Corporation. Incorporating a business removes it from under the personal umbrella of the owner or partners. A corporation is an independent entity that is responsible for its own debts and earns its own profits. An S Corporation is different primarily in that the taxes are handled as in a partnership.
- LLC. The rules for Limited Liability Companies vary by state. The general idea is that they offer protection from personal liability similar to a corporation, but they are treated like the more simple proprietorship for tax purposes. They are more flexible and have fewer restrictions than an S Corporation.
- Nonprofit. You can only set your company up as a tax-exempt nonprofit if it meets very specific guidelines. A nonprofit must be operated for the benefit of the public or a specific sub-group of the public.
- Cooperative. A cooperative is owned by its members and operated for their benefit. The members contribute to the workings of the cooperative and share in its profits.
5. Register Your Business Name with Your State Government
Very few people use their real name as the name of their business. The name that you choose for your company is known as your “Doing Business As,” or DBA name.
For example, if Jane Smith opens a bike shop, she will legally be “Jane Smith DBA Bike Town.” Some states require you to register your DBA name and some do not, so be sure to check with the appropriate agency or an attorney for your state.
The DBA name is also sometimes called a “fictitious name.”
It is a good idea to make sure the name you choose is not too similar to other businesses that are already registered. You do not want to face a legal challenge that forces you to change your company’s name after you have all of your business documents, marketing materials and signage in place.
6. Obtain Business Licenses and Permits
Almost every business will require some kind of license or permit, but it is impossible to make a general statement about what you might need. It varies by state and by type of business.
A few types of businesses, like gun dealers, require federal licenses, and most require state licenses. In addition to a general business license, your specific company may need a type-specific license.
For example, you may need a special license to sell liquor, operate a salon, or run a contracting company.
It is important to research which permits you will need for your situation. Being caught doing business without the proper paperwork can be a costly mistake.
7. Finance Your Business
Finances can be one of the trickiest aspects of starting your own business. Unless you start very small or have a substantial savings account, you are probably going to have to find an outside source of funding.
Some of your options for financing your business include:
- Government grants and loans. The SBA is the primary federal agency that offers loan assistance for small business startups. There are also grants for companies that engage in some types of research.
- Friends and family. If your supporters have enough money to help you, they can be a great source of no-interest or low-interest loans. You should treat these professionally, however, and draw up paperwork that spells out your repayment obligations.
- Bank loans. A traditional bank loan is perhaps the most common source of business financing. If your personal financial history is sound and you have a solid business plan, this is the traditional option.
- Private investors. Wealthy individuals are often open to investment opportunities. They may be more difficult to gain access to than other sources, but if you can interest them in your idea, they can often be a source of ongoing financial assistance.
- Online funding. One relatively new source of funding for startups is group-sourcing. There are a few different websites that allow you to post your business idea and ask the readers to contribute to your cause. You will usually repay the contributors with a product or service once your company gets off the ground.
8. Market Your Business
When you wrote your business plan, you should have included your ideas for marketing your products and services. Now you just have to implement all of those plans.
The most successful marketing plan for your company will depend on what it is, where it is, and who it targets.
- Almost every business today needs an online presence.
You do not necessarily need an online store if you are targeting local customers, but you do need a web page of some sort.
A poorly-designed web presence will turn off today’s customers, so if you need to hire a professional for the initial design, it will be money well-spent.
Your customers should be able to find basic information like your location, store hours, and your primary service or merchandise.
If you have “what’s new” content, be sure to keep it up to date. You can choose to have a stand-alone website or use existing social media platforms.
- Don’t forget about print media when you are putting together your marketing plan.
It may be declining, but it is not dead yet. This can include flyers that you post on public bulletin boards, newspaper and magazine advertising, business cards and brochures.
If you can contribute to the sponsorship of a community event, that is an excellent way to get your name on promotional materials that will be seen by people who may be interested in your business.
For example, Jane Smith’s Bike Town could contribute $200 to an annual bike race and receive publicity that is worth much more than that sum.
- If you have enough money in your budget, branded merchandise is a great way to get your name out.
Pencils and pens, T-shirts, or items that are specific to your type of business can all be great advertising.
Finally, once your business is open, go back to those organizations that you approached for advice and join them.
Becoming active inyour local business community fosters good will and can be a great source of new business.
If you are ready to take the plunge into business ownership, take a deep breath and start working through the steps. With perseverance, good advice, plenty of money and just a bit of good fortune, you can be a successful business owner.
Need a State Specific Guide?
If you’re interested in starting a business in a specific state, check out the guides below.
And if you’re using a mobile device, please navigate the table to the relevant state via swiping.
The Art of Innovation
As innovation is at the heart of successful businesses, I find the below TED talk by Guy Kawasaki very inspiring. And aparrently lots of other entrepreneurs think the same, considering the video below has over 5,700,000 views!