Do you want your own business? Are you tired of dealing with customers and other employees while on someone else’s payroll? Do you want to see your distinct vision of the future come to fruition? Well, you live in the perfect time and place for it. That is the foundation of the American Dream; everyone is entitled to their own pursuit of happiness. If being a small business owner is your idea of happiness, go for it.
We are here to share with you the vital steps you need to take to start a business. But that’s not all. We will not only tell you how to begin the adventure of becoming an entrepreneur, but we will also demonstrate how to craft a sustainable venture which continues to grow. High sales and lots of customers is what every business owner strives for. However, gradual growth and development are equally important. Your initial steps will set the stage for later innovation and growth, far past when first starting.
It All Starts With an Idea
Anything worth doing business-wise begins with a great idea. Since you are looking for ways to start your own small business, you’d ideally have one. There are two common options we see:
- Option #1: You’ve already had your “Eureka” moment. You know how you are going to make sole proprietorship of a business start-up a reality. That’s good news. It means the only thing left for you now is to learn how to start a business, and more importantly – how to make it successful.
- Option #2: You are tired of your day job, and your hopes for a brighter future are high. Maybe you are a dreamer with the spirit of an entrepreneur? There is just one problem. You have no idea what you want to do with your life and career. In short: you need a business idea worth pursuing.
If you fall into the first category, you’ll have no problem proceeding to the next steps. That said, you should not get discouraged if you are part of the majority of people who fall into the second category. There are countless wannabe small business owners still striving for a chance to succeed. You may still need a brilliant idea that can be developed into a successful business plan. But have no fear. We are here to help you.
The Three Questions You Must Answer
- What are you good at doing?
- What resources do you have?
- How can you best contribute?
Finding a good idea to build your brand might sound like something that requires a ton of talent and genius. While those are certainly are helpful, if you intelligently approach the problem, you can do it without them. Remember, success is 99% hard work and preparation. Think about the skills and natural talents you have. What can you do with those? Potential customers and investors are much more likely to trust you under one condition. You must have some sort of accomplishments in the field you will be starting your small business in, as evidence of your skill.
Instead of going into a new industry, opt for something you already know. Naturally, you will still need to hone your skills and learn new things. The learning curve will be more natural to conquer, though. Decide what your new business’s work will be, based on your own previous work experience, college degree, or even hobby. The bottom line is, people should assume any product or service you’re offering is something you can prove you have experience with.
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A Point to Consider
Another thing you should not forget is that running even a small business requires a lot of money. You may not have the kind of cash you will probably need to stay afloat in the first few months of your new business venture. The costs of maintaining your operation can be devastating to your small business start-up if you’re not prepared to meet them. That’s why you need to consider very carefully which resources you already have at your disposal to use.
If you have accumulated a lot of cleaning equipment over the years, you could probably easily open a cleaning business. Do you have a commercial driver’s license? Think about what you can do with that. Any property you inherit or have invested in the past several years can come in handy. Employ the resources you already have, and it will become much easier to build a business structure that lasts.
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Choose Value and Targets Wisely
The last thing that you need to consider is what your brand is about, after all. A small, local operation should look to fill in the gaps in the market it operates locally. Think about what product people want but do not have access to right now. Remember – reinventing the wheel is not always possible, and it is not necessary either. Find out the product or service that you can deliver with your skills and resources, and then get to work.
You should know about your company’s values as well, not only its business structure. It’s best when the company you run shares the same values that define you as a person. The famous saying states that money makes the world spin. Your business, however, will grow best and earn the most money if it contributes something to society. It is not necessary to become a charitable organization. For many small businesses adhering to a strict ethics code and treating employees with respect is more than enough.
Yes, it is as Easy as it Sounds
Once you’ve found the answers to the three vital questions, you will already have the basic shape of your business idea and business structure. Spend a little time polishing it. Research what you are going to need to succeed. You can even try to make the first draft of your break-even analysis. That means to factor potential costs of running your business (materials, office space, worker’s compensation, production costs). You will be able to calculate the number of sales you need to make to break even, and then start getting profits from the endeavor.
