You’ve dreamed about starting your own business. You want independence and ownership in your work life. You even have an idea for a product or service that you want to sell. All your uncertainty is about the details involved in starting 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.
We offer a series of steps to help you get started.
How to Start a Business: Forbes Advisor’s 10 Step Guide
1. 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.
Another common deterrent for entrepreneurs is timing. There is seldom a perfect time to start a business. 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.
You’ll need fortitude to overcome those challenges and the ability to enjoy the opportunities. 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.
2. Focus on Refining Your Idea
If you don’t have a firm idea of what your business will entail, ask yourself the following questions: What do you love to do? What do you hate to do? Can you think of something that would make it easier?
These questions can lead you to an idea for your business. If you already have an idea, they might help you expand it.
Your business idea doesn’t have to be a game changer. It doesn’t need to be novel, either.
For example, do you love to travel? Consider a business as a travel planner if you are good at finding unique hotels and experiences. Do you have a specific talent, such as cooking? Start a business as a personal chef and deliver home-cooked meals. Are you passionate about animals? Become a dog trainer or sitter—or a combination of both.
You can also look around at what is currently available in the marketplace. Then, imagine spinoffs of those products and services that might exist five years from now—10 years from now. That could be the seed that sprouts into your very own product.
3. 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.
Here’s an example of product and service differentiation in the restaurant industry. Through market research, you find out that healthy-minded customers aren’t satisfied by the pre-made salad options offered by nearby chain restaurants. With this data, you can ensure that your restaurant caters to that niche and differentiates itself from the chains by offering build-your-own salads and other customizable, healthy dishes.
Your market research can be composed of primary and secondary research.
Primary research is the process of collecting data directly rather than relying on the results of already collected data. Primary research can lead to a higher level of accuracy than relying on previously collected data. It is helpful because you can survey the target market through, for example, questionnaires, surveys and interviews to determine the tastes of the customers.
When you do secondary research, you use existing sources of information, such as Census data, to gather information. The existing data can be studied, compiled and analyzed in different ways that suit your needs, but it may not be as granular as primary research.
Also consider conducting a SWOT analysis at this stage. You will be able to use it in your soon-to-be business plan. A SWOT analysis is a business assessment technique that focuses on the strengths, weaknesses, opportunities and threats relevant to your business. The SWOT analysis shows the relationships between these variables so you can determine the best path forward.
The SWOT framework allows you to consider your competition as well. You can do this by isolating the strategic actions of your competitors. Then, you can analyze their strengths and weaknesses in order to search for a new competitive strategy.
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4. Develop a Business Plan
A business plan is a living document that serves as a roadmap to guide the development of a new business. A business plan is constructed in an order easy for potential investors, financial institutions and management of the business to read and digest. Even if you expect to self-fund, a business plan can be a helpful tool.
Business plans typically offer some form of SWOT analysis. Financial institutions and venture capitalists find a SWOT analysis to be a concise source of information about the new business and its competitive strategy. You’ll be ahead of the curve if you already conducted a SWOT analysis during your market research.
A typical business plan is organized something like this:
- Executive summary: The executive summary should be the first item in the business plan, but it should be written last. It describes the proposed new business and highlights the goals of the business and the methods that will be used to achieve them.
- Mission and goals: This section should contain a brief mission statement and detail what the business wishes to accomplish and the steps to get there.
- Background summary: This portion of the business plan is the most time-consuming to write. Compile and summarize any data, articles and research studies on trends that could positively and negatively affect your business or industry.
- Organizational structure: In this section, write about the type of business organization you expect, what risk management strategies you propose and who’s going to staff the management team.
- Marketing plan: The marketing plan identifies the characteristics of your product or service, summarizes the SWOT analysis and analyzes competitors.
- Financial plan: The financial plan is perhaps the core of the business plan because, without money, the business will not move forward. A proposed budget should be included along with projected financial statements, such as an income statement, a balance sheet and a statement of cash flows. Usually, five years of projected financial statements are acceptable. The funding request is also in this section.
- Summary: The funding request should be summarized along with the main points concerning why the business is viable.
It is important that the business plan looks as professional as possible, particularly if you plan to use it outside the business. Consider using a business plan template.
5. 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.
If your company will be larger and have several employees, consider using the S corporation form of organization if you don’t mind limiting the number of shareholders to 100 and don’t need to obtain venture capital (as many VC firms aren’t eligible to become S corporation shareholders).
For a high-growth start-up, the C corporation might be most appropriate if you are interested in venture capital since you can issue more than one class of stock. Both types of corporations give you the protection of limited liability but differ in their treatment of income taxes and other financial considerations.
6. 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.
7. 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.
One of the biggest mistakes new businesses make is under-capitalization so a new small business may have to use a combination of funding sources.
8. Set Up Accounting and Bookkeeping Systems
At the very least, most small businesses need software with a full accounting package that allows ledger and journal entries and the development of the necessary financial statements. Depending on the subscription tier you need, you can expect to pay between $15 and $150 per month.
The company also needs to be able to use its accounting system for two special functions, which don’t come with every software package. First, if you sell a product, you need an inventory function to manage and track inventory. Second, if your business intends to do its own payroll, a payroll function needs to be included. If you expect to have many employees, outsourcing payroll is often a good idea due to the tax implications.
The accounting system should have the capability to have tax information ready at the appropriate intervals.
9. Hire a Team of Employees
Before you start hiring employees, the following should be in place:
- An Employee Identification Number (EIN) for your business
- Job descriptions for each position complete with salary range
- Comprehensive employee application form including references
- An employment offer letter or agreement
- Confidentiality and disclosure agreements
- Appropriate IRS forms including the I-9 and W-4
You should also be prepared to talk with the potential employees’ previous supervisors.
10. Market the Business Aggressively
New small businesses are often operating with a limited initial investment. They need to market aggressively but with a limited budget. In many cases, the business with the best online presence will win. Creating or commissioning a website is a crucial first step.
Some techniques to drive customers to your website are:
- Search engine optimization: If you optimize your website and content so that the search engines can find and index it, in turn, customers will be able to find you much easier. This is a long-term and ongoing strategy that can have a big impact on your digital presence.
- Content marketing: Providing quality digital content can drive customers to your business. Videos, customer testimonials, blog posts and demos are only a few of the content marketing techniques businesses use to draw in customers, generate leads and establish themselves as a trustworthy brand.
- Social media: Your social media presence can drive traffic and sales. Facebook advertising, for example, is probably one of the cheapest forms of advertising and can help you reach new customers. Facebook and Instagram both have e-commerce features that allow you to make sales directly from your social media page as well. At the very least, create free business pages on Facebook, Instagram or Twitter that all use the same URL or handle to make it easy for customers to find you.
Digital marketing techniques can be supplemented with traditional marketing techniques including direct mail, discounts, coupons and print advertising.