You know you want to start a business, but you have no idea how to get started.
Going from initial idea to full-fledged business is a lengthy process. At first, you want to do enough brainstorming and research to make sure you’ve landed on the right business idea. After you’ve locked in the idea, you need to start developing a plan for everything from your financials to your marketing and sales to your management and operations. You’ll also have some legal hoops to jump through, including registering your business and securing licenses and permits.
That’s the easy part! Once you’re ready to go, you’ll need to secure funding to cover your startup costs and build up the capital and inventory you need to open the doors and, eventually, start turning a profit.
The startling truth is that about 50% of all new businesses fail. The reasons for their failure vary, whether it’s offering a product with no market need, lacking capital, not having the right team, or not being able to compete. All of these reasons come down to one thing, though— a failure to adequately prepare before jumping in headfirst.
All of this isn’t to scare you away but rather to emphasize that getting answers to your questions now will help you keep things running smoothly in the long-run. With proper planning, new business owners can make sure that there’s a need for their idea, the funding to get it off the ground, the right talent to propel it forward, and the resources to compete with other companies.
Whether you already have a business plan or don’t even know what kind of business you want to start, here are answers to the most commonly asked questions about starting a business.
Before asking yourself what kind of business to start, you should ask yourself what you’re passionate about. As a business owner, you’re going to have to dedicate an immense amount of energy and time to get your business off the ground, so it should be something you care about.
After that, identify which of your interests can be transformed into a product or service that’s needed. You want to operate at the intersection of passion and demand. To get your gears turning, here are some common industries for small business:
According to Entrepreneur, franchises have a higher rate of success thanks to brand recognition and proven demand. If you want a higher degree of security, buying a franchise might be right for you.
However, with a franchise, you have to pay the owner fees and royalties that eat into your profits, and you don’t get much freedom or flexibility when it comes to the direction and growth of your business. If you value flexibility and innovation, you might prefer to start your own business.
The most important step to take before going all-in on your new business idea is to make sure there’s a market for the product or service you want to offer. You can do market research on your own, but it’s a good idea to at least meet with a consultant. Research your industry, your target market, your competition, and your geographic area if your business is tied to a physical location. Use this information to develop an informed idea regarding the viability of your business idea.
Another method for gauging the viability of your business idea is to look at why other businesses fail. Machine intelligence platform CB Insights analyzed startup data to come up with the top reasons new businesses fail, and the conclusion was clear—almost half of startups failed because there was no market need for their product or service.
The other 2 biggest reasons for startup failure included running out of cash and not assembling the right team, followed by less common reasons like being outcompeted, pricing and cost issues, having a user un-friendly product, or lacking a business model.
Many people nowadays start their businesses with the goal of being able to work from home. While the internet makes this scenario a lot easier to achieve, lacking a physical presence can make it challenging to grow your business and get the word out there.
If you want to run your business from home, you must be comfortable using technology and working from behind a computer. You should also learn the basics of skills like digital marketing and web design. Unless you’re an expert, you’ll want to outsource those tasks, as they’ll be critical to your business’s success.
Once you’ve got an idea or two that you think will make for a good business, it’s wise to seek counsel regarding issues like profitability, setup, and funding. Consider speaking with a business consultant or business coach as well as small business owners in your community.
The US Small Business Administration works with local partners to provide you with mentorship as you start and grow your business, so use them to search for local assistance in your area. There is also a plethora of resources for female business owners and programs for boosting minority business owners.
While you should get clear on your business idea before taking the time to create a business plan, you will need one eventually. Business plans help you develop your business idea further, as well as identify any potential issues and tweak your plan before putting it into motion. They’re also a necessary tool for communicating with other people, such as investors, lenders, partners, or employees, why they should jump on board.
Find a detailed guide to creating a business plan that you can follow. Most business plans include the following 7 parts.
Essentially, you will need to define your business and its goals, do a market analysis, investigate your competitors, detail your business financials and come up with financial projections, and explain exactly how you plan to achieve your business goals.
The key to choosing an effective business name is to pick a name that’s both simple and unique. Names that are long and complicated can be easily forgotten and difficult to spell, making it hard for your business to gain traction by word-of-mouth and via the internet.
On the other hand, you want a name that’s memorable, catchy, and conveys your business’s unique brand identity. Above all, you want to avoid using a name that’s already taken. Search the internet for your business name, do a trademark search at USPTO.gov, and look up the .com domain name, as you’ll want to buy that. You’ll also want to register your business name once you’ve selected one.