You may want to do careful market research. It will show you how viable the idea you have is. If you are not sure how to research your target market and target audience, some independent contractors will help you. Remember that you do not have to do everything on your own. The more you trust professionals in any field, the faster and better you will be able to advance in your proprietorship. Proceed to the next steps of this “How to start a business” guide only when you have a clear idea about what you are going to do.
On a Side Note
You should not be impatient. It takes a lot of work and time to build and maintain even a small business operation. Success will not come overnight, no matter how bright your idea looks. Be prepared to grind the stone for a long time before people start noticing you and your product. Don’t be discouraged, though. When success finally comes, it will be sweeter than anything you have ever imagined. Learn this simple fact and live by it. That’s the only way to attain success.
Create a Fool-Proof Business Plan
Let’s say you already have an idea about your business. The only thing left is to figure out how you are going to achieve it. A business plan should be reliable and look at the problems you may run with your brand, product, and target market. It needs to take into account all facts that may hinder your progress and prevent your operation from running smoothly. Businesses fail or succeed according to how good their business plan is.
There is actual evidence that shows a rock-solid business plan can help you grow your business 30% faster. No one can argue it is not worth it to take the time and build one. Creating a full business plan might sound like a tiresome job. What you should remember, however, is that you do not have to bother with writing a whole volume demonstrating exactly how you intend to take over the market. We live in a time when less is more. Potential customers and investors prefer to show them in a short, precise manner what your business is all about. An excellent PowerPoint presentation with a lot of graphics and a little text should be sufficient. Make sure that it answers several vital questions:
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What Will Your Business Do?
You need to explain your idea to venture capitalists and other potential investors you hope to get money from at first. Make sure to be clear and precise in your explanation. Stick to the basics, but try to make them as appealing as possible. If you can make a good pitch, that’s enough. Imagine that you have only three sentences to summarize the nature of your business start-up. When you manage to do that, interested parties will ask questions and allow you to go into detail.
The idea behind such a pitch is to describe the products you will be making clearly. Do not leave a shadow of a doubt that your company is not doing something right. If you pitch your product or service well, potential customers, as well as investors, will come to you quickly. You will not have to invest in an extensive and often expensive marketing campaign. All you need to do is let people understand what your company does with ease.
Who is Your Target Audience?
Stick to the three-sentence rule. In short, tell investors who is going to need your business. Put a unique spin on it. What will make a specific target group go to you instead of the competition? If you can answer that question, you are going to be alright. For example, if you are starting a home-repair company, will you target people of lower means or high end-households? If you are selling Christmas decorations over the internet, who do you hope will buy it? Remember, the fewer details you share most compellingly, the better your pitch is going to be. Add market research here to prove that there are potential customers for your product.
What’s the Deal With the Competition?
The market research you’ve prepared in advance will help you immensely here. You should know what the businesses in the area and field of operation are. The more data you gather about their manner of work, the more likely you are to find out exactly how your venture can compete with them. Use the competition to put a unique overall picture of your brand. That always makes a good impression on both investors and potential customers. After all, your business plan aims at catching their attention. It is not only about making a desirable product but also about being able to sell it well. You can do that by comparing yourself to similar businesses in a positive way. Just don’t be mean when talking about the competition. That never leads to anything good.
How Will Your Customers Hear About You?
Your marketing strategy is essential. Are you going to use social media? Do you plan on utilizing the power of an e-file provider, or another online product or service? How much work and time do you expect to need for marketing? Create a solid, well-structured plan in advance, because investors would like to hear about it. You need to come up with a catchy slogan for your business, and add it to the presentation. Your marketing strategy should involve the things you plan on doing immediately before starting your business. There should be a hint about the future too. For example, do you think about your brand joining some charitable causes in your area? That can be a good, cheap way to attract publicity. Consult with a specialist beforehand. They will be able to advise you on the best course of action.
How Much Money do You Need? How Much do You Project on Making?
