Every year, hundreds of thousands of people across the country take a leap of faith and start their own business. This path requires a lot of hard work, and many end up failing. But for those who survive, the rewards of entrepreneurship are well worth the obstacles they face on the road to success.
Think you’re ready to start your first business? Here’s a step-by-step overview of what you need to do to make it happen.
Every new business starts with an idea. Maybe there’s something you’re really knowledgeable and passionate about, or perhaps you think you’ve found a way to fill a gap in the marketplace. Wherever your interests lie, it’s almost guaranteed that there’s a way to turn it into a business.
Another option is to open a franchise of an established company. If you choose to go this route, a lot of the legwork has been done for you. The concept, brand following and business model are already in place; all you need is a good location and the means to fund your operation.
Once you’ve narrowed your list of ideas down to one or two, do a quick search for existing companies in your chosen industry. Learn what the current brand leaders are doing and figure out how you can do it better. If you think your business can deliver something other companies don’t (or deliver the same thing, but faster and cheaper), you’ve got a solid idea and are ready to create a business plan.
David Silverstein, a global business consultant and CEO of operational strategy consulting firm BMGI, cautioned would-be entrepreneurs against starting a business for the sake of being a business owner: You need a viable business model, not just an idea, he said.
“Businesses don’t start with simple ideas,” Silverstein told Business News Daily. “They start with problems to be solved [and] opportunities to do something better. Know your solution and your customer inside and out. Ensure you are passionate about what you are starting because you will be spending all your time with it.”
Build a business plan
Now that you have your idea in place, there are a few important questions you need to ask yourself. What is the purpose of your business? Who are you selling to? What are your end goals? How will you finance your startup costs? All of these questions can be answered in a well-written business plan.
A business plan helps you figure out where your company is going, how it will overcome any potential difficulties, and what you need to sustain it. A full guide to writing your plan can be found here, but these are the basic sections you will need to cover:
- What your business is about and how you will accomplish your goals.
- Your extended goals, and how you will fill your market’s needs.
- Your research on your target market.
- Organization and management of your company.
- Your service or product line, including copyright information and R & D activities.
- Strategies for market penetration and growth.
- Estimated costs and funding request (if you need financial assistance).
Assess your finances
Starting any business has a price, so you need to determine how you’re going to cover those costs. Do you have the means to fund your startup, or will you need to borrow money? If you are planning to make your new business your full-time job, it’s wise to wait until you have at least some money put away for startup costs and to sustain yourself in the beginning before you start making a profit.
While many entrepreneurs put their own money into their new companies, it’s very possible that you’ll need a little bit (or a lot) of financial assistance depending on the type of business you’re starting. A commercial loan through a bank is a good starting point, although these can often be difficult to secure. If you are unable to take out a bank loan, you can apply for a small business loan through the Small Business Administration (SBA) or an alternative lender like Kabbage, OnDeck or CAN Capital.
Startups requiring a lot more funding up front may want to consider venture capital. This is money, usually in the amount of several million dollars, provided to a fledgling company by a firm or business with the expectation that the backers will have a hands-on role in running your business. Alternatively, you could use an angel investor, a private individual that will provide up to about $1 million for a project, or launch an equity crowdfunding campaign to raise smaller amounts of money from multiple backers.
Using a home equity loan or a small business credit card to finance your startup is a viable solution, but it isn’t recommended. A credit card is best used as a means to keep your business on course, or to make big-ticket purchases you wouldn’t otherwise be able to afford. Personal finance author Eric Tyson told Business News Daily in a previous interview that entrepreneurs using credit cards should carefully compare interest rates and financing terms, and strongly advised keeping business and personal cards separate from each other.
You can learn more about each of these capital sources in our guide to startup finance options.
Determine your legal business structure
Before you can register your company, you need to decide what kind of entity it is. Your business structure legally affects everything from how you file your taxes to your personal liability if something goes wrong.
If you own the business entirely by yourself and plan to be responsible for all debts and obligations, you can register for a sole proprietorship. A partnership, as its name implies, means that two or more people are held liable as business owners. Danielle Wilson, president and CEO of air ambulance transport company Aero Jet Medical and sister company United Medevac Solutions, said these two are the easiest types of businesses to form, and the only difference is the number of people contributing resources and sharing the profits and liabilities.
