What do you need to do to start a business? Where do you start? How much does it cost to start a business? How do you avoid mistakes that can ruin the whole process?
Starting a business can be very intimidating and overwhelming. There are a lot of questions you need answers to and maybe even some that you don’t know you need to ask!
I will answer these questions below and provide you with information you need to start your business. I’m not a lawyer or an accountant, so none of this is legal advice! It’s a guide I created based off of my experience starting multiple businesses for myself, and for my clients.
Skim the steps you’ve already rocked out on and pay attention to those you skipped. If you’re new, start from #1! Now let’s get to it!
How to Start a Business: A Step by Step Guide
1. Refine your business idea
It is time to turn that business idea into an actual functioning business. At this stage there are three things you need to do:
a. Conduct market research
This stage of market research consists of gathering and analyzing information about the product or service you would be offering in the market.
You can conduct your market research on your own or outsource it to a research firm. Ways to conduct your market research include:
- Create and conduct surveys
- Search for your idea and similar ideas in the same niche on Google
- Talk to established people in your industry
- Organize focus groups for brainstorming and feedback
- Read books written by people in your industry
- Research your competition
- Run product tests
- Read relevant industry magazines and news websites
Doing market research will help you determine if the demand for your product or service is big enough to sustain your business. It will also help you determine if your idea already stands out from the competition. It can also help spark ideas for standing out from your competition if you haven’t already thought of one.
b. Determine your business name and secure it
After conducting market research, give your business a name. Make sure it is clear, catchy, meaningful, and easy to spell.
Take caution while choosing a name:
- Consider very carefully before including a specific service or city in your business name because it can be quite limiting when your business eventually grows and you are ready to scale.
- Use Google, a Thesaurus, and Urban Dictionary to make sure your name isn’t confused or synonymous with any negative words or phenomenons.
- Be careful when inventing words or choosing any other name that you’ll need to constantly explain or spell out for people. You want it to be easy for your customers!
- Definitely do not choose a name that is already taken in your area or by a national or international company. No need for legal troubles.
Luckily, you can check the internet to ensure no other business has the name you’ve chosen.
- Start with your local Secretary of State’s website for a business name search.
- Then check for the domain name availability (domains.google is a great place to look)
- Finally, make sure the social handles are available. NameChk is an example of a handy tool that will check name availability for you on tons of social media platforms. (side note – I had to check the spelling of that tool like 5 times before typing it here, then edited it because I typed it wrong – see there’s a great example of why not to make up words 😉 )
Once your business name availability is confirmed, you will want to secure your business name online. This includes purchasing a domain name for your business (register it on the google link above), and setting up all the social media accounts with your business name. Sometimes I do this step immediately before anything else since there are robots scraping data and someone else could snatch the name and put it up for resale just because you searched for it online!!!
What happens if you choose a name that is available, but the domain is reserved and there is a hefty price tag on it? This happens a lot! And well, you either pay it or go back to the drawing board. This decision really comes down to how important the name is to you and your projected success – is it dependent on the name? Have you already been doing business under the name with a customer base? Will it cause trouble to change the name?
You’re also going to want to register your business with the Secretary of State, but we’ll cover that step later since it involves defining your business structure first (Step 2 below).
After reserving your business name online, you might also want to request a trademark on the name you choose from the United States Patent and Trademark Office. This will prevent another person from using the name of your company, but it is not necessary to start or run a business.
c. Clearly state your business’ mission and vision statement
Write. It. Down.
Your business’ vision statement should focus on what you hope to achieve. This statement can be changed in the future, depending on the milestones achieved and the current circumstances surrounding your business.
Your business mission statement, on the other hand, should describe your core business. It should clearly state what your business is about, the people you will serve, and how you will serve them. Coming up with a few core values here can be really helpful.
You might think you already have this step done, but writing it down and thinking carefully of the words you use in the vision and mission statements will help guide the process and keep you focused.
2. Choose a business structure
At this point, you choose your business’ legal structure. Consulting an accounting professional on the pros and cons of the right business structure for you can save you tons of time and headache in the future. It’s worth investing a little time and money here.
Here is a breakdown of some common business structures:
a. Sole Proprietorship
Your business can be described as a sole proprietorship when it is owned and managed by you alone. You have total control over the business and you make all the decisions. Preparing taxes is easy (maybe, lol) and you only pay your personal tax.
Your business name can be your own name or a “doing business as” (DBA) name. You generally don’t even need to file any paperwork.
The drawback to owning a sole proprietorship is that you will be held personally liable for the business obligations, liabilities, and debts. This puts your personal assets at risk. Also, accounting can get confusing when your personal and business accounts are mixed together.
b. Limited Liability Company
A Limited Liability Company allows you to separate your personal assets from your business assets. When set up and conducted correctly, you are not personally liable for your company’s liabilities or debts.