That is something investors will want to know. You are the one asking for their money and should be able to tell them exactly how much you want. What is more important, they would expect an estimate of how fast they will be able to see a return on their investment. Come prepared with spread-sheets and details, but do not show them right away. Give the most precise figures you can come up with within the presentation.
You will make a slightly positive impression if you can predict your break-even point. Pinpoint an exact date and explain how you have come up with the figures and time when the questions come. You can rest assured that this will be the point when you receive the most attention. Keep your cool. If you have done your research right and you genuinely believe in your business idea, now is the time to show it.
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What Are Your Goals?
That’s the time to explain if you plan on making a lot of money in a short period, or do you plan on staying for the long-haul. There is no need to say that the latter is preferable. You might want to build a business start-up, grow it, and then sell. There is nothing wrong with you dreaming about moving on to the next big idea. Just make sure that everybody involved knows about it.
A sustainable business that breaks even early and then continues to grow and earn is what investors cherish the most. That is the time to point out what your values are. If there are things you will never make a compromise with, tell them. One example can be if you are ready to go at great lengths to keep your company’s production entirely in the US, or even your city. The people you want to get funding from would want to know about it.
These simple rules will work for creating a business plan that can withstand any test. It does not matter whether you will present it to your rich aunt, or a boardroom full of venture capitalists. If you can defend the belief in your idea there, you can do it anywhere.
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Registration and Permits
Let’s say that you have already managed to shape your idea and precisely pinpoint your businesses’ strengths and weaknesses. You have written a business plan. Before you jump head-on in the adventure that running a small business is, you need to get through one more tedious job. This one relates to any legal permits and registration every company needs before it opens its doors to customers. We know that it sounds like a lot of unpleasant work. It is precisely that, to a great extent. But you cannot start a small business (or a large one for that matter) without making sure everything is correctly managed in this respect.
Figure Out What the Name of Your Business Entity Is
That is something you should do before you start filing your paperwork. When you register, limited liability business authorities would want to know what its name is. It would be a good idea to trademark your brand’s name. If it becomes successful, you do not want someone stealing it. Sole proprietorship ventures and limited liability companies need a trademark on their brand name according to many states’ legislatures. Check with your local agency about the procedures you need to go through to register a trademark. You also need to make sure that the name you’ve liked for your business is not already in the registry of your state. Before you do that, however, you are going to need a business license.
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There is hardly a state or a big city that does not require a new business to obtain a permit as step one. What that license entitles depends entirely on where you live and work. The legislature may vary not only from state to state but from community to community, too. For example, some places have a general procedure through which all businesses go through. Others require special permits for certain types of operations.
The safest bet you can make is to go to your local authorities and explain the nature of your company. They will tell you what paperwork you need to file, and the permits and licenses (seller’s permit, for example) you are going to have to obtain. Your accountant will tell you about how you are to file tax reports, too. Make sure that everything is in order before you start working with clients. You do not want to have to deal with government agencies and the issues they bring. Prevention is the best solution in this situation.
The IRS Should be Up To Speed
The Internal Revenue Service has one essential requirement that you need to follow. No matter whether your business is a sole proprietorship, a corporation, or a partnership, you need to have an Employers Identification number. It is also known as the Tax Identification number. You can request such on the IRS’s website.
Additionally, there are local taxes that you have to register for right away. A new business owner can complete most of the work online these days. The process, however, eats a lot of time. That is why some deem it confusing. If you do not want to waste time and energy, you can commission your accountant to do most of the work for you. It is yet another expense, but it can be worth it. That is specifically true if you are one of those owners who are more creative than practical.
Time is of the Essence
Wrap your mind around the idea that all registrations, permits, license applications, and trademark processes take time. If you want a successful business, you cannot start without them. When you are creating your plan, set aside at least a couple of months for all of those. Small business owners should not have a problem dealing with the bureaucracy on their own. If your venture is big enough, you might want to hire someone to help you with the job. In any case, you should prepare for the possibility of a delay. Remember the big picture. Your patience will pay off in the future once you start running a successful business.
