The past year has brought a record high for startups, with 440,000 businesses launched in June of 2021 alone. According to NPR, the 2020 pandemic has given many people free time they never had, while the state of the economy has reduced startup costs. And with the American workforce on lockdown, many people sought money from a side business. After all, who doesn't dream of becoming their own boss?
Starting a business is an adventure. It can also be a challenge. Future success starts with careful preparation. With that in mind, we’re here to show you how to start a small business in this helpful guide.
Successful business starts with your "why"
The Bureau of Labor Statistics reports that 20% of small business owners fail in the first two years, and only 25% reach the 15-year mark. What separates a successful business from one that crashes and burns?
Too many startups fail to find their niche, which means that they end up pushing a product or service without considering the need they're addressing or their target market. Simon Sinek makes this point in his influential leadership book, Start with Why. "People don't buy what you do," he writes; "they buy why you do it." Your business idea must start with a need that you plan to address through your product or service.
In other words, before you consider the product you'll be promoting or the service you'll be selling, consider the central question: "Why does my business exist?" This question can help you develop a preliminary business strategy, which can also be useful as you're discussing your business venture with others.
How to start a business in 10 straightforward steps
Starting your own business can seem daunting, but it's easier when you break it up into different steps. The following steps can help you start a business and turn your dreams into concrete actions.
- Refine your business idea
We've already emphasized the need to start with "why" when generating small business ideas. Now it's time to refine your new business idea even further.
You'll want to answer questions such as:
- What needs exist in the community?
- How does my product or service uniquely meet those needs?
- What companies already meet these needs?
- How will my product or service meet these needs in a way that's different from others?
- Does this need reflect a recent trend or a growing market?
This is also the stage where you'll want to conduct market research to validate your business idea. -- Holding focus groups can provide real-world advice on the potential of your small business, while also giving you a chance to test the reactions of potential customers to your product or service.
At the very least, you might want to seek the input of other business owners on your initial idea. They might have experience gained from their own business that could be invaluable in shaping yours.
At the same time, your business idea should remain simple and clear. Here's a tip: Try to summarize your business idea so that it could fit onto a 3x5 index card. The simpler and more direct your idea, the easier it will be to explain to lenders, customers, and potential business partners.
- Choose a business name
Next, you'll want to choose a name for your small business. Ideally, your business name should reflect the nature of your business or the sector in which you're operating, but it can also be a place to let your creativity shine through.
A good business name should be short and simple, while remaining original and memorable. You'll probably want to jot down several ideas and think through each one. Better yet, this is where family and friends can become your first "focus group," offering input on the names they like best.
You might also consider investing in a logo at this stage. This logo will help you build your brand. It will often be used for your web presence, business cards, and more.
Websites like 99designs can help you network with designers who can help you construct a logo for your new business based on your business name and description.
- Write out your business plan
Your next step is to create a business plan. A business plan can help you strategize and create a clear timeline for your business, but it can also be used to raise capital. Many lenders will expect to see a business plan or an overview of your business model before approving you for a small business loan.
Your business plan should include:
- An executive summary highlighting your business idea and goals
- A description of your small business
- Description of products or services
- Market research and analysis
- Marketing plan
- Analysis of competition
- Description of management/organization structure
- Business structure
- Financial projections (and how much money you need to start)
- Appendices highlighting additional data/research
Chances are that you won't yet have answers to every question, which is partly the point. At the very least, you'll be able to start crafting a document that provides guidance for the future.
- Determine your business structure
Before you can go much further, you'll have to define the type of business entity that your business will be registered as. Your legal structure will impact your taxes as well as your personal liability, so it's important to choose the right business structure when starting a business.
Your business structure will be one of four types:
- Sole proprietorship
- Limited liability company (LLC)
Many business owners start their journey as the sole proprietor of their new business. Registering as a sole proprietorship is the simplest route if you plan to handle all of your company's debts and obligations, though this can have an impact on your personal credit.
If your small business will have multiple owners, you'll want to register as a partnership. Having a business partner can help you to share business costs and combine your skills to give your new business the best chance of success.
Want to separate your personal liability from your small business? Form a corporation. This ensures that your business is a completely separate entity from you, its owner, which can shield you if anything should go wrong. An S corporation might be particularly attractive to small business owners, since it offers strong tax benefits and legal protections.
