Starting a business can be daunting. For many it means giving up the security and consistent income of their current job to attempt the unknown. In order to successfully begin your own company, a large amount of planning needs to occur, but don’t worry! I am going to break it down into 10 easy steps.
First off, you need to do a little research on yourself. Take a personality test or a career interest survey to see which business types suit you. Make sure you have the skill set and personality type to make the business successful.
Next, research the competition. Find out all you can about the product or service they offer and learn from their strengths and weaknesses. Look at their pricing closely, this will be important later when you create your business plan. Also consider supply and demand. Are there already a large number of businesses filling the demand? Is the product or service in short supply? Make sure there will be demand for your product or service and that the area is not already saturated.
As you research your competition, take note of their typical customer base. This “target market” is the type of person you will want to focus your product, location (place), pricing, and promotion on. If you notice many of the customers are in one area, try to set up your location close to them. You will want to send out advertising and promotions that target this customer base. Consider their overall ages, gender, income level, ethnicity, religions, cultural norms, family size, and more. For example, if your product would have an added value to a particular age or religious group, you would want to set up shop in an area or district where they are the majority.
Finish up your research by checking into any ethical and legal considerations. See if there are any local regulations which would affect your business operation. Complete a risk assessment. What could go wrong? What are all the possible ways someone could get hurt or demand payment for loss or injury? Investigate insurance options and costs to cover all those risks.
2. Make A Business Plan
This step sounds complicated, but it’s not! While this part may be time consuming, a business plan can be a short as one page, or it could take up many pages. For someone just starting out, 1-2 pages will most likely be all it takes.
A business plan should include your company name. Don’t panic about this! A name can always be changed, so don’t wait to start until you have the perfect name. It should also include a short description of the business and the benefits you will provide.
Analyze your competition. Explain how you will provide a benefit or have a strength that gives your company an advantage. Pay attention to their weaknesses and have a plan for how you will avoid the same fate.
List all of your costs. What will it cost to get started? And what will it cost to continue to operate? Start-up costs are usually much higher than the usual month-to-month costs. Include everything from permit fees to rent to salaries and taxes.
Include your products or services and your pricing plan. Make sure your prices (income) will be greater than your costs (expenses). Know how much you have to sell or produce to break even on those costs. Err on the side of caution, in other words, if you think you will be able to sell 100 of your product, calculate what will happen if you only sell 50 or 30. When establishing your pricing, keep your prices in line with your competition while still remaining profitable.
Know your target market and include information about your typical customer and what s/he will gain from your business (your mission). Have a list of places you can start promotions that will be seen by those customers. Do NOT be misled into thinking “If you build it, they will come.” You will have to advertise… a lot!
Choose a location (or service area) that includes your target market and if it is a brick and mortar location, make sure it is visible and easily accessible. We have all seen sub-par locations where business after business tries to open and eventually fails in the same spot. Consider what is good about the locations that have a good flow of customers and think about what is detrimental in those locations where customers are “no shows.”
Think long term. What will this business need for future expansion and growth? Will you need investors or bank funding? Start to plan for how you will get your capital investment. Many investors and banks will ask for your business plan. If you will need large amounts of funding, you will need a more in-depth business plan than if you need a small loan. Set goals for 3 weeks, 3 months and 3 years.
Consider whether you will need distribution. If you have a product that needs to be delivered or using shipping or warehouses, you will need to add those costs to your overall projections and make sure you are still profitable.
Last, think about your workforce. If you are a one person show, make sure your profit calculation is enough to pay you for your time. Time is something that many beginning entrepreneurs forget to include in their “costs.” If you offer a service and your profit on the job is $100, that may sound great, but if it took you 15 hours you made less than minimum wage. Carefully make all the calculations, including taxes, Medicare, Social Security, insurances, workman’s comp costs, that will come out of your (or your employee’s) paycheck and include those costs when figuring out your profitability.
3. Figure Out Financing
There are two main ways to finance a new business. You can save until you have your start-up costs, or you can go to a lender. Before you approach a lender, you will need a thorough business plan and all of your permits and tax ID numbers.
Some businesses may also get funding from investors, partners, or through the sale of stock. Depending on your business type you may have more than one option available.