If you want to separate your personal liability from your company’s liability, you may want to consider forming a corporation. This makes a business a separate entities apart from its owners and therefore, corporations can own property, assume liability, pay taxes, enter into contracts, sue and be sued like any other individual, Wilson said. If you decide to make your business a corporation, you’ll need to choose C or S. The main difference between these is the income taxing, with an S corporation owner only being taxed on a personal level.
One of the most common structures for small businesses, however, is the limited liability corporation (LLC). This hybrid structure has the legal protections of a corporation while allowing for the tax benefits of a partnership. Wilson noted that any lawful business can form an LLC, with the exception of businesses in banking, insurance or a few other specific professional service operations.
Ultimately, it is up to you to determine which type of entity is best for your current needs and future business goals. More details about the different business structures are outlined on the SBA website.
Register with the government and IRS
To become an officially recognized business entity, you must register with the government. If you are registering as a corporation, you’ll need an articles of incorporation document, which includes your name, business purpose, corporate structure, stock details and other information about your company. Otherwise, you will just need to register your business name, which can be your legal name or a fictitious “Doing Business As” name (if you are the sole proprietor) or the name you’ve come up with for your company. You may also want to take steps to trademark your business name for extra legal protection.
After you register your business, the next step is obtaining an Employer Identification Number (EIN) from the Internal Revenue Service. While this is not required for sole proprietorships with no employees, you may want to apply for one anyway to keep your personal and business taxes separate, or simply to save yourself the trouble later on if you decide to hire someone else. The IRS has provided a checklist to determine whether you will require an EIN to run your business. If you do need an EIN, you can register online for free.
Regardless of whether or not you need an EIN, you will need to file certain forms to fulfill your federal and state income tax obligations. The forms you need are determined by your business structure. A complete list of the forms each type of entity will need can be found on the SBA website. You can also find state-specific tax obligations there. Some businesses may also require federal and/or state licenses and permits in order to operate. You can use the SBA’s database to search for licensing requirements by state and business type.
Silverstein also advised entrepreneurs to consider their intellectual property, and be absolutely certain that they own it before going ahead with their business.
“Things like legal structure are simple and can be changed later,” Silverstein said. “If you are working with other people, be sure you understand who really owns your concepts and ideas, familiarize yourself with the basics of the patent laws that have changed dramatically over the past few years [which is] now a first-to-file system.”
Build your team
Unless you’re planning to be the sole proprietor and employee of your business, you’re going to need to hire a great team to get your company off the ground. Joe Zawadzki, CEO and founder of MediaMath, said entrepreneurs need to focus on the “people” element of their business with the same attention they give their product.
“First-time entrepreneurs [tend to] focus on product-market fit,” Zawadski said. “It’s critical, to be sure, but your product is built by people. Identifying your founding team, understanding what gaps exist and [determining] how and when you will address them should be top priority. Figuring out how the team will work together … is equally important. Defining roles and responsibility, division of labor, how to give feedback, or how to work together when not everyone is in the same room will save you a lot of headaches down the line.”
Brand yourself and advertise
A great startup idea won’t do you any good if people don’t know about it. While there’s still a lot of value in word-of-mouth advertising, you’re going to need to do more than just tell your social circles that you’re starting a business. Before you start selling your product or service, you need to build up your brand and get a following of people ready to jump when you open your literal or figurative doors for business.
A company website and social media profiles are practically essential for any small business in today’s world. Create a logo that can help people easily identify your brand and be consistent in using it across all of your platforms. Use social media to spread the word about your new company. You can even use it as a promotional tool to offer coupons and discounts to followers once you launch. Be sure to keep these digital assets up-to-date with relevant, interesting content about your business and industry as well.
Once you’ve fleshed out your business’s product and brand, Zawadski recommended getting out into the market and testing your product to get feedback from real customers.
“Sell the MVP [minimum viable product] and be honest about what it is, and what it isn’t, Zawadski said. Once you have your first few clients, work with them to find the common truth in your customer base.”
For more information on creating an effective marketing plan for your business, visit our guide here.
Grow your business
Your launch and first sales are only the beginning of your task as an entrepreneur. In order to make a profit and stay afloat, you always need to be growing your business. It’s going to take time and effort, but you’ll get out of your business what you put into it.
Collaborating with more established brands in your industry is a great way to achieve growth. Reach out to other companies or even influential bloggers and ask for some promotion in exchange for a free product sample or service. Partner with a charity organization and volunteer some of your time or products to get your name out there. There are also a lot of great tech tools available to help small businesses reach the next level of growth.
Starting a business can be risky and challenging, but armed with the proper tools and information, you put yourself on the path to entrepreneurship.