You don’t have to pay corporate taxes. Instead, you pay self-employment taxes because you will be considered self employed. At certain income levels you’ll want to become a corporation so you can pay yourself a salary – chat with a tax pro about this if you’re planning on bringing in over 80k. Under 80k? Keep it an LLC.
The way I see it, an LLC is like a sole proprietorship, but with some advantages of some legal protections (definitely consult a lawyer for specifics) and you can open a bank account and credit card in your business name. It looks more professional and helps with accounting/bookkeeping.
When you start your business with another person or people, your business becomes a partnership. Your business partner can be individuals, government entities, or non-profit organizations.
There are three types of partnerships:
- General Partnerships: If your business is a general partnership, all partners share the financial and legal liability. Profits are shared equally between partners.
- Limited Partnerships: Some partners in this structure have limited liability. If one partner gets involved in a lawsuit, for example, the other partners are not at risk.
- Limited Liability Limited Partnerships (LLLP): LLLP is quite similar to limited partnership. Some partners have greater liability over other partners. Limited partners enjoy more protection than the rest.
Note: There is no federal law in the U.S that defines how partnerships should be. However, there is a Uniform Partnership Act which some states have adopted.
A corporation is completely separate from the owners. In a corporation, you pay corporate taxes, you can sell stock shares, and offer stock as payment to employees.
If you eventually want to sell your business or make a public offering, then you should consider setting up a corporation.
3. Create your business plan
Now that you know what kind of business you will be operating, it is time to create a business plan.
Your business plan should contain:
a. An Executive Summary
This section contains an overview of what your business is, its structure, and your products or services. You can also include the findings from your market research here.
Your summary should contain three major sections:
- The first is the “Company Profile” where you explain your business goals and mission statement.
- The second is your “Business Structure”. This outlines the people you need, what roles these people play, and the responsibilities that will be assigned to them.
- Finally, you need to include in the “Products and Services” section details of what you offer and what makes it different from the competition.
b. Your Financial Plan
Your business financial plan should include costs, revenue projections, and how much funding you will need to start your business.
How do you make a financial plan?
Make a cost analysis
Your cost analysis should indicate the cost that will be incurred in getting the business to run smoothly. This includes cost of purchasing and maintaining equipment, cost of leasing an office space, advertising and marketing costs, insurance and licensing costs, etc.
Do not forget to justify the costs by comparing them to the projected revenue inflow.
Conduct a break-even analysis
The break-even point in any business is that point where the revenue equals the cost incurred in doing business.
You should follow this formula for your break-even analysis:
Break-Even Point = Fixed Costs / (Revenue per Unit – Variable Costs per Unit)
Fixed costs are items that are not affected by the amounts of sales made. For example, computers, rents, software, etc.
Variable costs refer to the materials used in the production of your product or service. As the number of items you produce increases, so does your variable cost.
Revenue per unit is the total revenue divided by the number of products or services sold.
Make a sales forecast
To make a sales forecast, you need to put into consideration the estimated number of customers that are likely to patronize your business, the geographic location of your business, your competitive advantage, and sales fluctuations during certain seasons.
c. A Sales and Marketing Strategy
By now, you should understand who your target audience is, thanks to the market research you conducted earlier. To understand them even further, you can work on creating a psychographic profile.
You need to create a marketing strategy that will show how you will communicate with your target audience and get them interested in your product or service. Indicate which channels you would use for marketing, e.g., print media, social media, etc.
In your sales strategy, include details of how you will get your customers to buy from you after you’ve peaked their interest and got their attention. Also include your product or service pricing (which you should have and be confident on based on your financial analysis you did earlier).
4. Source for startup funding
The next step is to get funding for your business. But first, you need to determine how much funding your business needs.
Identifying expenses like market research, utilities, salaries, office space, insurance, and production and distribution of materials will help you calculate your startup cost.
Once you know how much you need, you can source for funds through:
- Seed financing: This involves getting money from private investors which can include your family and friends.
- Small business loans: These are loans from banks or money lenders. If you need help figuring which lender to approach, reach out to the Small Business Association.
- Crowdfunding: With crowdfunding, you get your startup funds from fans or potential customers. You can pitch your business idea on online crowdfunding sites for businesses.
- Venture capital: A venture capitalist will give you your startup capital in exchange for equity. These investors usually want some level of control over your business. For example, getting a seat on your company’s board of directors. Think Shark Tank.