Also have a plan for your income. When money starts to come in to the company you will need a way to accept payments and a bank account. If you will accept credit cards, you will need to have those services established.
Purchase accounting software to keep track of your expenses and income. For most businesses, hiring an accountant to help you get set up and assist with payroll and income taxes is recommended. You will still need to take care of the day-to-day accounting like paying your vendors and depositing your customer payments and entering that data into your record keeping software.
4. Location, Location, Location
This has already been covered, but bears repeating. Pick a good location or service area that fits your business and has plenty of customers in your target market!
If you will travel to customers, establish a service area and determine if you will travel outside that area and what will you charge. If customers come to your store, make sure you have signage and visibility. If you will be shipping products, set up your shipper services accounts and make sure you have accurately calculated the costs.
5. Determine Your Business Structure
There are generally three main options: sole proprietor, partnership, or corporation. Each one has specific advantages and disadvantages as outlines in the chart below.
A sole proprietorship is the easiest and least expensive to establish and gives you, the owner, the most control since there are no other owners or partners. It can be more difficult to get lending; you might have to use personal credit lines or credit cards. There is more personal liability in this structure.
A partnership is two or more people. There are two types. Limited Partnerships are where one person assumes most of the risk and has the most control and other partners have limited liability and control (established in a legal agreement). Limited Liability Partnerships are where all partners share control and have limited liability as they are not responsible for what other partners do. Sharing control in a partnership can be a drawback as over time disagreements can occur.
A corporation is legal entity all by itself. This protects the owners from personal liability. There are more costs to establishing corporations, as well as more recording keeping and reporting requirements. An attorney can help you decide whether a corporation, and which type of corporation (C, S, B, Close, or Nonprofit), is the right structure for you. Additionally, a corporate accountant can discuss the different tax implications (there is double taxation in some structures).
A Limited Liability Corporation, or LLC, is a hybrid between a corporation and a partnership and offers some advantages. It can be easier and less costly to establish than a corporation, still protects you from personal liability, and requires less paperwork; however, there are self-employment taxes and no stock options.
Branding is not the same thing as picking a name. Personal branding comes after you have a name. Brainstorm key words that are related to benefits provided by your service or product, such as: efficiency, time-saving, money-saving, effective, personal touch, improvement, health and more. Now with those words in mind, what is the mission or goal of your company or brand? Once you have that mission, everything you say, do, or write whether in person, on your storefront, or in your advertising, should all speak to that mission and have consistency. Use consistent colors and invest in a professional logo design (about $100). Use the same mission keywords (or slogan if you have one) everywhere!
7. Register Your Name
Now that you have a name, a brand, a logo, and possibly a slogan you should register or trademark them if possible. This step will also make sure you are not taking a name already in use. Register with the US Patent and Trademark Office: https://www.uspto.gov/
If you have an S corporation or non-profit you will need to register with the IRS. If you are using your name, you may not need to register with your state either. If you are using a company name you will most likely need to register with the state (Secretary of State) and country (Business Bureau or Business Agency). Most companies do not need to register federally, other than tax ID numbers which is next…
8. Taxes & ID Numbers
Register with the federal government to get your Federal ID number (EIN) using their online portal.
Depending on your state, you may or may not need a State ID number. Check your state requirements. Make sure you also understand your state’s requirements for income tax, employment insurance, workman’s compensation, and their respective costs.
Some of these forms and applications will ask for your industry NAICS code. This is the link to their handy search tool to help you find the appropriate code for your business (https://www.naics.com/search/).
If you are offering products for sale, you will most likely also need a State ID number for sales tax. There are some exceptions, so check locally.
9. Permits & Licenses
Some businesses must be licensed federally, such as firearm sales, but most do not. Be sure to check!
States vary, but many commonly regulated industries include food, salons, electricians, basically any industry or business where there are safety issues and guidelines. States will need to know your certifications and education in some cases. You will need to get insurance (as mentioned before) that covers your industry.
10. Get Your Bank Account
Take all of your permits, licenses, and ID numbers with you, along with any company registrations such as incorporation or LLC papers to the bank (you might want to call ahead and set up an appointment – this process could take over an hour).
…NOW OPEN UP FOR BUSINESS!
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