Stepping Stones to Start Your Own Small Business
Each year, thousands of people identify a business opportunity and try to translate the opportunity into a profitable business. In fact, over one million new businesses are formed each year. You may be thinking of starting your own small business but aren’t sure where to begin. Here are some tips to get you started. First, you’ll need to learn as much as you can about your proposed business.
- Ask questions.
- Study competitors carefully.
- Is there a need for the product or service you are going to offer?
- Once you’ve decided your business is a go, the next step is to fully plan for success.
Business Planning
Every business begins with an idea, and a business plan is necessary to guide the investigation and development of this idea. A business plan is the road map for the success of your business. In writing a business plan, you will consider all the parts of your business in detail. You will look carefully at your business, the industry, your competition, your customers, and your ability to succeed. Most importantly, you will create a financial plan for the business.
Legal Structure
Next you’ll need to determine the legal structure of your business. There’s no universally “right” structure for all businesses. The decision for the legal form of business will be made to best suit your needs, personal management style, and financing requirements. Before setting up your company, it’s important to understand all the options available to you—in particular, you’ll want to evaluate the advantages and disadvantages of each business formation, paying special attention to the tax implications and government formalities. If you are unsure about this decision, you should consult an expert.
Four forms of business ownership include:
- Sole Proprietorship
- Partnerships
- Corporations
- Limited Liability Companies
Financing Your Business
Once you have determined your preferred legal structure, the next (and possibly most cumbersome) step is to obtain financing for your business. This is a critical step. You’ve got to find funding for your business but ensure that it’s the right kind of funding. You must be selective and smart when seeking money for your startup. To identify which form of financing is just right for you, think about your long-term personal and business goals.
There are seven common ways to fund your business. These include:
- Bootstrapping- Funding the business yourself, using your savings, your initial revenues, credit cards, equity pulled from your home, etc.
- Debt financing- Requires you to qualify for a traditional bank loan or find a bank that can provide a loan with an SBA guaranty.
- Grants- Special programs designed to fuel the innovative fires of small businesses, and typically target specific groups or types of businesses, such as technology businesses, veteran-owned businesses, women-owned businesses, and minority-owned businesses. These are rare for for-profit ventures. Learn more about grant certification here.
- Friends and Family- Just like it sounds, raise money from people you know well, either in exchange for equity or as a loan to be repaid.
- Angel investors-Individuals who invest in companies at an early stage in exchange for equity and the chance to help guide the company.
- Factoring- A financial institution (factor) advances the entrepreneur money against proceeds from the entrepreneur’s outstanding accounts receivables.
- Venture capitalists- Individuals or companies with large amounts of capital to invest and expect higher returns. They invest as a profession and generally on behalf of other investors
Location and Licensing
The choice of location is important to the success of your business and you should begin such consideration early in the planning process. Consider location in regards to customers, suppliers, employees, and government regulations. Outline the business’ needs and select a site that best meets these requirements. Another consideration that must be made is compliance with any and all registration or licensing regulations. Various types of licenses are required in order to conduct business:
- Local- Business licenses are issued by cities to businesses located within the city limits and for businesses conducting business within the city limits.
- State- Your business may need to be registered with the state tax authority.
- Federal- Your business must have a federal identification number (federal tax number).
Additionally, there may be other licenses that affect your particular business:
- Occupational Safety & Health Administration
- Health Department
- Alcoholic Beverage Control in your state
- Department of Consumer Services in your state
You should check with your industry association to determine if other licenses apply to your business. To learn more, click here.
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