Starting a new small business? Find out where to begin and how to achieve success.
You want to make sure you prepare thoroughly before starting a business, but realize that things will almost certainly go awry. To run a successful business, you must adapt to changing situations.
Conducting in-depth market research on your field and the demographics of your potential clientele is an important part of crafting a business plan. This involves running surveys, holding focus groups, and researching SEO and public data.
Before you start selling your product or service, you need to build up your brand and get a following of people who are ready to jump when you open your doors for business.
This article is for entrepreneurs who want to learn the basics steps of starting a new business.
Talk to any entrepreneur or small business owner and you'll quickly learn that starting a business requires a lot of work. An idea doesn't become a business without effort.
Some budding entrepreneurs understand the effort necessary to create a business, but they might not be familiar with the many steps required to launch a business venture. If you're willing to put in the effort to build a business, you're going to want to know the steps needed to reach your goals.
Tasks like naming the business and creating a logo are obvious, but what about the less-heralded, equally important steps? Whether it's determining your business structure or crafting a detailed marketing strategy, the workload can quickly pile up. Rather than spinning your wheels and guessing at where to start, follow this 10-step checklist to transform your business from a lightbulb above your head to a real entity.
1. DEFINE YOUR IDEA
If you're thinking about starting a business, you likely already have an idea of what you want to sell, or at least the market you want to enter. Do a quick search for existing companies in your chosen industry. Learn what 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, only faster and cheaper), you've got a solid idea and are ready to create a business plan.
Define your "why."
"In the words of Simon Sinek, 'always start with why,'" Glenn Gutek, CEO of Awake Consulting and Coaching, told Business News Daily. "It is good to know why you are launching your business. In this process, it may be wise to differentiate between [whether] the business serves a personal why or a marketplace why. When your why is focused on meeting a need in the marketplace, the scope of your business will always be larger than a business that is designed to serve a personal need."
Another option is to open a franchise of an established company. 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.
Brainstorm your business name.
Regardless of which option you choose, it's vital to understand the reasoning behind your idea. Stephanie Desaulniers, owner of Business by Dezign and former director of operations and women's business programs at Covation Center, cautions entrepreneurs from writing a business plan or brainstorming a business name before nailing down the idea's value.
Clarify your target customers.
Desaulniers said too often people jump into launching their business without spending time to think about who their customers will be and why would want to buy from them or hire them.
"You need to clarify why you want to work with these customers – do you have a passion for making people's lives easier," Desaulniers said. "Or enjoy creating art to bring color to their world? Identifying these answers helps clarify your mission. Third, you want to define how you will provide this value to your customers and how to communicate that value in a way that they are willing to pay."
During the ideation phase, you need to iron out the major details. If the idea isn't something you're passionate about or if there's not a market for your creation, it might be time to brainstorm other ideas.
2. WRITE A BUSINESS PLAN.
Once you have your idea in place, you need to ask yourself a few important questions: What is the purpose of your business? Who are you selling to? What are your end goals? How will you finance your startup costs? These questions can be answered in a well-written business plan.
A lot of mistakes are made by new businesses rushing into things without pondering these aspects of the business. You need to find your target customer base. Who is going to buy your product or service? If you can't find evidence that there's a demand for your idea, then what would be the point?
Conduct market research.
Conducting through market research on your field and demographics of potential clientele is an important part of crafting a business plan. This involves conducting surveys, holding focus groups, and researching SEO and public data.
Market research helps you understand your target customer – their needs, preferences and behavior – as well as your industry and competitors. The U.S. Small Business Administration (SBA) recommends gathering demographic information and conducting a competitive analysis to better understand opportunities and limitations within your market.
The best small businesses have products or services that are differentiated from the competition. This has a significant impact on your competitive landscape and allows you to convey unique value to potential customers.
Consider an exit strategy.
It's also a good idea to consider an exit strategy as you compile your business plan. Generating some idea of how you'll eventually exit the business forces you to look to the future.
