5 Places to Start When Establishing a Business
There is no one-size-fits-all blueprint for how to start a business. But there are best practices and steps you can take for success.
Get Your Mind on the Right Track
It takes a certain mindset to start a business from scratch—one that’s not too skittish and not too foolhardy.
Perhaps the greatest challenge for new owners is working longer and harder than they ever expected. The truth is: No one will be more determined to see your business succeed than you. You need to be committed from the get-go. If you have a product or service that you think could work, then go for it. You want to plan, yes, but you don’t want to get stuck in a cycle of analysis paralysis. You will never truly know if now is a good time unless you try. The key is to get started. Then you deal with the challenges and opportunities along the way.
Desire and determination are essential to drive a small business to success. Even more essential is a vision of what could be.
Stay motivated by focusing on the rewards of your small business succeeding, independence and the sense of pride that comes with owning your own business.
Do Your Market Research and Competitor Analysis
Is your idea for a product or service that you want to sell a viable one? You’ll need to conduct some market research to find out. Such research is crucial to understand the level of demand for the product or service you want to offer and can help you determine the tastes of the consumer base within your target market. It’s also a necessary part of your business plan that you will use to obtain funding.
Your product or service may be one not currently offered in the marketplace. If so, that’s a great advantage. If it’s already offered, you must have a way to differentiate it from its competitors. If you understand the economic environment and trends that might affect your consumer base and demand, you will better choose what and how you want to sell.
Choose Your Business Structure
When choosing the legal structure of your business, consider one that serves the interests of the company, you and any other owners. One of the first issues you should address is that of limited liability.
If you are starting a very small business with few employees, you might consider sole proprietorship. The business and the owner are, for legal and tax purposes, considered the same. The business owner assumes the liability for the business. This means that if the business fails, the owner is personally and financially responsible for all debts of the business.
To limit your personal liability, you could register as a limited liability company (LLC). LLCs can be owned by one person, or several. Such owners are referred to as members. Other companies can be considered members as well. If you want to start a specialized business as an accountant or an attorney and have one or more partners, you can register as a limited liability partnership (LLP) for the same reasons.
Take Care of the Legal Issues
There are several legal issues to address when starting a business after choosing the business structure.
Here’s what you should do:
Choose and register your business name. Make it memorable but not too difficult. Choose the same domain name, if available, to establish your internet presence.
Apply for an Employer Identification Number. Make your application to the Internal Revenue Service. This process may take up to four weeks.
Apply for the licenses and permits you need. What you need is determined by your industry and location. Most businesses need a mixture of state and federal licenses to operate. Check with your local government office for licensing information tailored to your area.
Open a business bank account. You want to keep your business and personal finances separate. Here’s how to choose a business checking account—and why separate business accounts are important.
Apply for business insurance. You should consider general liability insurance for your business in case of property damage, lawsuits or other problems. You may also want to invest in product liability insurance and commercial property insurance. In most states, workers’ compensation insurance is required by law if you have employees.
Obtain Capital for Your Business
It takes money to launch a small business. Since a new business has no financial track record, obtaining initial financing can be difficult. There is the option of internal financing, and here are some of the methods:
Owner’s own funds: The business owner may finance the initial launch of the business from personal wealth.
Credit cards: Personal or business credit cards can be used for initial funding.
Family and friends: The owner may be able to get a loan from family or friends. There is also the possibility that a family member or friend will want to buy a stake in the business.
Some downsides to internal financing include draining your personal wealth on a business that may or may not succeed. If you finance the business with your own funds or with credit cards, you have to pay the debt on the credit cards and you’ve lost a chunk of your personal wealth if the business fails. By allowing members of your family or friends to invest in your business, you are risking hard feelings and strained relationships if the business goes under.
To avoid these downsides, you can try these external financing sources:
Small business loans: The best option may be to apply to one of the many loan programs through the Small Business Administration. Learn which SBA loan is right for your business.
Small business grants: There are grants available through the Small Business Administration for specific types of businesses and business owners. Federal grants opportunities are also available through Grants.gov.
Angel investors: These are high net worth individuals who invest a small portion of their portfolios in early-stage new businesses. They are looking for a return, but they are not as predatory in their lending as some other options.
Venture capitalists: These individuals are looking to fund high-growth, high-potential start-ups. They provide financing during the various growth stages and then may try to arrange for a sale of the company.
Crowdfunding: Using one of the myriad crowdfunding platforms on the internet, such as Kickstarter, Indiegogo and Patreon, business owners can try to raise funds from generous strangers and friends alike.