A limited liability company provides the legal protections of a corporation with the tax benefits of a partnership. It can be a great option for those who are apprehensive about the liability associated with a sole proprietorship.
The legal structure should be recorded in your business plan, which will be part of the registration step (below).
- Register your business
Next, you'll need to register your business (and its business structure) with the IRS, as well as state and local governments. You'll register your business name and obtain an Employer Identification Number (EIN) which you'll use for securing a business license, paying taxes, or gaining access to other forms of assistance.
Technically, a sole proprietorship does not need an EIN in order to operate as long as you don't hire employees to work for you. However, it's always wise to obtain this number anyway to keep your personal and business assets separate as you pay taxes each year.
- Open a business bank account
Opening a business bank account is an important step toward legitimizing your small business. A business bank account will help you:
- Accept credit card payments
- Look more professional
- Separate business finances and personal assets
- Simplify tax planning and preparation
A business account will also provide you access to a business credit card and online banking services that can help you with financial planning and better money management.
- Find a business location
It's possible that you had a location in mind from the day you first decided to start a business. If you're running an online store, finding office space might be as easy as converting a spare bedroom into a home office.
However, make sure that you check with any local laws or ordinances about the legality of starting a business in your home. Renters may likewise have additional restrictions placed on business activities from their landlord.
But even if you're running an eCommerce store, you'll likely still want to plan ahead for what to do if your business grows. You may need to look into renting office or warehouse space to accommodate your evolving needs.
Choosing a business location may be all the more important for owners who are trying to directly reach potential customers. Retailers, barbers, restauranteurs, and others in the service industry will need to invest in real estate to better serve their clientele. Choosing this space wisely can help you capitalize on the benefits of location and put you in a better position to expand later on.
- Choose your tools
Even if you're a sole proprietor, there's no way you can do it all. When you first start a business, it may seem tempting to handle the administrative and revenue-generating tasks that go into your day-to-day operations on your own. But pretty soon, you'll likely discover that it's hard to be CEO, bookkeeper, and shipper/receiver all at the same time.
Choosing the right electronic tools and project management software can help you automate your core business processes, saving you time and money. This can also help minimize your need to hire employees, which can be a burdensome expense in the early days of new small businesses.
- Choose your employees
As long as you have an employer identification number (EIN), you can hire employees, regardless of your business structure. This means that a sole proprietorship can also hire staff members just like other business structures.
Of course, before you hire team members, you may want to define clear job titles and job descriptions to adequately cover the needs of your business. Ask questions such as:
- How much of the workload can you automate?
- What do you plan on doing yourself?
- Are there short-term tasks that can be filled by independent contractors?
- Will any employee require a commercial driver's license?
These questions can influence the type of people you hire and what positions you need to fill, so it should therefore be part of your official business plans.
Hiring employees will also add expense to your business insurance. In addition to covering your business and its property, you'll also likely need to provide workers' compensation insurance to cover any personal injury sustained by your employees in the scope of their duties.
- Market your business
Every business plan must include a marketing plan. At the very least, you'll want to create a business website that's clean, polished, and useful.
Obviously, this is especially vital for those running an online store, but every business should have a permanent website that helps to promote their products and services.
When you're building a business website, you'll want to pay close attention to search engine optimization (SEO), which ensures that customers looking for a relevant product or service will find your business as they search online.
But this is just the beginning. Modern small businesses must also engage their target audiences through social media campaigns and email marketing.
Which social media accounts should you leverage? Your thorough market research should reveal which platforms are used by your target market and should be reflected in your business plan. This can help you connect your business with a wider audience and ensure maximum exposure for your products or services.
- Launch your business
Your business plan should also include a projected date for launching your business. Advertising this launch date might even be a way to generate interest among early customers and give you an excuse to make a final advertising push leading up to your grand opening.
Business resources and more
Congratulations! You've just launched your own business. The hard work is just beginning. Your business venture will require continual refinement to remain competitive in a modern business landscape.
We're here to help. At Invoice2go, we've helped countless small businesses get off the ground and stay afloat, thanks to our innovative tools and practical, time-saving business resources. Sign up today for a free trial to see these resources in action. Regardless of the industry your new business serves, we can help you with banking, invoicing, and more.