What Are The Steps To Start a Small Business?
Small businesses, which the U.S. Small Business Administration defines as companies with fewer than 500 employees, account for 99.9% of all businesses in America. More than 31.7 million at last count. And yet, only an estimated 79.4% of companies survive their first year in operation.
Increasing your chances for a successful small business launch involves sitting down and constructing a plan. The plan will lead you to the right idea, help you decide on the best market to focus on, make critical financial and legal decisions about your company, and even determine what kind of people you want to work with or hire.
Starting a small business can be one of the most rewarding but risky financial undertakings. And the largest barrier to entry is a lack of planning. Entrepreneurs will get excited about an idea they had but stumble because they didn’t stop to think about the steps involved in minimizing the risks to your business.
And you’re not just planning for success. In preparing steps to start a small business, you must also plan for failure or hard times. We’ll cover that and more in this guide.
The Importance Of Following a Plan For Your Small Business
Planning is essential no matter how revolutionary, genius, life-saving, or innovative your business idea can be. A plan will formalize your idea and streamline the creation of your business, letting you avoid the usual stumbling blocks along the way. You get a firmer grasp on your “known unknowns” and prepare for the true unknowns in case they spring up, like a recession or global pandemic. We’ll give you 12 steps to prepare you for success and hard times.
The 12 Steps To Start a Small Business (And Doing it Right!)
Don’t just google or look up videos at each important step in starting a small business. Follow these 12 steps to transform your great business idea into a successful legal organization.
1. Refine Your Business Idea
The first step is to land on the type of business you want. Most successful entrepreneurs first assess their abilities and goals and then pick a small business idea. Don’t force a business model onto yourself, even if you recognize its potential. If it’s not for you, avoid it, or look for other ways the project can motivate you, which will help you set goals and survive hard times.
Either way, learn what current leaders in the industry are doing so you can brainstorm on how to improve it. Figure out if you can do it better by making it cheaper, faster, or higher quality, or perhaps just introduce it to your local market.
If it’s a new product or innovative service, it’s even more important to develop a solid business plan based on past examples of success.
Pick Your Name (A Good One!)
Whatever business idea you pick, don’t get ahead of yourself and decide on a name. The name must come after you have refined your idea and determined its value and must serve your business plan first and foremost.
Choose a name that goes with your brand identity and will not clash with the type of products and services you will offer in the minds of your potential customers.
After settling on the name, protect it. Register your entity’s name, the trademark, and your website’s domain name as soon as possible.
2. Conduct Market Research
Market research means confirming or refining your business idea after looking at consumer and economic trends. Look at the latest and historical data about your industry, and compare it to your potential consumer base. This will either confirm your business idea is great or if it still needs more work.
Look at demographic information like age, wealth, race, language, growth rates, interest, and even politics. Reduce risk to your business by knowing your market well.
3. Write Down Your Business Plan
This is where you get down to the meat of the work. A business plan is a roadmap to setting up the business, growing it, and funding it. You will use the plan to convince others to invest in your business, either with money or by working with you. A plan will convince others you’re serious about your effort.
Ask yourself a few essential questions while writing your plan. What purpose does your business serve? Who are your target customers? What goals do you have in mind for your business? How will you finance starting your business? Is there truly a demand for what your business will offer?
Consider Having an Exit Plan
One question you should also prepare to answer is what to do if your business doesn’t work out. Just like boarding a plane or entering a building, you need to know where the emergency exits are located in case the worst happens. Make sure you plan ahead and consider this when contemplating taking out insurance on your company, assets, the type of structure you want for your business, and how to acquire funding. Protect your workers, family, investors, and yourself from failure.
4. Assess Your Finances and Secure Funding
There’s no business without money. Even non-profit corporations need financial security. Objectives will need resources and funding behind them, whether you’re starting or expanding.
Plenty of startups falter due to running out of money before even having a chance to turn a profit. One major mistake is underestimating the amount of capital needed to launch. Although the optimal strategy is to get the right amount of funding, it’s better to overestimate than to come short just a few months after starting.
Perform a break-even analysis for your product or services with this simple formula: Fixed Costs ÷ (Average Price – Variable Costs) = Break-Even Point.