The problem for any potential business owner is not getting a brilliant idea. It is finding the funding for it. You need reliable cash-flow to start your business, deal with short-term problems, and grow the company you’ve just created. You have three options all in all to obtain adequate funding for your business start-up. Each of those has positive sides and negative ones too. You should think before you choose which option best fits the profile of your company. In some cases, a combination of two or even three of the choices we will present here will be most viable.
Take Out a Small Business Loan
Banks and other types of lenders offer small business owners’ options for funding their ventures. More often than not, that’s precisely how small businesses find the money to get in the game. There are several types of loans that are accessible to you.
Term loans are the loans of choice for many business owners. The reason for this is their structure. They offer fixed or variable interest, a set period in which you have to pay the loan and a fixed amount of money that you have to contribute every month. Predictability is a good thing here. You can carefully plan the amount of cash you will be getting, as well as when you will be able to get rid of the debt. Term loans for small businesses vary significantly in size and duration. The more promising your business plan is (and the better your credit rating), the more money you will be in a position to take. You will have between one and five years to pay off the debt. If everything is alright with the sales of your product, you should not have a problem with such a thing.
Learn About Small Business Association Loans
The unfortunate truth is small businesses are traditionally risky. The state of the economy makes the situation even worse. That is why many banks and alternative lenders have stringent policies. Not everyone with a bright idea and ideal tax/credit record is eligible for small business loans. That is why the Small Business Association (SBA) began a beneficial practice. They guarantee up to 80% of the principal on all small business loans that they approve. That stimulates banks and lenders to open their purses. It is quite likely that your business qualifies for an SBA guarantee.
Have in mind, however, that the process takes up to five or six months. Begin filing the paperwork early, so that you do not have to wait too long for the loan to kick in before you can start working. Explore local business associations that help with loan guarantees. There are industry-specific options you can look into as well. The more opportunities for funding you find before you start working seriously on your business plan, the better. Prepare by knowing what you are expected to present to all of those investors. Thus you will be in a position to tailor your sales pitch accordingly.
There is such a tool that aims at helping small businesses get funding for equipment. If that is the most significant expense that you will have when you start your own business, then this financial tool is perfect for you. You can use the money to buy machinery, vehicles and even computers. The way it works is very similar to auto loans. That means that you should know precisely what you will purchase with the money and how much you will need. Payments are in the form of monthly installments that you can automate through your bank. You can pay with a credit card if cash-flow is a problem at the end of individual months. Stay alert about the fact that missing a payment may damage your credit score, just like any other loan.
Manage Short-Term Cash Flow Problems With Short-Term Loans
Every business struggles in the beginning. Any exception is here only to reaffirm the rule. That’s why should you find yourself in a situation in which you have problems paying the bills, workers’ compensation, etc., don’t be scared. Think about a possible way out of the pickle. Short-term loans can be a great saver in such a situation. Their size can be between $2,500 and as much as $250,000. You will have between three and eighteen months to pay off the debt. The financial injection you receive through a short-term loan can be a life-saver. Once sales start climbing, you will be able to contribute payments.
What is more critical: short-term loans can prevent you from closing your small business. The only drawback is the steep interest rate. It starts from 14% and climbs up considerably depending on the amount of money you borrow. The time you take to pay off the debt is also a contributing factor. Calculate things carefully before you decide on taking out a short-term loan.
We understand if you do not want to deal with small business loans to finance your operation. There are many variables. It is risky, and if your business does not take off immediately, you may have to drain a personal checking account to cover the damage. In many cases, even that’s not enough. Small business owners who would like to minimize the risk for their venture and livelihoods resort to alternative means of funding. Fortunately, there are such alternatives. You should be careful with those too because they come with certain pitfalls. Give it a thought before you go head-first into any of them.
Dip Into Personal Savings
You will be surprised to learn that on average American households have just around $10,000 in their savings account. Median numbers such as these tell one story – that most of the families in the US have much less money tucked away for rainy days. If you are fortunate enough to be out of that category, that’s very good for you. Hard work and saving as much as possible over the years may pay off now. You can dip into your savings account to finance your business idea.
