How to Start a BusinessLinda Jenkins, March 30 2014
Starting a small business? Here are the essential steps you need to complete on your journey to business ownership:
Business NameSelecting a name for your business is a task that requires care. Although the name may not be as important as the marketing effort behind it, an effective name can naturally attract customers, so take the time to choose the right one. Here are a few things to consider first:
- Avoid regional names (think big, your company may expand beyond its current location).
- Avoid initials and numbers (these can be confusing to communicate to potential customers).
- Avoid long names (ones that are complex or will not fit into a web address).
- Avoid using your own name (not a good idea for legal reasons).
There are two types of naming processes - natural and coined. A natural name uses words that can be found in a standard dictionary, and usually conveys an understanding of what a company produces (ie., Conquest Graphics). A coined name is created by combining or altering words (ie, SynaGro). Regardless of whether you choose a natural or coined name, be sure to do a trademark search to ensure that you do not run into future legal problems for using the name of another business post-launch.
Selecting a Business Structure
This is a crucial step since your business structure will determine how much tax you will pay and how you will report income to the IRS. Essentially, you have the following choices when setting up a new company: Sole Proprietorship, LLC, Partnership, C Corporation or S Corporation. It is best to seek the professional advice of both a Certified Public Accountant (CPA) and Attorney. Make sure the professionals you choose are used to dealing with small business owners. For more detailed information, see our blog post on selecting a legal entity.
Every new business owner should write a business plan since it is used to highlight the potential strengths, weaknesses, competition, and expected performance of the business. It is also the key document bankers and potential investors will review when deciding whether or not to invest. You can also use spreadsheets for completing financial projections. A CPA can help you to project realistic startup expenses. The final document should demonstrate your planning skills and communicate how the company will reach profitability. You should know how all the facts and figures were derived, be able to defend them, and understand how you are going to operate the business in order to meet your projected goals. Learn more about what to include in a business plan.
Looking for a simple way to complete your first Business Plan AND Marketing Plan in a one page document? Try our 2-in-1 simple template.
First, research your business idea. Does it fulfill an unmet need in the marketplace? In other words, is there sufficient demand for whatever service or product you intend to sell? If there are existing businesses providing similar products or services, you must identify why yours will be more attractive to customers. You should start by doing some online research, reading leading publications in your industry and sampling your potential customers. Google Keyword Planner is also a great way to find out what people are searching for online. It may even help you discover a new business idea. New to market research or not sure if your business idea will sell? Download our video course on how to do market research.
Marketing PlanMany small business owners do not see the need for this, but it is crucial to have a document which clearly details marketing goals. Your marketing plan does not have to be a formal document, but you should take the time to write a page or two for your own reference that defines the following:
- A monthly ad budget and projected revenue
- Target demographics - What distinguishes your target customer (age range, education level, interests, etc.)
- A slogan you will use in advertising and/or on your website
- Types of marketing projects you will pursue (press releases, online ads, print ads, etc.)
- Advertising sources you will use
- How you will track and measure your results
For detailed information on marketing techniques, see our blog post How to Promote Your Business.
Applying for Licenses & Permits
If you live in the United States, you will need to register your new business with your state or county registrar. Since licensing rules vary by location, start with your state or county government website (such as Michigan.gov), and search for information on business licensing. You will likely have to fill out one or two short forms and submit a licensing fee. Depending on the type of business you intend to operate, your city government may require you to purchase additional permits.
Funding Your Business
How will you finance your business? You can ask friends and family to invest, pursue a loan at your local bank, seek out angel investors, or pursue social lending online. If you have previously applied for a business loan at a bank and been denied, you can apply for a SBA loan. For detailed information on funding your new business, see our blog article, How to Finance Your Business.
Check out this read for specifics on peer to peer lending, crowdfunding and other alternative financing:
Finding a Location
Whether you are looking to rent or own a space, you should be sure to do some due diligence before committing to any property. You especially want to ensure that you are operating in a space that is safe, accessible to both employees and customers, and free from a high concentration of competitors. A commercial realtor can help you to narrow options. Once you determine an attractive and affordable location, be sure to check your local city zoning requirements to ensure that your type of business can operate legally in the location you have chosen. It is also a good idea to consult an attorney prior to signing any commercial lease.
No matter what industry your business operates in, risk is unavoidable. However, you can minimize your exposure to risk by maintaining a safe workplace and buying business insurance. The main categories of business insurance include: workers compensation, health, disability, interruption, property, automobile and liability insurance. You can get free customized quotes from leading insurance companies online. Learn more about commercial insurance.
Outsourcing & Employees
As your business grows, you will have more work to do than you can handle by yourself. At that point, you will need to hire your first employee or outsource tasks to others. Use a resource such as Guru.com to find freelancers that can complete projects and help you reduce stress while keeping your operation running smoothly.
Accounting - Maximize Profit & Minimize Tax
Every purchase you make for your business is potentially deductible. By using savvy tax strategy and an efficient accounting system, business owners can save thousands if not millions of dollars annually. First make sure you understand which expenses are legally deductible. Here are the most common expenses business owners deduct: professional accounting & legal fees, utilities, equipment purchases and repairs, postage, office supplies, advertising, insurance, rent, travel, bank fees, and employee wages. The smartest way to handle business taxes is to educate yourself on basic business tax deductions, keep all receipts, track income & expenses using a spreadsheet or accounting software , and seek out a CPA to help with your tax strategy and preparation of tax forms.
Metrics - Measuring the Results of Your Efforts
This will be your most important ongoing task during the lifecycle of your business. Whether you need to know the Cost of Customer Acquisition or which recruiting strategy is bringing in the most productive employees, you will use metrics to get that information. Learn the 10 metrics every business must track.
Starting a small business for the first time can be overwhelming. There are so many things to learn sometimes you feel as if you will drown in the details, but it doesn't have to be this way. You just need to get a grip on your strategy and mindset.
Take the stress out of startup and get the help you need to succeed. Read the New Business Owner Handbook: