How to Start a Small Business
Starting a small business begins with an idea. The trick is turning that business idea into a successful stream of income that you can scale.
The good news is many successful entrepreneurs find it easier than they feared to get a new business up and running. The key is to break the business structure down into small tasks, checking them off one at a time. Here, we cover some of the steps to take to start a small business, the pitfalls to avoid, and how to manage risks. By following these steps, you will have a good shot at success in your endeavor.
The basic steps to start a small business
There are basic steps you can take to start a small business. First, you want to define your overall vision. When you come up with small business ideas, you need to think of the end goal. What do you envision as a successful business? Are you looking to just make money on the side, or is financial independence your final goal?
Next, write a mission statement. A mission statement outlines and defines the entire reason your business exists. It’s the product or service you offer and the way in which you want to offer it. It’s what sets you apart from other businesses and makes you stand out from the competition.
Third, set your individual business goals. How can you get to the final vision you have for your business? Keep your goals small and manageable and outline a business strategy to follow. Check off each item on the list as you go.
Finally, put it all together in a solid plan of action. This will give you an organized way in which you can approach your business. It can also be a solid outline to create a more detailed business plan.
Small Business Market Analysis
This initial step to starting your business is called your strategic plan. After you have it in place, jot down some notes analyzing the market. Consider who your customers will be, your competition, what hurdles you have to overcome and the barriers you face. In light of these obstacles, what’s your approach to marketing? How can you incorporate media and technology? How are you going to generate new leads and sales?
Establishing a Budget and Financing
Once you have your basic plan of action down, you’ll need to think about financing and what you can spend to get your business started. To run a business, and run it well, you will need to make an investment and provide for additional resources.
Certainly, you want to control costs as much as possible, especially at first. This means you need to be realistic about your budget , your expenses and what you can afford. Add an extra 20 percent on top of your costs to give yourself a realistic rate of burn.
Naming Your Business
Before you start your business, you’ll want to make sure the name you want is available. You can do a trademark search to make sure your business name isn’t already being used by someone else offering a similar service. It’s best to avoid any name that’s already in use.
You may also want to start using a trademark for your name. The moment you begin using your business name in commerce, you can protect it with a trademark, or the ™ designation. This provides a level of protection against others stealing your name, slogans and the like, but you must be consistent in use.
In addition, you may want to investigate registering your trademark to provide the full level of government protection. This will ensure that nobody can steal your name or even your business by creating a substantially similar mark and causing brand confusion.
Make Sure Your Business Entity is Legal
You can certainly start a business under your own name, or even just use an alias. This is called “DBA” or “doing business as.” However, it doesn’t provide you much legal protection. If you run into problems with your business, all your personal assets are often at stake.
You’re better off filing official paperwork to incorporate your business. The costs for doing this can vary by state and by the type of business you want to register, but in the end, it’s an important investment. Incorporating your business helps protect your business name, but, more important, it helps to shield your personal assets from business liability.
If someone, for example, gets hurt using one of your products, and you’re working under a DBA, they can come after your personal assets. If you’re incorporated, your personal assets are protected, and they can only come after your business assets.
Types of Business
The most common business structures are a sole proprietorship, a partnership, an LLC, or an S-corp / C-corp (standard corporation). Every structure has pros and cons that go with it, and you’ll need to determine the best option for you. LLCs are typically the most popular form of small business.
Sole Proprietorship: This kind of business is owned and run by just one person, the sole proprietor. There’s no distinction between the person and the business. This is the “DBA” we discussed above. You can create this kind of business just by starting to do business. You may have trouble raising capital, and typically you’ll be taxed as a self-employed individual on your personal tax return. You will also be personally responsible for the liabilities associated with the business.
Partnership: Two or more people can get together to form a partnership. It’s an easy kind of business to start up and lets you pool resources, get additional skills and expertise, and share responsibility. Again, if things go poorly, everyone involved shares full liability, and your personal assets are at stake.
LLC: The LLC, or limited liability company, is relatively new. It’s somewhat more complex than a proprietorship or partnership but isn’t as complicated as a corporation. It’s often referred to as a “pass-through entity” because it’s not subjected to a separate level of business tax. Most states don’t put ownership restrictions on LLCs, so the members can include just about anyone and can be one or multiple people.