Small ventures usually do not require that much cash. That is something doable. The only problem is that in the unfortunate event that something goes wrong, you will find yourself high and dry. People who invest their nest eggs in risky small business ventures suffer often. That is why we would recommend this method for financing your small business only if there are no other alternatives. Even if you believe 110% in your business plan, you can still fail and lose your hard-saved money. Don’t forget that.
Seek Angel Investors
Those are a particular brand of entrepreneurs. Angel investors are people of considerable independent financial means. They have a lot of money which they seek to invest in a business start-up or ten. They will give you the money you need to start work and expect shares from your company as compensation. It sounds like a sweet deal, right? You can find angel investors on special events and conferences, as well as online.
What is more, if your idea is attractive enough, you are likely to get funding. The thing about angel investors is that they are usually risk-takers. They invest in dozens of small businesses at once. Even if most of them fail, it often takes just one successful business to break-even or earn profit. There is a catch, though. You will be giving up more than just shares of your company. Most angel-investors give money only under the condition that they take part in the decision-making process of the business they fund. If you are not ready to make such a sacrifice, you should indeed look for the initial money somewhere else.
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Go to Friends and Family
The last funding opportunity we’d like to share with you can be pretty tricky. Affluent family members and close friends can be ready to give you the cash you need to start a small business. Money, however, can ruin relationships. You should accept such propositions only after careful consideration. Approach the matter like you are taking out a loan. Determine when and how you are going to pay the people you borrow from and make it clear. Make sure they understand the risk. Set boundaries too. When your rich aunt gives you a couple of thousand dollars, she might want to tell you how to run your business also.
You should never allow that to happen. Weigh in all the pros and cons of borrowing money from family and people in your social circle. If you have any doubts that it’s a good idea, don’t do it. Experience shows that often, this type of alternative funding does not yield too many positive results. You can find the funding some other way if you need it. We are not saying that your specific situation is the worst-case scenario, though. If you are confident that you can obtain the money you need from your family or friends, go for it. All we are saying is that you need to be very careful.
Make Use of Modern Inventions
Crowdfunding has existed for a long time. It was only when the internet became a global phenomenon that it became a significant way for small businesses to gather funding. There are platforms such as Indiegogo, Kickstarter, Patreon, and GoFundMe. The way crowdfunding works is relatively simple. You present your business plan to members of the site. They decide if they want to back you up and with how much. Instead of getting the money for your small business from one place, you will be receiving small donations from a wider audience.
You need to come up with exclusive perks (free product or service, discounts, honorable mentions on your website/social media accounts) to stimulate people to donate. The problem with crowdfunding these days is that the market is oversaturated. Too many people are asking for money for whatever causes you can think of today. Reaching your target audience can be a tough job. It is a path worth exploring, though.
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Gather a Team
You may be a genius. The idea for a small business you have might sound like it can never fail. Even the business plan that you’ve written may seem like a masterpiece. It is not a secret that even billion-dollar minds like Steve Jobs and Bill Gates would have failed if they did not have the right people beside them. Find your Wozniak or Paul Allen. The team you gather to make your small business successful is the most vital part of the equation.
You should know that your team is not only the people working directly for you. Anyone who has anything to do with your business is part of the core of your company. That applies to employees, your accountant and attorney, independent contractors, and even the person doing the SEO on your website. The better each of those people performs, the more potential customers you are going to attract. And here’s what our best piece of advice boils down to: surround yourself with people you believe in firmly. More importantly, they should believe in you too. That is, however, the place where you need to be careful.
People Who Criticize You are Valuable
Small business owners should fear nothing more than a team that blindly agrees with all their ideas. Nurture a business environment in which positive and negative feedback are equally welcome. You need to have people who are ready to point out the mistakes you make. It is a good thing to believe in your idea and core company values. You also need to learn to check your ego at the door before you go into a staff meeting. The more heated discussions you have about the future of the business, the faster you will be able to grow.
