Benefits of starting a business
You may want to start your own business for many reasons. Some of the most common reasons entrepreneurs start businesses include:
- To be in control: When you own your own business, you decide the products or services you offer, create systems you think work best and hire the team members you want to support the growth of the business. You’re in complete control of what you do and how you do it.
- To enjoy flexibility: Owning your own business can give you the flexibility to set your own schedule and build a business around your ideal lifestyle. This can be particularly beneficial for people who want to ensure they have the work/life balance to spend more time with friends and family. People who enjoy traveling could build an online business that allows them to operate from anywhere.
- To build something they love: Starting a business allows you to make money off of your interests and skills. Whether you love cooking or helping people get fit, you can start a business that turns your interests into income.
- To help people: Whether your goal is to create a business that helps others directly or provides jobs for others in your community, many small business owners cite the ability to help people as one of the primary benefits of starting a business.
- To change the world: Many entrepreneurs want to create something that improves the lives of others in some way.
- To earn a higher income: Since you can set your own prices, you could potentially earn more as a small business owner than you would if you did the same work for someone else’s business.
Putting together a business plan
The first step to start your business is to plan. To ensure you think through every step of your business, consider putting together a business plan. Your business plan may include the following:
The executive summary summarizes your entire business plan and what you’ll offer. It describes your business, the problem(s) your business solves and financial highlights.
Give information about the problem that your product or service addresses and who your target audience is. Provide an overview of your industry, major competitors, trends and estimated sales. You might also want to address your experience, or the expertise that your team has, that could give your business a competitive advantage.
Within this section, consider outlining a quantitative and qualitative assessment of the market. During your analysis, identify your best potential customers, their demographics and their geographic location(s). You should also examine if their needs are currently being met and how. The purpose of this section of your business plan is to ensure you thoroughly understand your audience. With this information, you can make educated predictions about what their buying patterns will be and craft more effective marketing strategies.
In this section, examine who your direct and indirect competitors will be in the market. Determine whether there are any key factors that give those companies a competitive advantage and what you could do to differentiate your own company. During the competitive analysis stage, identify potential obstacles and outline what steps you should take to overcome them.
Sales and marketing plan
In the sales and marketing section, explain your pricing plan, sales strategy and promotional activities. Outline your business’s unique selling proposition (USP), which can help convince customers to buy your product or service. You might also want to include what steps you’ll take to bring your product or service to market.
Ownership and management plan
This section provides an overview of your management resources, including your internal and external management resources and HR needs. Consider including brief biographies of each key person involved in running your business and the benefits that each one brings, including relevant experiences. Note their key responsibilities within your company as well.
The operating plan section is typically where you explain your goals, objectives, procedures and timeline for the business. Detail the staff members or departments in charge of completing specific tasks, a description of each department’s responsibilities, information about where daily operations will take place, deadlines for when goals and tasks will be completed and the amount of money each department needs to successfully complete their tasks.
This section is crucial if you’re pursuing funding because it determines whether your business idea is viable. Provide your income statement, balance sheet and cash flow projection. If you’re a startup, you likely won’t have previous financial information for the company, so potential investors may want to see your personal financial information instead of your business financials.
Appendices and exhibits
The end of your business plan typically includes any information that lends credibility to the business, such as product photos, credit histories, market studies, resumes, marketing materials, intellectual property rights and other legal agreements.
How to plan your finances
Every new business has its own financing needs. It’s generally a good idea to have at least six months’ worth of fixed costs available prior to startup. Think through expenses prior to launching so you don’t accidentally underestimate your expenses. Here are some basic steps you can take to plan your finances:
1. Identify startup expenses
Most businesses fall into the category of brick-and-mortar, service provider or online business, and your startup expenses will vary depending on which category you fall into. Some common types of startup costs include:
- Office space
- Licenses and permits
- Advertising and marketing
- Equipment and supplies
- Website building
- Employee salaries
- Legal fees
- Consultant fees
- Printed marketing materials
2. Estimate your startup costs
Once you have a full list of all your startup costs, estimate how much you think they’ll cost. Some of your startup expenses may have well-defined costs, such as pricing published online, while you may have to estimate others, like utilities. Consider finding a mentor who can help you estimate what you should expect to pay for some of these startup expenses.
3. Add up your expenses
After estimating the cost of your startup expenses, organize them by monthly expenses or one-time fees to get a complete understanding of what your first six months of expenses will be. Differentiate between essential and optional costs. If you have any optional costs on your list, consider waiting until you have additional cash reserves before making those purchases.
4. Project cash flow
Calculate your cash flow by adding up your fixed costs, the estimated cost of goods and the best- and worst-case scenarios for revenue. If you borrow money to start your business, include the interest you’ll owe. By calculating these costs, you can see the amount of revenue you need to keep the business afloat and fully understand how much cash you need to launch the business.