Moreover, keep your expenses in check and don’t overspend on fancy equipment that will do the same job as those half the price, nor spend extravagantly on new offices and huge salaries for executives that haven’t yet proven their worth. Keep costs as low as possible to turn a profit within the first 60 to 90 days in businesses, but add a bit of a 20% “burn rate” to your budget so that unexpected incidents don’t catch you off guard.
Once you’ve determined how much to spend, you’ll need to know where to get the money from — the startup capital. Some entrepreneurs might decide to start a small business with their savings after working as employees for all their life, but many will want to make the jump to being small business owners but don’t have all the funds yet.
In the latter case, there are several ways to acquire startup capital, including business loans, investors, grants, and even crowdfunding. Which one you choose will depend on several factors, like your personal creditworthiness, current interest rates, the feasibility of your business plan, the industry you want to break into, and more questions you’ll need to answer.
Most small business owners look to small business loans for startup funding. Loans will help them keep their equity in the stake of the company without needing to partner with others. There are also equipment loans and leases, cash advances, and other forms of financing.
What is The Best Way To Fund Your Small Business?
Get in touch with loan specialists like Quick Capital Funding, who offer businesses and companies multiple financing and loan options to fit their needs. Business financing is made simple thanks to our services and extensive networks of investors. Equipment financing, working capital loans, long and short-term loans, SBA aid, invoice factoring, merchant cash advances, and ore.
You can apply online through a fast and easy online application. Afterward, a loan specialist will contact you and review your needs and options, and you can have your funding in as little as a day.
5. Choose Your Legal Business Structure
A small business can take many forms depending on the structure you choose. Before registering your company, decide what type of entity is best for you and your goals. The business structure will have legal and administrative consequences, from how taxes are filed in your business to just how much you are liable for when things go wrong.
Types of Business Structures
The most common types of business structures are sole proprietorships, limited liability companies (LLC), partnerships (also known as LLP in many states), and corporations. Each of these four has its pros and cons.
A limited liability company (LLC) is among the country’s most common. It varies by state, but overall, an LLC will let you take advantage of the benefits of both a corporation and a partnership because it protects you from personal liability in most circumstances. This way, you will not risk your personal assets (vehicles, property, savings accounts) if your LLC is sued or is facing bankruptcy. Nonetheless, one disadvantage of an LLC is that you are considered self-employed, which means you must pay your won employment taxes and contributions towards Medicare and Social Security. LLCs are good for small businesses that might be medium to high-risk industries.
Similar to an LLC, limited liability partnerships (LLP), or simply partnerships, are those companies where each partner’s liability is limited to the amount they invested into the business. They’re not complicated in their structure and are good options for businesses with several owners, groups of professionals (most attorneys form partnerships this way), and those who are testing their ideas before going at it alone.
This one is self-explanatory. You own the business completely, meaning all the profits will go to you. However, you’ll also be responsible for all of the company’s debts, obligations, and even your personal credit score will be affected by that of the company. If the business gets sued, you will too.
Here you separate your company from yourself and create a distinct legal entity. You are not personally liable for your business, and while there are several types of corporations, the two most common types are c-corporations and s-corporations. Corporations offer the strongest shield for owners against personal liability, although it costs much more in taxes, operational expenses, reporting, and record-keeping.
C-Corp vs. S-Corp
Unlike regular corporations, also called c-corporations, an s-corporation is designed to avoid the double taxation that happens to c-corporations. Having an s-corp means that some profits, but also losses, can be passed to the owners directly in the form of personal income so that it avoids corporate tax rates. Not all states allow this, and all businesses must first check with the IRS if they qualify for s-corp status.
6. Get Your Business a Federal and State Tax ID
After the structure is locked down, quickly register your company and its tax ID. Just like an individual needs a social security number or personal identification, a company needs its Employer Identification Number (EIN). The EIN will be used to pay federal taxes, hire employees, open bank accounts, and apply for loans, licenses, and permits. An EIN is not needed in some cases, as is in the case if you’re the sole proprietor and have no employees but yourself. Still, an EIN might help to separate your personal and business taxes, or just in case you decide to hire later.