You’ll need to decide how to structure your business, and the most common options are sole proprietorship, partnership, LLC, C corporation, and S corporation. The structure that’s right for you will depend on your business’s size and ownership, and the structure you choose will determine how you’re taxed. Read up on the different business structures and decide which one is the best fit.
Unless you’re operating as a sole proprietor and your business name is the same as your legal name, you’ll likely want to register your small business.
The process for registering your business will depend on the business structure you chose, but generally speaking, you’ll need to register with state agencies. Most states require you to update your registration every so often. You may also want to apply for licenses and permits depending on your business type and location.
You should open a business bank account as early as possible if you’re starting a business. For both legal reasons and accounting purposes, you’ll want to keep your business finances separate from your personal finances. This separation protects your personal finances from your business’s liability, and it also makes doing your taxes and analyzing your business revenue easier.
The best way to keep your business finances separate is to open a business bank account and use it for all of your business transactions. This approach also makes you look more professional and helps you build a business banking relationship.
You don’t need a business credit card, but they can be useful. Not only does a business credit card help you build business credit, but the best business credit cards offer lucrative rewards for all the money you’re spending on your business.
Business credit cards can also be useful for covering short-term cash shortages. If you need a little extra cash to make an important purchase, your business credit card is faster than a loan. It’s also likely more expensive, though, as credit card interest rates are high. For this reason, it’s important to pay off your balance in full each billing cycle if you can.
Apart from keeping your business finances separate, you’ll also want a good accounting app that can help you track and organize your business finances, send out invoices, and help you do your taxes. Look for an app that allows you to connect your business bank account, offers customized invoices, and provides a tax estimator. Most accounting apps come with a free or low-cost basic plan and allow you to upgrade to more robust plans as needed.
The key to setting business goals is knowing which metrics to value and pay attention to. You’ll want to create a list of KPIs, or key performance indicators, and set goals in relation to those. These metrics should be crucial to your business’s success and easy to measure and quantify.
Common KPIs include profit margins, revenue growth, revenue concentration, and working capital. These can also be more specific to your business, such as the number of new contracts per quarter or average event attendance numbers. Make sure to set deadlines for your KPIs, which can include monthly, quarterly, and annual goals.
By choosing a few KPIs, you’ll be able to set business goals that are relevant, specific, and easy to measure. You’ll also be able to share these goals with your team and have them track their individual progress accordingly.
The Small Business Administration offers a tool to help you calculate your startup costs, which will include everything from rent, inventory, and equipment to permits, employee salaries, advertising, and website costs.
Your exact startup cost will depend on the size and type of business you want to start. For example, the typical cost of starting up a microbusiness is $3,000, and most people who start home-based businesses need around $2,000 to $5,000. However, if you want to open a restaurant, retail store, or something similar, you’ll likely need significantly more money to get started.
While some entrepreneurs prefer to self-fund, you don’t always have to have the cash in hand to start your business. There are plenty of ways to secure funding that will cover your startup costs or the ongoing costs of running your business until it’s profitable. Common methods for funding small businesses include the following.
Each funding method has its own pros and cons. For example, bootstrapping can leave you with less capital but more freedom, whereas bringing in investors provides access to a big capital boost but means losing some equity.
Small business loans can be a good funding option for business owners who don’t want to give up control of their business but want immediate access to more capital. You’ll want to figure out which small business loans you qualify for and what the application requirements are for each one.
You’ll need good credit, and some lenders will check both your personal credit and your business credit score. Many lenders will also want to see that you’ve already been in business for at least a year and are generating at least $50,000 or $100,000 in revenue, although there are exceptions. You’ll need to provide business and personal tax returns, bank statements, and other legal documents to apply. Most importantly, you need to make sure you can repay your loan on time before borrowing any money.
If you’ve decided you want to raise money for your business, the first step is finding investors. There are online fundraising platforms, like AngelList and StartEngine, that make it easy for business owners to connect with potential investors. You’ll also want to get out in the real world to get noticed. Startup events and conferences are great places to do this, as are startup accelerators.
Finally, don’t underestimate the power of your community. Ask around, and maybe someone will be interested in investing in a local business. You can also start a crowdfunding campaign on websites like Kickstarter, Indiegogo, and Patreon.
It can take anywhere from 6 months to 2 or 3 years for your business to start regularly turning a profit. Most business owners should plan for at least 1 year without a profit, although franchise owners will likely generate profit more quickly.
It’s important to consider this starting stage when creating your business plan and deciding how much money you need to start your business and whether you want to resort to funding options such as loans and investors.