5. Figure out financing
When you have a general idea of what it will take to fund your business, decide whether you want to look for funding or try to start with as little capital as necessary. If you’re looking for funding, consider:
- Angel investors
- Small business loans
- Small business grants
Regardless of which route you choose, the goal should be to create a plan for setting up the capital you need to successfully get your business up and running.
How to register the business
After selecting a name for your business and confirming that it isn’t trademarked or being used by another company, you may need to register your business. For the majority of small businesses, the process of registering your business simply means registering the name with local and state governments. If you intend to trademark your business name, you need to file with the United States Patent and Trademark office after forming the business. If you are establishing an S-corp or non-profit organization, you’ll need to register your business with the IRS.
Setting up your business location
Regardless of whether you have an online business or a brick-and-mortar, setting up your place of business is an important step in starting a new business. Carefully consider whether the location works for the type of business you’re launching. Some factors you should consider before making any decisions are:
- Overall setup
If the type of business you’re starting involves customers physically visiting your place of business, then location is crucial. You should also evaluate whether it makes more sense to lease or purchase a space.
Considerations for hiring employees
If you need employees to help you run the business, consider starting the hiring process right away. If you don’t need regular help, you may want to consider hiring independent contractors to help you with specific tasks, such as building a website or setting up advertising campaigns. If you want to hire employees for full- or part-time work, consider the following best practices:
1. Obtain an Employer Identification Number (EIN)
If you operate your business as a partnership or corporation, you may already have an EIN. Each state has a different registration process, so if you don’t already have one, check your state’s labor department for more information.
2. Set up records for withholding taxes
Next, complete paperwork for paying three different types of withholding taxes: federal income tax withholding, state taxes and federal wage and tax statements. According to the IRS, you should retain your tax records for six years or longer to support employment tax filings.
3. Create your job listing
To start finding the right candidates, think about the specific responsibilities you want each person to have now and in the future. Consider writing a job description that includes the specific skills, key experiences or specific educational requirements you’d like candidates to have. Consider including a statement at the bottom that identifies your business as an Equal Opportunity Employer.
4. Conduct interviews
Even if you find a candidate you love during the first interview, make sure you interview at least a few candidates because interviewing multiple candidates gives you a better chance to find the best employee. Your first candidate may also have multiple offers and may not accept your offer, in which case you should have back-up options. Prior to the interviews, think through questions you want to ask candidates related to their work history and education. Come up with behavioral questions you could ask that help you understand their approach to problem-solving and other soft skills necessary for the job.
5. Run a background check
It’s typically a good idea to run a background check on new hires to keep your business, other employees and customers safe. Because states can restrict the types of criminal history inquiries you can pull, consider using a third-party agency to conduct the check.
6. Confirm employment eligibility
Employers are typically responsible for confirming that all employees are legally allowed to work in the U.S. To protect yourself, have new employees complete an I-9 form.
How to set rates and choose a business model
There are five factors you should have in mind as you’re choosing the right business model for your new business:
- The customer: The business model you choose should add the greatest amount of value to your customers and put their needs first.
- Your value proposition: Your business model should capitalize on your value proposition. You should be able to explain why the market will choose your idea over another, how it’ll benefit your customers and how it’ll increase your profits.
- The market: Look for new markets where there’s little competition and the target audience is willing to try new businesses. If you have to enter markets where there are competitors already, segment the market as much as possible and use freebies to attract customers.
- Your scalability: The business model you select should be able to handle increasing demands in a way that the profit margin improves when the sales volume increases.
- Any costs: Research the market to learn what competitors are charging to understand what a fair market price is for what you’re selling.
In general, there are four basic business models you can choose from:
- Product or service: Your business can make or sell its own products.
- Reseller: Resellers find products and profit from the price difference between the cost to acquire the product and their selling price.
- Broker: A broker brings the buyer and seller together. For example, you could have an online marketplace where you facilitate and provide security for the online transactions.
- Aggregator: An aggregator creates a community and charges for access.
Best ways to market the business
Some strategies you may want to consider for marketing your business include:
- Promoting on social media: According to the Pew Research Center, seven out of 10 Americans use social media to connect with one another and share information. Consider promoting your products or services on the platform where your ideal audience spends most of their time.
- Running a contest: Giving away gifts can build brand awareness and connect you with new customers.
- Launching a PR campaign: Try getting free media attention by doing something for the community or sponsoring an event.
- Partnering with complementary businesses: Look for opportunities to partner with complimentary businesses. For example, a complimentary business could promote your product or service to its email list in exchange for a percentage of every sale.