These types of companies protect you from personal responsibility related to financial and legal issues that arise. This also protects your house, your car and your personal finances from liability. In addition, you still don’t have to file separate taxes; you’ll file business taxes right along with your personal taxes.
Corporation: A corporation is a legal entity unto itself, separate from owners and staff. It has many of the rights of an individual person: it can enter into contracts, borrow and lend money, be sued and file lawsuits, pay taxes, etc. It’s more complex to set up and is usually best for bigger companies with many employees. It’s often easier to get financing for a corporation, and you have the maximum separation of your personal assets. However, it can be complicated to set up and run. It’s also subject to the most expensive level of business tax.
Open a Business Checking Account
Separating your business and personal finances is crucial when you start a business. Every business should have a business bank account. However, finding the right business checking account for your business needs may be a bit confusing at first.
First and foremost, find an FDIC-insured company that offers you protection. If you are a small business, you should look for a company that provides the best interest rates, minimal or no monthly fees and small or no opening deposit requirements. These options may seem daunting when you are comparing against the bigger banks. However, there are options out there.
You will also want to make sure that whatever company you start with, you have access to your business checking account at all times.
Kabbage offers a great banking solution for small businesses. An online checking account without strings, extra fees and compelling rates. Find out how easy it is to sign up with a business checking account for your small business.
Determine Employee Staffing
Another important question to consider is employee staffing. Can you do this on your own, or will you need help? Understand that the first stages are going to be expensive and time-consuming. Don’t hire people you can’t afford just to make things easier. Start with management and support where you aren’t capable of doing it on your own.
If you plan to hire employees, the best thing to do is file for your employer identification number (EIN.) Even if you do not think you will need employees, you can get the EIN for possible use later on.
Establish Your Business Location
You’ve heard it said many times: it’s all about location, location, location. This also comes down to the kind of business you’re running. If you’re running a craft business that will only sell online, your living room might suffice for now. But if you’re looking to have an on-the-ground location, you’ll want affordable office space.
If you’re offering a service-based business, you’ll want an office to meet with customers; it will make you look more professional. More important, it’ll give you a place to have your business mail delivered so you don’t have to hand your home address out to potential customers.
You don’t have to spend a fortune to get office space. Just about every major city now has shared-space locations where you can lease your own space for a reasonable rate.
Purchase Your Business License
As you set up your location, check into any permits or licenses you need to operate your business in your state. Depending on your business type, will also determine what business license you will need. The last thing you want is fines for failing to have the proper permits, licenses and certifications. Failure to get such licenses can ruin your small business.
Set Up an Online Presence
It doesn’t matter what kind of business you’re starting, if you don’t have an online presence, you’re not likely to succeed in today’s market. A lot of people consider it a red flag if a company doesn’t have a website and social media presence. Many popular online hosting platforms offer inexpensive options for setting up a website and even templates that can get you up and running fast.
Set up a Facebook account, an Instagram account and a Twitter account. Make sure you use the right social media channels that pertain to your business. You can connect all of your various accounts together.
Business cards are important, and they’re often overlooked until they’re needed. The last thing you want is to have to scribble your name, number and email on a napkin. You can get inexpensive business cards through a variety of services both online and at office supply stores. You can even get templates you can use to print your own if you have a knack for graphic design.
Experiment With Marketing and Sales
Now it’s time to experiment with your operations.
Get the word out as creatively as you can. Get involved with local professional organizations, such as the chamber of commerce and small business chapters in the area. Look for resources in your network to get the word out.
Use your social media to drive traffic to your website. Use Facebook, Google AdWords and any other avenues you know. Just be aware of your budget, and if something isn’t working, don’t push it.
Getting Help to Start a Small Business
If you follow, these steps you should be able to easily start your small business. To make sure your small business can hit the ground running, your first step should be to apply for a small business loan. With the right loan in place, you should be able to cover your starting expenses and kickstart your small business.
Starting a small business can be an intimidating investment and also an awesome adventure. Kabbage helps you with many resources to hit the ground running. Find out how we can help you get started with an online business checking account, the ability to accept payments and other financial resources.