7 Steps to Starting a Business
Do you want to start a business but don’t know where to begin? There’s a variety of things to consider, including your business plan, company structure, legal requirements and branding. Whether you choose to open a home-based business or form a brick-and-mortar company, you’ll need to follow some fundamental steps to get your services off the ground. Brushing up on key steps to starting a business and working through them one at a time will help you get the best start in your new entrepreneurial role.
Decide What Products or Services You’ll Offer
Not every business is centered on “the next big thing.” In fact, most businesses exist to provide essential services rather than new inventions. Think about what you’d like to offer and do as a career. What is your dream job? Is there anything you can sell or a service you can provide that aligns with your goals?
The best idea: Find what you love and monetize it. In many cases, you simply can’t quit your full-time job and forge ahead with starting a business. Get a feel for the market and dabble in your business on the side to make sure it’s something you want to do full-time. You’ll know you are ready when you have the emotional and financial support required to build the business. Naturally, this means having some form of savings or the ability to borrow money to start your company.
Analyze the Industry
Once you’ve decided on a business that fits your lifestyle and career goals, you need to thoroughly evaluate the idea. Who will be your competitors? Is the market already saturated in your area? Who will purchase your products or services? How much money do you need to get started?
Analyzing these concepts can be a huge reality check, but it’s important to think of every scenario before finalizing your decision to go into a particular industry. Discuss your ideas with people already working in the industry, network, read books and magazines relevant to your industry and research key business owners. You should also perform a general search online to gauge what’s already out there.
A few resources worth reaching out to include:
- Students who can perform market research for a nominal fee
- Industry suppliers with knowledge of supply and demand
- List brokers who sell mailing lists based on certain demographics
- Advertising representatives with data on the industry and your direct competition
For example, if you plan to start a home-based catering business, you need to know how many other caterers there are in your city. Reach out to party venues and event planners; check with friends and family who have used caterers in the past. Get a feel for people’s experience with the competition. Check out local catering websites to see what services they offer and how much they charge. If there are several catering companies already in your town, how can you stand out? Can you focus on providing a certain type of food? Maybe there’s a specialty that customers wish others provided but is currently missing from the local market.
Evaluate Your Target Audience
It’s important to validate your business idea by understanding your target audience. You may have an amazing idea no one else has thought of, but if you don’t have customers lined up for your products, your business will fail. At this stage, you should perform a market analysis to determine how attractive your idea is to the current market. For example, the market for a local bakery isn’t just existing customers; it’s everyone who lives and works within driving distance.
You can start by obtaining local information at your area chamber of commerce. Other great sources include the Department of Labor, the U.S. Census Bureau and the Department of Commerce. Look for government or commercial statistics relevant to your industry. In many cases, you’ll need to estimate figures since some information isn’t made public.
This is also the time to explore market trends. You need to understand what’s going on in the market and where it could end up. If you want to open a Halloween shop, for instance, you’ll get the majority of your business during a small window leading up to Halloween. Because of this, you may not even need to stay open year round.
If you sell used cars, the market might show that gas prices affect when and how people purchase vehicles. These are just a couple examples of how the market influences sales, so consider marketing trends relevant to your particular industry.
Write a Business Plan
Before applying for small business loans, pitching to investors or even bringing on partners, you will need to write a business plan. This is the time to lay out all your business ideas on the table, including notes for products, how to market them, figuring out a pricing model and understanding your competition.
Unfortunately, many entrepreneurs are overwhelmed by writing a business plan because it can be 20 to 30 pages long. Business plans include a lot of market research, profit projections and financial figures, which isn’t everyone’s forte. Even so, developing a strong business plan is key before moving forward with starting your own company.
A good business plan should be concise, so don’t worry about lengthy prose or long sentences. Since your business plan is a critical tool to grow your business, however, you don’t want to cut corners. There’s a fine line between writing too much and explaining too little.
Every business plan should start with an overview of the business and a course of action. This is known as the executive summary, and it’s ideally one or two pages long. Its purpose is to prepare readers for upcoming content in the business plan, summarizing key points and saving them time from having to read the entire plan in one sitting. Your executive summary is also the portion designed to capture the reader’s attention. You want potential lenders and investors to feel intrigued by your plans, so make sure it’s tantalizing enough to leave them wanting more.