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. Check out our full guide to writing a business plan, and when you're ready to put pen to paper, these free templates can help.
3. 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're planning to leave your current job to focus on your business, do you have money put away to support yourself until you make a profit? It's best to find out how much your startup costs will be.
Many startups fail because they run out of money before turning a profit. It's never a bad idea to overestimate the amount of startup capital you need, as it can be a while before the business begins to bring in sustainable revenue.
Perform a break-even analysis.
One way you can determine how much money you need is to perform a break-even analysis. This is an essential element of financial planning that helps business owners determine when their company, product or service will be profitable.
The formula is simple.
Fixed Costs / (Average Price – Variable Costs) = Break-Even Point
Every entrepreneur should use this formula as a tool because it informs you about the minimum performance your business must achieve to avoid losing money. Furthermore, it helps you understand exactly where your profits come from, so you can set production goals accordingly.
Here are the three most common reasons to conduct a break-even analysis:
Determine profitability. This is generally every business owner's highest interest. Ask yourself: How much revenue do I need to generate to cover all my expenses? Which products or services turn a profit and which ones are sold at a loss?/
Price a product or service. When most people think about pricing, they consider how much their product costs to create and how competitors are pricing their products. Ask yourself: What are the fixed rates, what are the variable costs, and what is the total cost? What is the cost of any physical goods and what is the cost of labor?
Analyze the data. What volumes of goods or services do you have to sell to be profitable? Ask yourself: How can I reduce my overall fixed costs? How can I reduce the variable costs per unit? How can I improve sales?
Watch your expenses.
Don't overspend when starting a business. Understand the types of purchases that make sense for your business and avoid overspending on fancy new equipment that won't help you reach your business goals. Monitor your business expenses to ensure you are staying on track.
"A lot of startups tend to spend money on unnecessary things," said Jean Paldan, founder and CEO of Rare Form New Media. "We worked with a startup that had two employees but spent a huge amount on office space that would fit 20 people. They also leased a professional high-end printer that was more suited for a team of 100 (it had keycards to track who was printing what and when). Spend as little as possible when you start and only on the things that are essential for the business to grow and be a success. Luxuries can come when you're established."
Consider your funding options.
Startup capital for your business can come from a variety of means. The best way to acquire funding for your business depends on several factors, including creditworthiness, the amount needed and available options.
Business loans. If you need financial assistance, a commercial loan through a bank is a good starting point, although these are often 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. [See related story: Best Alternative Small Business Loans]
Business grants. Business grants are similar to loans; however, they do not need to be paid back. Business grants are typically very competitive, and come with stipulations that the business must meet to be considered. When trying to secure a small business grant, look for ones that are uniquely specific to your situation. Options include minority-owned business grants, grants for women-owned businesses and government grants.
Investors. Startups requiring significant funding upfront may want to bring on an investor. Investors can provide several million dollars or more to a fledgling company, with the expectation that the backers will have a hands-on role in running your business.
Crowdfunding. Alternatively, you could launch an equity crowdfunding campaign to raise smaller amounts of money from multiple backers. Crowdfunding has helped numerous companies in recent years, and there are dozens of reliable crowdfunding platforms designed for different types of businesses.
4. 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.
Sole proprietorship. 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. Be warned that this route can directly affect your personal credit.
Partnership. Alternatively, a business partnership, as its name implies, means that two or more people are held personally liable as business owners. You don't have to go it alone if you can find a business partner with complementary skills to your own. It's usually a good idea to add someone into the mix to help your business flourish.
Corporation. If you want to separate your personal liability from your company's liability, you may want to consider forming one of several types of corporations (e.g., S corporation, C corporation, B corporation). Although each type of corporation is subject to different guidelines, this type of legal structure generally makes a business a separate entity from its owners, and, therefore, corporations can own property, assume liability, pay taxes, enter contracts, sue and be sued like any other individual.
