Small businesses are part of the American way of life, almost more than baseball and apple pie. A full 99% of businesses in the US are categorized as small businesses. A lot of us have the entrepreneurial spirit and are always coming up with new and creative ideas to make a living not only for ourselves, but for others as well. Though everyone wants to have a successful business, not all succeed. In-fact one-third of small businesses that have employees on the payroll fail in the first two years. Up to half are no longer operating after five years. That is the bad news, the good news is that half do survive and thrive and grow.
If you are looking to not just start a small business, but grow it for the long term, taking the right steps up front is key. Those who follow a plan and lay a solid foundation have a much higher likelihood of success. We will provide you with our ten step plan to starting your own small business, one that has been the right plan for many small businesses that have achieved success.
How To Start A Small Business In Ten Steps:
Step 1: Explore
This first step is to explore your business idea. We are assuming you already have a business in mind so in this step you want to explore and find the answers to some of the most important questions to your new business. Here are some of the questions you want to explore:
- Who are your customers
- Does your product or service fill a want or a need
- Who are your top competitors
- What makes your business unique
- How saturated is the current market
As you explore how your specific business and products fit into the marketplace you may want to use focus groups to find out what exactly people are looking for. If you are starting your business on a shoe string, contact nearby universities and community colleges and ask to speak with the business department. Often students do these kinds of focus groups and studies as part of their coursework, you may find that there are students willing to do this for you as part of their coursework.
Step 2: Set up your Business Blueprint
Creating a business plan will help set you on the right course to starting your business. There are formal business plans as well as plans that are less traditional and allow for a bit more creativity and thinking outside of the box. If you will be looking for Small Business Loans or Investors you will want to stick with a traditional business plan.
You can find plan templates all over the internet. You might find some of your best resources are offline though. Here are some of the best places to look for help with finding the right small business plan template for you:
- Your local Small Business Administration
- The Library – Some Libraries even offer Small Business Classes
- Community College – Community Colleges often offer non-credit courses in things like small business planning
- Your community Chamber of Commerce
Tapping into these resources to help you with your business plan will often reap benefits in some of the later steps that we get into. Also this will help you start a network of experts to help you along the way.
Step 3: Financing
Many people start a small business on a shoe string budget and we have already given you some idea on ways to get started with little or no capital. Even if you have gotten to this point with your own creative ideas and not much else, that does not mean you have to keep going that way. If you know you are going to need more money than you have on hand and you did not do a traditional business plan, go back to step two and make sure you have a complete business plan that is appropriate to present to investors and financers. By completing your business plan you should have an idea of how much capital you will need as well as how quickly you can be profitable. The capital you need should encompass the cost of your space, utilities, professional services, advertising, salaries and if you have a product the cost to either produce or procure your product.
Here are some options for funding your business:
- Family & Friends: A lot of small businesses start out with financing from friends and or family, but that is not the only option.
- Loans: Reach out to your local Small Business Association and talk to them about loans and financing that is specifically for a small business. After talking to the Small Business Administration, go talk to your bank, you already have a relationship with them and they might have the right business financing for you.
- Investors: Next you can also look for investors or if you have a really unique product that you know people will want.
- Crowdfunding: Crowdfunding is now a viable option to use to start a business with.
Many people who are starting a small business are happily surprised to find that there is more financing available than they ever imagined.
Step 4: Structuring your Business
Depending on the type of business plan template you used, you may have already completed this step, but if not, now is the time. You need to decide how you will structure your businesses for tax and liability purposes. The most common business types are a Sole Proprietorship, Limited Liability Company (LLC), and Incorporation (Inc). Less commonly you might use a Partnership if you have a business partner and you want to essentially have a Sole Proprietorship for Partners. The best advice for this step is to get advice. A CPA will be able to help you decide what business structure is best for your particular situation. A CPA might also recommend a consultation with an attorney to make sure that you are not only in the best situation for taxes, but have also protected your asses from business liabilities.
Step 5: Give your Business a Name
You might already have the perfect name picked out. Before you finalize that do some research and make sure the name is not trade marked or the name of another company or product that can be confused with your business. Once you have settled on the name, register it in the state and or city that you will be operating from. If you are forming a corporation you will usually register the name with your articles of incorporation. This is also when you will want to purchase and register your domain name. We recommend purchasing any names that are similar or any specific product names that you can. The key here is to try to purchase any domain name that someone could someday use in a search to find you. Don’t worry lots of domain names doesn’t mean you have to have lots of web sites, you can have all of these names point to your website, so only one site is needed.