- Bootstrapping: This involves getting your funds from your personal savings. Lots of small business owners get their funds through bootstrapping. This is how I did it. I prefer it this way because I didn’t have any added stress of reporting to investors or shareholders etc – it was a much simpler and freer method. But my startup costs were minimal, so it was an easy option. Some small businesses need more capital to start and bootstrapping is a riskier option or maybe even not an option at all.
5. Register your business
With your funds ready, you have to get your business registered with the Internal Revenue Service (IRS) and the government.
Here is what you should do:
a. Register your business name
You should register your business name with both local and state governments. For more information, check your state’s regulations.
Some businesses also register with the federal government. Doing this will help get tax exemptions or trademark protection for your business.
b. Get your tax registration
The next step is to visit the IRS website for your tax registration. You need to:
- Apply for an Employer Identification Number (EIN). This is kind of like an SSN for your business in that you can use on forms and applications instead of your own personal SSN.
- Study the tax requirements for your business structure – research and take note whether there are different requirements for federal, state, county.
- Pick a tax year (a 12-month period for keeping business records of income and expenses).
- Pay the dues allocated to your business structure.
c. Get your business licenses and permits
Do you need a business license? Seems like a simple question, but finding the answer can be a little complicated unless you know where to look. The SBA and your local government websites will have the answers to this question. When in doubt, contact your local small business support groups and they can help guide you.
Small businesses apply for and get their licenses and permits from state agencies. Visit your state’s website to find out which licenses and permits your business needs.
However, businesses in specific industries like agriculture, firearms, alcohol, broadcasting, aviation, etc., have to register with the federal government.
d. Open a business bank account
Instead of using your personal account, open a business account(s). You need to get a:
- checking account: aim for an interest earning account if possible – lots of banks now offer these and you don’t have to pay fees
- savings account
- credit card account: Capital One Spark is a good one that earns points and cash back on all your purchases
- merchant services account – merchant services process payments – Stripe, Square, Paypal are examples of reliable, well known payment processors.
6. Purchase an insurance policy
You need to get your business insured. You can get:
- Professional Liability Insurance (protection against claims of negligence).
- Property Insurance (protects your inventory and equipment when damage is made by a storm or fire).
- Product Liability Insurance (protection from lawsuits due to damages caused by your products).
- Business Interruption Insurance (prevents income loss from events that interrupt the natural course of business).
- Vehicle Insurance (protection for when your vehicles get involved in accidents).
7. Get your team ready
You have to determine which roles need to be filled for the smooth running of your business. Defining roles and responsibilities, division of labour, how your team will work together, how they will give feedback, etc., helps to create a healthy working environment for your employees.
This part was most likely outlined in your business plan, but now is the time to expand upon it and get detailed. As a small business owner, you might initially start without employees or with a team of two or three.
Helpful tip: As you start working, track your time spent on tasks. Once a week, review it and assess where most of your time was spent and where you should focus more in the upcoming week. This will help you keep a balance in your business… and your insanity. While doing this, make note of the tasks you dread and start a list for outsourcing. Once you have a few tasks on the outsourcing list, you can hire someone to help!
8. Choose the right vendors
You need to choose vendors for your business. You have to decide who will be your suppliers, subcontractors, third-party service providers, and so on.
Make sure your vendors are experienced in serving businesses in your industry and they are people you can trust. Getting customer feedback from their existing clients can help you determine if you should work with them. Another good source is your network – look tot hem for referrals.
9. Brand your business and advertise your product or service
Now that you have taken care of the basics, it is time to build your brand and advertise. Building a brand is a small note in this list, but it is a huge task. Take care to define your brand identity and guidelines.
Get a logo and a website for your business, create social media accounts, open an email address, hand out business cards and flyers, etc. Once you are done with these, begin to communicate with your customers through these platforms.
This is the time to implement the marketing and sales strategies you included in your business plan.
10. Launch your business
Finally, you are ready to launch your business. Yay!!
If you need more guidance, you can join a business support group or a trade association. Better still, contact us at Evergreen Design Studio.
After launch, make sure that your marketing and sales campaigns yield profits. Also, create a plan that will ensure the continuous improvement of your products, services, and processes. This is another small note on this how-to guide, but it’s huge! Doing this will ensure the growth and success of your business.
How to Start a Business: The Easy and Cost-Effective Way
The process of starting a business can be strenuous and overwhelming, but it doesn’t have to be that way for you.
We at Evergreen Design Studio can take the stress out of the process. We will guide you on what to do, when to do it, and how to do it the easiest way possible. We will also be by your side throughout the journey until you launch your business.
If you are truly serious about starting your business, click here now to hire Evergreen Design Studio to guide you on starting your small business.
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