There might also be the need for a state tax ID number for permits, state taxes, and other requirements.
And if you want to trademark your brand, product, or invention, file with the United States Patent and Trademark Office once you’ve created your business.
7. Apply For Licenses and Permits
To legally operate a new business, you must comply with all federal, state, and local government laws and regulations. Depending on the type of business and service you offer, you might need one or more permits to operate, or perhaps even licenses. Restaurants are some of the businesses that require the most permits and licenses, for example.
8. Open a Business Bank Account
We’ve already discussed the need to keep your personal and business finances and information separate, and a bank account is among the first things you must do for your business. Managing your taxes and cash flow with a business account is much easier and more efficient. Open one to start accepting and spending money under your business’ name. Just like for individuals, there are checking, savings, and credit card accounts and merchant services accounts. These latter accounts will permit you to accept customer credit and debit card transactions.
Consider a Business Credit Card
Getting a business credit card after opening an account is a good option. If you get a large enough limit approved, take advantage of it. This way, it builds your company’s credit history without resorting only to big loans and grants. It’s also easier to pay everyday expenses with one.
9. Protect Your Business With Insurance
We’re in the part of the guide where a lot of business owners might start getting confident and think they can skip steps. Don’t skip this one. Get business insurance even before opening your business. This is part of the thought process about planning for your future and emergencies. Take out insurance to deal with property damage, theft, or even lawsuits. Be protected.
10. Hire The Best Team
This might sound obvious; who wants to hire bad people? But something, hiring people at the start who are just “good enough” is not actually good enough. Hire a great team to get your company up and running. At the end of the day, the product is built by people.
Before deciding to hire, ask yourself how much work you’ll need, whether you’ll need help, and what kind of help? Think about the skills required to start your small business and then decide who to hire and how many.
Some common and essential roles are inventory manager, customer service coordinator, ads specialist, marketer, graphic designer, and social media manager.
11. Get The Right Financial Software and Tools
You have the money, the office, the people, the plan, the idea. What about the tools? Business owners should always value good software and hardware. One of the best ways to alleviate a lot of tedious work when launching and running a business is with great software tools.
Automate and streamline as much as possible, especially in project management, accounting, email marketing, ads, website design and administration, and the online store.
One note of caution about tools is that there’s always a real risk of getting too many of them. You don’t want your team to spend more time using a project management tool than actually working.
12. Market Your Business
We’re almost done. Even before your small business’s first day, you need to have your marketing and advertising figured out. Think about your brand, which is much more than a logo and name, and how you want people to perceive you when interacting with your small business.
Keep bringing in new customers constantly to grow and reach your goals. That will depend on your marketing tacts that attract, engage, and keeps customers. Now, a lot of the heavy lifting in marketing is done online, with some help from traditional media. Do press releases for your new business, open social media accounts, and get yourself on Google’s radar as soon as possible through a Google My Business (GMB) account.
In truth, you’ll likely need another entire plan just for marketing, going beyond your launch to build your clientele and get the word out about your company continuously.
Build a Website and Optimize for SEO
As mentioned above, there’s no longer a distinction between marketing and digital marketing. Regular marketing now includes your website and overall online presence, which are key to your success. Making your website optimized for search engines (SEO) is as important, if not more, than a physical location. Your Google My Business account is critical because it will dictate how you appear in Google’s search results and Google Maps, making yourself visible to millions of people.
Develop a Social Media Strategy
Along with being found on Google, being seen on social media is another key piece of modern marketing and sales strategy. A lot of business is now conducted through Facebook, Instagram, and other platforms, and you should always be aware of any leads and opportunities that might come from those platforms. Never take social media for granted.
We hope this will help you as a launching pad for more research and will leave you with the foundations for starting your own small business. It might be challenging and will mean a lot of work in the coming years, but there’s now more help than ever online and in the real world for those looking to make it on their own as small business owners.
And remember, if you need any help with funding for your small business project, contact the Quick Capital Funding team, which is always available to answer all your questions and help with the small business loan you need. Services you can trust. Contact Quick Capital Funding now!