How Best to Start a Small Business
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Starting your own business can be a great way to make money, feel empowered, and have flexibility in your schedule. However, it’s also a challenging and risky endeavor. If you’ve got the ambition and tenacity to strike out on your own, planning is key. Starting a small business requires research, market analysis, financial planning and more. In general, there are three steps to starting any business (regardless of its size). Those steps are:
Know what you’re getting into
Starting a business is risky and can take a lot of time and effort. If you’re not sure you’re up for the challenge, you may want to reconsider. Keep these points in mind before you take the leap.
– Capital and Cost: Starting any business requires money, usually at least a few thousand dollars. Depending on what type of business you decide to start, you may also need to invest in equipment, supplies, or a location. Be sure to factor this into your budget and savings plan.
– Time Commitment: Starting a business may require you to make a big shift in your schedule. Many entrepreneurs report that they work long hours and don’t get a lot of time off. If you’re looking to start a business while keeping a 9-to-5, it may not be as feasible.
– Risk of Failure: Any time you start a business, there’s a chance it won’t succeed. Small businesses are much more likely to fail than large ones. For example, according to the SBA, approximately 50% of small businesses will fail in the first five years. Be sure you understand the risks and have a plan for surviving the failure of your business.
Run the numbers
Once you’ve chosen a business idea, it’s important to run the numbers to make sure it’s viable. This process is called financial forecasting. It’s a way to analyze your business’s projected income and expenses, and make sure it’s a sound investment. If you’re not sure where to start with financial forecasting, there are free online tools like Business Model Canvas and Cacoo that can help. Be sure to consider these factors when running the numbers:
– Break Even: This is the amount of revenue you would need to break even. Break-even analysis is important so you understand how long it would take to recoup your initial investment.
– Revenue Streams: Different types of businesses have different revenue streams. For example, a restaurant will have recurring revenue from customers buying meals. In contrast, an online business like a digital marketing agency will have one-time project fees. Be sure to understand how you’ll make money, and how often.
– Input Costs: Every business has costs associated with it. You’ll need to consider things like wages, insurance rates, and utilities. Be sure to include hidden costs, like supplies and equipment purchases.
– Marketing: All businesses need marketing to succeed. This includes finding new customers and building brand awareness. Be sure to account for any marketing expenses in your financial forecast.
Nail your business plan
As you’re running the numbers and putting together your financial forecast, you’ll need to write up a business plan. This is essentially a roadmap for your business and will help you get funding, secure a business loan, and get investors on board. Depending on how much money you’re looking to raise, there are a few different types of business plans you could write. The first type is a business plan for an idea. This is if you’re just starting out and don’t actually have a business yet. You’ll want to outline your business idea, the market for it, and your business model. This business plan will help you transition from dreamer to doer. The second type is a business plan for a startup. This is if you already have a company, but want to raise more money. In this case, you’ll want to talk about your operational history, how you plan on growing, and financials. Finally, the last type is a business plan for an existing company. This is when you want to raise money, but you already have an operational business. In this case, you’ll want to talk about your core competencies, goals, and SWOT analysis.
Get your ducks in a row
Once you’ve chosen a business idea, run the numbers, and written a business plan, you’ll need to get your ducks in a row. This includes getting the proper licenses, finding a place to operate your business, and finding the funding to start. Depending on your industry, you may need certain permits and licenses to operate legally. You can usually find this information on your state’s website. It’s important to get this sorted out before you open your doors. For example, if you plan on selling food, you’ll need to get a food handling permit from your local health department. Similarly, if you plan on renting out a room or space, you’ll need to get a business license. This will vary from state to state, so be sure to check your local government websites for more information. Finally, you’ll want to save money to start your business. You can get funding from investors, a business loan, or even do a crowdfunding campaign.
Network and market yourself
Before you actually open your doors, you’ll want to start networking and marketing yourself. Networking is a great way to get advice and find support in your industry. You can do this in person at conferences, meetups, and even in online forums and groups. Marketing yourself is important too. You want to get your name out there and build brand recognition. There are many ways to do this, like creating a website, buying ads, and writing content for your blog. Depending on what type of business you start, you may also need to register your business name and trademark your logo.
Choose your path: Incorporation or LLC?
Depending on the type of business you start, you may need to incorporate or form an LLC (limited liability company). If you’re a one-person show, an LLC may be the best option for you. This is because it gives you more flexibility, and you aren’t held to the same reporting and tax requirements as a corporation. If you’re an entrepreneur with a big dream, like starting a tech company or launching a new product, incorporation may be a better option. For example, if you launch a new product (or app), you’ll likely want to register it as a trademark. Doing so as a corporation will give you more legal protection, and allow you to file for patents.
Bottom line
Starting a business can be a very rewarding experience, but it’s also challenging and risky. Before you take the plunge, be sure you’re ready for the long hours and financial investment. Once you’ve chosen a business idea, be sure to run the numbers, write a business plan, and get your ducks in a row. From there, you can start networking and marketing yourself to get your business off the ground. Finally, once you’re up and running, make sure you’re following best practices to protect your business and staying compliant with regulations.