"Corporations, especially C-corporations, are especially suitable for new businesses that plan on 'going public' or seeking funding from venture capitalists in the near future," said Deryck Jordan, managing attorney at Jordan Counsel.
Limited liability company. One of the most common structures for small businesses, however, is the limited liability company (LLC). This hybrid structure has the legal protections of a corporation while allowing for the tax benefits of a partnership.
Ultimately, it is up to you to determine which type of entity is best for your current needs and future business goals. It's important to learn about the various legal business structures that are available. If you're struggling to make up your mind, it's not a bad idea to discuss the decision with a business or legal adviser.
5. REGISTER WITH THE GOVERNMENT AND IRS.
You will need to acquire a variety of business licenses before you can legally operate your business. For example, you need to register your business with federal, state and local governments. There are several documents you must prepare before registering.
6. PURCHASE AN INSURANCE POLICY.
It might slip your mind as something you'll "get around to" eventually, but purchasing the right insurance for your business is an important step that should happen before you officially launch. Dealing with incidents such as property damage, theft or even a customer lawsuit can be costly, and you need to be sure that you're properly protected.
Although there are several types of business insurance you should consider, there are a few basic insurances that most small businesses can benefit from. For example, if your business will have employees, you will, at a minimum, need to purchase workers' compensation and unemployment insurance.
You may also need other types of coverage depending on your location and industry, but most small businesses are advised to purchase general liability (GL) insurance, or a business owner's policy. GL covers property damage, bodily injury and personal injury to yourself or a third party.
If your business provides a service, you may also want to consider professional liability insurance. It covers you if you do something wrong or neglect to do something you should have done while operating your business.
7. BUILD YOUR TEAM.
Unless you're planning to be your only employee, you're going to need to recruit and hire a great team to get your company off the ground. Joe Zawadzki, CEO and founder of MediaMath, said entrepreneurs need to give the "people" element of their businesses the same attention they give their products.
"Your product is built by people," Zawadski said. "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."
8. CHOOSE YOUR VENDORS.
Running a business can be overwhelming, and you and your team probably aren't going to be able to do it all on your own. That's where third-party vendors come in. Companies in every industry from HR to business phone systems exist to partner with you and help you run your business better.
When you're searching for B2B partners, you'll have to choose carefully. These companies will have access to vital and potentially sensitive business data, so it's critical to find someone you can trust. In our guide to choosing business partners, our expert sources recommend asking potential vendors about their experience in your industry, their track record with existing clients and what kind of growth they've helped other clients achieve.
Business News Daily offers reviews of the best vendors across a wide range of B2B product and service categories. Visit our Find a Solution section to find our recommendations.
9. BRAND YOURSELF AND ADVERTISE.
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.
Company website. Take your reputation online and build a company website. Many customers turn to the internet to learn about a business, and a website is digital proof that your small business exists. It is also a great way to interact with current and potential customers.
Social media. Use social media to spread the word about your new business, perhaps as a promotional tool to offer coupons and discounts to followers once you launch. The best social media platforms to utilize will depend on your target audience.
Constructing a well-thought-out email marketing campaign can do wonders for reaching customers and communicating with your audience. To be successful, you will want to strategically build your email marketing contact list.
Logo. Create a logo that can help people easily identify your brand, and be consistent in using it across all of your platforms.
"These types of forms usually pertain to email communication and are often used in e-commerce to request permission to send newsletters, marketing material, product sales, etc. to customers," Edmonson said. "Folks get so many throwaway emails and other messages these days, that by getting them to opt-in to your services in a transparent way, you begin to build trust with your customers."
10. GROW YOUR BUSINESS.
Your launch and first sales are only the beginning of your task as an entrepreneur. 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 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. To grow your business quickly, check out our business growth tips.
While these tips will help launch your business and get you set to grow, there's never a perfect plan. You want to make sure you prepare thoroughly for starting a business, but things will almost certainly go awry. To run a successful business, you must adapt to changing situations.
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