The executive summary should include:
- A description of your business opportunity
- How the business takes advantage of the opportunity to meet a crucial need
- Your target market, also known as your customer base
- Your business model, which includes products and services and what makes them appealing to the market
- A marketing and sales strategy
- An overview of the competition, including a strategy for competing in the market and how you’ll have an advantage
- A financial analysis, including projections for the next three years
- A description of key staff members and owners, including the expertise they bring to the business
- Your implementation plan with a schedule for growing your business from the planning stages to its grand opening
You will also need to update your executive summary once the business is established. Factors to add later include your mission statement, company information, business highlights, a financial summary and goals.
A winning executive summary will start with a one-sentence business overview at the top of the page. Once you’ve completed your executive summary, you can move on to other components of the business plan.
Research Financing Options
Coming up with the money to finance your business isn’t easy, especially if you don’t have exceptional credit. Fortunately, there are many ways to secure financing in the early stages of your business; you just have to be flexible and know how to locate the best sources.
Getting a bank loan is the easiest way to start any business. The downside is that lending standards are much more rigid than they used to be, so banks won’t hand out small business loans to just anyone. You can boost your chances of approval by pitching a solid business plan and applying at credit unions and online lenders in addition to traditional banks.
Most businesses also rely on credit cards but use them sparingly. If you fall behind on your credit card payments, you risk your credit score and have to pay additional fees, which can break your business budget. When used correctly, however, a credit card can help you get the necessary equipment and extend your accounts payable period until you can generate a cash flow.
If you have a 401(k), consider using some of the funds to start your business. You can actually tap into retirement funds without a penalty if you follow the right steps, but consult with an investment expert who can guide you through the process.
Crowdfunding has become a go-to option for many entrepreneurs over the years. Websites like Kickstarter make it easy for people to donate money during a set period of time, which can help get your business off the ground. The downside is that crowdfunding isn’t a long-term option, but it’s a great source for funding certain projects.
If you’ve chosen to incorporate your business, try to attract an angel investor. You’ll need to have your completed business plan when pitching to potential investors, and don’t forget to follow up after the pitch. Attracting an angel investor is all about making yourself stand out from the crowd, so market yourself as well as your product or service. This means highlighting your expertise and experience in the industry.
Another option is to apply for a loan backed by the U.S. Small Business Administration (SBA). The SBA reserves funds with special breaks on guarantees and fees for budding entrepreneurs and those trying to grow their businesses. By law, the SBA can’t guarantee loans to business owners who can secure the money on their own, so you must be turned down from another financial institution before applying. You must also meet the government’s definition of a small business as well as other criteria.
Get Your Business License and Certifications
Most business owners need a business license to operate out of a commercial space. Even certain home-based businesses require licenses, so research your field and your local requirements to figure out exactly what legal hoops you need to jump through.
For example, if you’re opening a restaurant, you will probably need a general business license, a sales tax license, city and fire permits, health permits and a liquor license. You’ll also need zoning permits in certain locations, which essentially keep you from operating a commercial business in a residential area.
Some business owners will need to obtain professional certifications to provide services in their field. These include dentists, lawyers, contractors, plumbers and other professionals.
Set Up Your Space
Once you’ve written your business plan and secured the necessary funding, it’s time to physically set up your business. In many cases, this means leasing a storefront or commercial office space, but if you’re conducting business online, consider your website your “storefront.”
When setting up a physical location, negotiate your lease options, have the phones and utilities installed, purchase inventory and set prices. You’ll also need to hire staff, print stationery and throw a grand opening event.
There are several factors to consider when deciding where to set up shop, including:
- Location. You want to operate in an area with high visibility to make it easier for customers to find you and see ongoing promotions. You should also weigh the costs of having a central location versus one farther out and how differences in traffic flow will affect your bottom line.
- Price. Can you afford a storefront in a high-traffic area? If not, what is your next best option?
- Access. Does your commercial space have plenty of parking or access to public transportation? You may find an incredible spot downtown, but if you don’t have a parking lot and the nearest garage is several blocks away, you might not attract the consumer base you’re hoping for.
- Competitor distribution. How many competitors are nearby? The last thing you want is to set up shop next to a direct competitor. In some cases, however, your business could benefit from being near competitors; it all depends on your industry.
Going from market research to setting up shop is an extensive process, but building your dream business is worth the effort. For additional help getting your business off the ground, consider taking out a small business loan from an online lender.