Step 6: Get the Governments Stamp of Approval
Nobody loves this step, but it is necessary. You will need to make sure you have all of the appropriate business licenses and permits for your business. For some small home based business where you do not have any customers or clients coming to your residence you may find that you qualify for a free business license, but this is highly dependent upon where you live. Keep in mind if you are selling a product you may need a re-sale certificate that allows you to collect taxes for the products that you sell. Most services do not require you collect taxes, but you will need to check with state and local laws to make sure.
Step 7: Set up your Bookkeeping
Far too businesses have died by skipping this step. No one likes doing the books, well unless the books look very good, but they are critical to a successful business. There are many accounting software packages that you can use and in the earliest days you might even be able to use something as simple as an Excel Spreadsheet, but no matter what keep track of your costs and your income. It is also helpful to set up a budget for your business.
If you already have a CPA ask them what software to use. You may be able to keep your tax and business accounting costs down by using software that your CPA is already using. If your CPA has no preferred software talk to a few other small business and find out what they like. They will usually tell you up front what they both love and hate about the software they are using.
Step 8: Location, Location & Location
Some of you will see this step and go, my home and in my jammies, but for many the answer will not be nearly that simple. If you are doing work where location does not matter, but you know your own home is not the right location you might want to look into some shared office spaces. Often these spaces share resources like copiers and office equipment in the cost of the space and could help you keep your cost down.
If you need retail space most likely you will be leasing space, that doesn’t mean purchasing is out of the question, but most well located retail space is going to be leased. Often new small business look for the cheapest space they can get, resist this urge. Having a good location in a high traffic area can make or break a business. If you are struggling with the cost of a high visibility, high traffic location, there is a fairly simple way to determine if the location is of value to you. Take a look at the difference between a lower cost location and your ideal location. Now look at how many more sales or clients you will need to pay for the cost difference. Could your ideal high visibility and high traffic location bring in enough customers to cover that cost? If the answer is yes then you know what you need to do, if not then a lower profile more cost conscious location might be right for you.
Step 9: Go Time – Hiring
If this business is not a solo act, now is the time to hire your employees. There are a couple of flavors of people who could work for your business.
Direct employees answer directly to you and you dictate things like their schedule and work practices. You will be responsible for payroll taxes and will need to make sure you understand the basics of employment law in your locality, but these kinds of employees are the ones that you will be able to have the most direct control over. If you are going with this option ask your Small Business Association for hiring guides and information on local employment law.
You can also hire contractors, or what is referred to as 10-99 employees. The advantage is you are not liable for payroll taxes and many of the other costs associated with direct employees. The disadvantage to 10-99 employees is that you cannot set their schedule or even the specifics of how they accomplish the work you have assigned them. If you are considering 10-99 employees, make sure you have familiarized yourself with what is and is not allowed with 10-99 employees.
Temporary Employees or Temps
Another option many people don’t consider in the beginning days of a business is to use a temporary company for employees. You usually only want to do this for the first six months of a business, but it can work really well for a young business. With a temporary employee, the temporary company takes care of things like payroll taxes, benefits and making sure that all employment laws are followed. You however get to set the employees schedule and direct their work. We recommend looking for a small local employment agency which has lower fees and will also often educate you on the ins and outs of employment law as you grow. These partnerships can not only help you when you start your company, but also as you grow or if you find your business has seasonal peaks where you will need more help.
One item of note when it comes to hiring, if you have a unique business, a client list or something specific to your business model that is proprietary you may want to have your employees sign a non-compete/non-disclosure agreement. Make sure that your agreement is narrow enough to be enforceable. You may want to even consult with a lawyer in crafting this as many of the agreement templates on the internet and that are widely available are not, in fact, legally enforceable.
Step 10: Let Everyone Know you are Open for Business
Ideally you will have come up with a marketing plan in your business plan, if so it is time to put it into play. Create some excitement around your grand opening and send a press release to the local paper and news outlets. Go visit all of the business near you and tell them about your new business and invite them to come see you. If you have an online business, light up social media and create some buzz. You are ready, now is the time to blow your horn and announce that you are open for business.
Now that you have completed all the steps, I wish I could say that you could relax, but now the fun, excitement and hard work is only beginning. It will be quite a ride. Sometimes your small business might want to throw you off like a bucking bronco does to the rider, but hang in there. Be ready to move and grove as your business requires and you will be one of the 50% that makes it.