Like everything in life, starting a business has two sides to it. On the upside, a unique and well-researched business idea lets you and your business grow together and achieve financial independence at your own pace. Perhaps that is why small businesses make up more than 99% of all businesses in America.
On the downside, only about two-thirds of all new small businesses with employees last more than two years, and of those, half do not make it past the five-year mark. It is all about laying the right foundations when starting a business, and here are five key steps vital for any new entrepreneur or a small business owner.
1. Prepare a Business Plan
From the onset, you will need to create a business plan that outlines the basic elements of your organization; your business model, product and/or services to be provided, target market, business goals, and ways to achieve those goals.
Regardless of the objectives it meets, any business plan falls into one of two broad categories – a formal (or structured or traditional) business plan, or a simplified (or single-page or lean) business plan.
A formal business plan typically contains sections including Executive Summary, Products and Services, Market Analysis and Research, Financial Analysis and so forth. It requires serious effort, time and research from your end.
The market research you conduct for your business plan is of critical importance. For example, if you were developing a coffee shop business plan you’d need to conduct research into the coffee shop industry as well as competition and customers. With regard to the industry, you’d need to identify the market size and trends. Understanding trends will enable you to develop better strategies. Likewise, conducting competitive analysis will alert you to competitive weaknesses you can exploit. And researching your customers and their needs will enable you to put together more effective marketing strategies.
Whereas a simplified business plan is more streamlined, as it pertains to business basics like vision, mission, objectives, strategies, starting capital, desired income, etc. Perfect for new entrepreneurs and small business owners, it can be the launchpad for a more expansive formal business plan later.
2. Choose a Business Structure and Name
Will your business be a sole proprietorship, partnership, LLC (Limited Liability Company) or a corporation? The answer will impact the name of your business, as well as director(s) liability, and tax filing procedures. Consult an attorney or CPA to help you choose the right structure for your business entity.
Choosing a business name is straight-forward, but you must verify whether it has already been trademarked. If not, then immediately apply for registration. While LLCs and corporations generally group the name registration process with the required formation paperwork, a sole proprietor may directly register with their state or county clerk.
3. Sort Out Your Financial Planning and Accounting System
Your business may require a startup capital to cover for initial costs (property lease, registration, licenses, permits, etc) and recurring expenses (rent, utilities, production, salaries, etc) until it starts to make a profit.
Once you have arrived at a rough estimate of how much startup capital you will need, you can then approach local financiers, or banks or crowdfunding platforms to fund your small business. A well thought out business plan comes in handy here, as it helps you pitch your business to banks and investors with clarity.
An accounting system is needed to crunch the numbers required for managing budget, expenses, income, and tax-filing. So, invest in good accounting software. Alternatively, you could hire a certified accountant and remove much of the guesswork involved.
4. Ready Your Business Location, Permits and Licences
Will your business operate from a home office, private or co-working space, or a retail location? Should you lease a commercial space or purchase it? Carefully consider these business location questions before arriving at an answer.
Based on the nature of your business (and its location), you will have to file for federal, state and/or local licenses and permits accordingly. Getting the necessary paperwork done ensures your business operates smoothly and without undue bureaucratic interference.
5. Get Your Team in Place
If you are hiring employees, refer to your business plan about likely job positions, responsibilities and salary structure and begin the process as soon as possible. Conversely, you will need to sit down with your attorney to hash out a proper contractor agreement, if you plan on outsourcing work to independent contractors (or freelancers). Solo entrepreneurs may need a mentor or business coach to help with the learning curve. Even family support proves crucial for times when the going gets tough.
6. Promote and Market Your Business
Once your business is ready to operate, it’s time to obtain customers. You need a strong marketing plan that focuses on your target audience and how you can build a brand that resonates with that audience. You need to clearly market yourself in a way that sets you apart from your competition because if you do not market your product correctly, you could lose out against your competition.