Many people decide to start their own business as a way to improve their lives. After all, having your own business can be extremely rewarding and profitable. But how do you get started?
We’ve put together this comprehensive guide detailing how to start your own business. It will take you through each step in the process of business creation, from registering your new business to launching and growing the business over time.
10 Steps for Starting your Own Business
When starting a new business, some steps are obvious – like creating a name and logo for the business. These are part of the branding process for your business, but what about all the nuts and bolts?
You’ll need to determine your business strategy, register your business, and finance your business. There are many things to take care of in starting a business, particularly if you are starting a business with little funding.
1. Determine Your Business Concept
Many business gurus tell you to start a business doing what you love. While that’s great advice, it ignores two very important things – it needs to be something you’re good at, and it needs to be profitable.
So before you start a business, ask yourself the following questions:
- What things are you passionate about?
- What things are you good at?
- Are there things that others come to you for advice?
- If you had to give a five-minute speech on any topic, what topic would you choose?
- If resources weren’t an issue, what’s something you’ve always wanted to do?
Answering those questions can lead you to an idea for your business, or help you expand on an existing idea. Once you do have an idea for a business consider the following questions before committing to that idea:
- How much funding do you have?
- How much time can you invest in your business?
- Do you want to work from home or outside your home?
- What skills or expertise do you have?
- How fast does your business need to grow?
- Will you partner with someone else?
2. Research Your Competitors and Market
Understanding the product or service you’re selling is important, but don’t forget about the competition. If the market for your product is already saturated, you may want to find a way to ensure your business will stand out. Make sure to do your research, particularly as lenders will want to know what makes your business idea different from the competition.
Consider the following steps as part of your pre-business checklist:
- Survey potential customers to learn what they want.
- Gather information about the market you’ll be selling in.
- Learn what your competitors are doing and how you can stand out.
- Conduct a SWOT analysis.
SWOT stands for Strengths, Weaknesses, Opportunities, and Threats and it is a great way to learn about how your product or service might perform when you take it to market. For example, you might uncover some weaknesses about your product that you hadn’t considered. Or you might find an opportunity to improve on a competitor’s product or fill an unfilled niche in the market.
3. Create Your Business Plan
Your business plan is your roadmap to starting and growing your business. It will help to guide your business decisions and is also helpful in presenting your business to potential investors and lenders. A well-rounded business plan will include all the following elements:
- Executive summary: Describes your business and highlights the goals of the company and how to achieve them. It’s the first part of the business plan, but should be written last.
- Company description: Explains the problems your product or service solves and why your business or idea is best.
- Market analysis: Describes how well your company is positioned versus its competitors. It includes your target market (including size, trends and growth), segmentation analysis, and a competitive environment assessment.
- Organization and structure: Will your business be a single-member limited liability company (LLC) or a corporation? Who are the management team and what qualifications do they bring?
- Mission and goals: Detail what your business seeks to accomplish and the steps you’ll take to get there. These goals should be specific, measurable, action-orientated, realistic and time-bound (SMART).
- Products or services: Describes your products or services including how they compare with competing products/services, the cost, who is responsible for creating the products, how you’ll source materials and the cost to produce your product.
- Background summary: Summarizes of all the trends that could positively and negatively affect your business or industry.
- Marketing plan: Summarizes your SWOT analysis and analyzes competitors. It also discusses how you’ll promote your business, including how much money you will spend on marketing.
- Financial plan: Includes a proposed budget along with projected financial statements, such as an income statement, a balance sheet and a statement of cash flows.
4. Choose Your Business Structure
The structure of your business will have an impact on a number of things, including the amount of taxes you owe, your daily operations and whether your personal assets are at risk. There are several options for you to consider.
- Sole Proprietorship: A sole proprietorship is used by many people when starting a small business because there is no additional paperwork or filings. The individual and the business are considered the same for legal and tax purposes.
- Limited Liability Company (LLC): A limited liability company can be owned by one or more people and it limits your personal liability for business debts.
- Limited Liability Partnership (LLP): A limited liability partnership is similar to an LLC, but it is used by business professionals such as attorneys and accountants who require a partnership agreement.
- Corporation: A corporation limits personal liability for business debts, just like an LLC. There are C-corporations and S-corporations, which offer different tax benefits. The S-corp is good for small businesses as it offers pass-through taxation, while the C-corp is best for larger companies and startups that expect to seek venture capital.
5. Register Your Business and Get Licenses
Once your business structure is chosen, there are a number of legal issues to consider, based on which structure your business will use. In order to remain compliant with state and federal regulations you’ll want to take the following steps:
- Choose your business name.
- Choose a DBA if you will be doing business under a name other than your registered business name.
- Register your business and get an Employer Identification Number (EIN).
- Apply for the appropriate licenses and permits for your business.