Trust the Specialists
Building a team can be a hard task to accomplish. The main problem is that you do not have the resources, mainly time, to invest in interviewing potential candidates. That is why you should think about hiring an HR specialist. Someone who specializes in human resources management can save you a lot of time and assist you in building the team you want. Yes, we know you are a small business. If you cannot afford to hire HR teams or even a single specialist, don’t despair! There are professional employer organizations and staffing agencies that you can turn to for help with the logistics. The hiring process can be pretty excruciating, so why don’t you save yourself some time and energy. That is an essential principle in running a successful business. The more you delegate to people with relevant skills, the better.
Financial Management Skills are a Must
You can’t hope to achieve anything in business without them. Even if you hire a professional accountant, there are things you need to know yourself to be a successful business owner. Learn the basics of accounting so that you can keep track of expenses and revenue. Teach yourself the skills needed to calculate break-even points and fill out forms when tax time comes. Financial education is the way to put your money to work efficiently. It is not necessary to get an accounting degree yourself (though it won’t hurt). There are, however, quite a lot of things that you need to educate yourself about to guarantee the financial stability of your small business.
Income Statements are the Place to Start
Income statements take a defined time – month, quarter, or a year. They list the income of your business over this set period. You can determine the income of your business by calculating the difference between the money coming in as revenue from sales and the expenses you have. If the number you receive is positive, then you should be okay. Negative income is also nothing to be worried about at first. You should not take the necessary steps to make this a single-time occurrence, though. The income statement work for a defined period then the software you use to prepare those resets. The data, however, should be preserved both digitally and as a hard-copy, so that you can keep track of your progress over time.
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The Balance Sheet
Balance sheets are relatively hard to prepare and even harder to understand. They list the assets and liabilities that your small business has. Under the category of assets, you should realize any property owned by the business entity: equipment, vehicles, office space, machinery, inventory, and funds in the accounts of the company. Liabilities are all expenses that you pay – from mortgage to workers’ compensation and tax. What’s the difference between an income statement and a balance sheet then, you ask? It’s kind of you to notice. Well, income sheets are prepared monthly, quarterly, or annually. Then it is reset. The balance sheet updates in real-time and last for as long as your business. You use the balance sheet to demonstrate the value of your business. You may need that when you apply for a loan or look at the support of investors.
Cash Flow Statements
Anyone with any sense of accounting will tell you that cash flow statements are the hardest to produce. They require knowledge and understanding of the accrual method of accounting. It states that it is not essential when exactly, money changes hands. What’s important is the period between purchase and paying off the debt. You need to keep the rate of sales of products and services high if you want to have a positive cash flow at all times. Cash flow statements may prove to be too difficult for you to prepare. You might want to delegate them to your trusted accountant. You need to know how to read them, at least. That’s how you know what is going on with your business.
Learn to Calculate the Tax
Tax time is what many Americans fear more than anything. The reality is that filling out the form for your income tax is not something hard. The real nightmarish part comes when you are a small business owner. A trustworthy accountant is not something you can do without when it comes to dealing with the IRS. No matter how good and reliable they are, however, you should not leave everything in their hands. You need to be able to read and understand every financial document that relates to your small business. That includes your tax forms.
These are the most important parts of accounting that you need to know. They will help you a lot to become a successful small business owner. You should never forget you will never accumulate enough knowledge about finances. Every business field evolves continuously. That includes yours. If you want your company to experience continuous growth, stay up to date with the developments and innovations. Passion is not something you can buy, or apply for like you apply for a driver’s license. It is something you are born with or cultivate. Passion for learning is a quality every successful entrepreneur has. Don’t forget that.
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There’s a Lot More You’ll Encounter Along the Way
Business owners from all over the country will be glad to share more details about running a successful business. It’s all about the simple truth that every market is different, and you will have to learn a lot of things by trial and error. Thanks to your perseverance and knowledge of the basic principles, you should not have any problems, though.
If you are already a small business owner, you might have something to share. Tell us about it in the comments section below.