6. Get Your Finances in Order
It is crucial to keep your business and personal finances separate, particularly if you structure your business as anything other than a sole proprietorship. That means you’ll want to take a number of steps to keep your business finances separate and in order. These steps include:
- Open a business bank account.
- Use accounting software or hire a bookkeeper.
- Determine your startup costs.
- Determine your monthly operating costs.
- Have enough cash in your business account to cover startup costs plus six months of operating expenses.
- Determine your breakeven point and project your profits.
7. Apply for Business Insurance
You’ll need business insurance, even if you are a sole proprietor with no employees who works from their home. The type of insurance products you’ll need will depend on your business model and the risks that your business is expected to face. It’s possible that you’ll need more than one type of policy and you will want to consider additional coverage as your business grows. Here are the basic types of business insurance coverage you might need:
- Liability insurance is needed to protect your business against third-party claims of bodily injury, property damage and personal injury.
- Property insurance covers the physical assets of your business, including your office space, equipment and inventory. You need this even if your business is home-based
- Business interruption insurance pays for loss of income if your business is forced to close temporarily due to a covered event.
- Product liability insurance protects your business against claims that your products caused bodily injury or property damage.
- Employee practices liability insurance covers claims from employees alleging discrimination, sexual harassment or other wrongful termination.
- Workers’ compensation insurance covers medical expenses and income replacement for employees who are injured on the job. Most states require this insurance if you have employees.
8. Get the Right Business Tools
Business tools are essential to automate tasks and save time, plus they can help you make better decisions and make your business run more smoothly. You might want to consider all the following business tools:
- Accounting software
- Customer relationship management (CRM) software
- Project management software
- Credit card processor
- Point of sale (POS) system
- Virtual private network (VPN)
- Merchant services accounts
- Business website and email hosting
9. Market Your Business
While product creation and development is a cornerstone of your business, it’s hard to make sales if you don’t also include marketing. Don’t make the mistake of spending all your budget on the product. Make sure you include marketing as a part of your business budget and put funds aside accordingly. For many businesses this will mean mostly online marketing, and you’ll want to plan for all the following expenses:
- Website creation
- SEO site optimization
- Content creation
- Online directory listings
- Social media strategy
Not all of the items above need to be costly. If you have any technical skills, you might be able to handle website creation on your own with a platform like Wix or WordPress. Likewise, when just starting out you might be able to handle content creation tasks yourself. And your social media strategy can start off small – focus on the platforms where your potential clients are most likely to be.
10. Scale Your Business
Learning how to start a small business is a great start, but as your customer base and revenues grow you’ll also want to think about scaling up your business. This can be done in a number of ways, such as improving your current product or service, adding new products and services, or increasing your marketing budget. As you scale up, your business it also makes sense to think of things that can be automated or outsourced. And as your business grows, be sure to keep an eye on your finances to ensure your business remains profitable.
As your business grows, you’ll almost certainly need to build up the size of your team. These new team members can help with the day-to-day tasks of your business or could handle specialized aspects such as content creation, marketing, or accounting. There are a number of resources you can use to find staff, contractors and freelancers.
- Hiring platforms such as Indeed and Glassdoor let you post job descriptions, screen candidates and even conduct video interviews.
- Job boards such as Craigslist and Indeed allow you to post your open positions for free.
- Social media platforms such as LinkedIn and Facebook can help you find potential employees.
- Freelance platforms like Upwork, Freelancer and Fiverr can help you find freelancers for one-time or short-term projects.
How Much Does it Cost to Start a Business?
While starting a new business is exciting, it can also be stressful when you start to think about all the startup costs that are involved in setting up a new business. Costs will vary based on the industry you’re in, the type of business you’re starting, and the size of the startup, but a study by the Ewing Marion Kauffman Foundation shows the overall average cost to be $30,000, with that cost rising every year.
Average Budgets by Category
|Equipment||$10,000 to $125,000|
|Incorporation Fees||Up to $300|
|Office Space||$100 to $1,000 per employee per month|
|Inventory||17% to 25% of your total budget|
|Marketing||Up to 10% of your total budget|
|Website||$40 per month|
|Office Furniture and Supplies||10% of your total budget|
|Utilities||$2 per sqf of office space|
|Payroll||25% to 50% of your total budget|
|Professional Consultants||$1,000 to $5,000 per year|
|Insurance||$1,200 per year|
READ MORE: THE AVERAGE U.S. HOUSEHOLD INCOME
Starting a new business will take time, effort and a lot of perseverance. However, for all that you’ll get a great sense of accomplishment and the chance to satisfy your dreams and ambitions. Starting a business does require planning though, so be sure to do your research and create a solid business plan. It won’t guarantee your success, but it will go a long way in making sure you avoid some basic pitfalls. And once you’re profitable don’t forget to start focusing on growing your business. With the right planning and mindset, along with a bit of luck, your business could grow beyond your wildest dreams.