Congratulations on making the decision to start a business!
Entrepreneurship can be fascinating and gratifying, especially if everything you've put into your business idea pays off and results in success.
Starting a new business is no easy task. There are many steps involved and they all need to be taken in order for the company to succeed. This article will walk you through the process of starting a business, from choosing the right name, opening a bank account and forming an LLC (limited liability corporation).
When preparing to start your own company, there are factors to consider during the start-up period . Following are some steps that may help you in making informed decisions when launching a new venture:
1. Develop a Business Idea
Coming up with a business idea is often the impetus for starting a successful business. Your big idea can be a physical product or services offered online with an online store that is completely unique. Or your big idea can simply be a variation of a small business or big business that currently exists.
New Idea vs. Proven Idea
Many would-be entrepreneurs get caught up in the belief that they must start from the ground up and develop a completely unique product, new business model and new services online from the bottom up.
They discover later that many famous goods and services are simply variations of previously successful products, services or business models in the same market category or marketed in an unexpected market sector.
Ideas developed on-the-Job
Often small business ideas learned through operating a side business can blossom into big companies. Potential customers and markets often present themselves whilst working as a sole proprietor or a gig worker. Existing business relationships can become early customers of your own new business.
From Rags to Riches
If your mind is adept and creative, there is no such thing as a dead end job or dead end gig since you can use your experiences to spot inefficiencies, develop better methods and then start your own business.
There are many successful entrepreneurs who started off in menial labor intensive jobs and discovered inefficiencies and new market opportunities whilst doing these jobs.
These entrepreneurs were able to scale their businesses successfully because they had worked the menial jobs and knew what was required to become successful in the industry.
2. Perform Market Research
Many business owners conduct market research to help them decide whether or how to start a successful business. Validating your big idea is often seen as a crucial step in building a business model and creating the appropriate business structure.
Thorough market research will play an important part in the vetting process, and it may reveal whether your own business has a high likelihood of becoming a successful business.
Informal and formal Focus Groups
Holding focus groups within your target market segment will reveal the pain points and generate small business ideas. The findings of your market research for your business idea should be used to build the income projections in your business plan.
Often people fall in love with their business ideas and do not see flaws. Gathering a bunch of prospective customers together and getting their feedback on your big idea can help you crystalize the concept and determine which solutions are vital and which are merely nice-to-have.
The market study will assist you in understanding the competitive landscape and your target market. What is the demand for your goods or service? How many potential customers would be interested in purchasing?
As you're developing your business plan, try to figure out what problem your product or service solves and which segments of the population your business serves.
Will you reach this segment through an online store also known as an ecommerce store or is your small business best suited for a physical business location where you can interact with customers as a sole proprietorship.
How many competitive products/services currently exist and what are their estimated annual sales? How many total competitors (companies) are you up against and is there room for one more—your business?
Customer base – Where do your customers live? Are they local, national, international or a combination? What percentage of them can your business reach?
Your business location will play a roll if your goods are physical since you will have take into consideration cost for shipping. And don't forget about a commercial driver's license if you plan on using your vehicles for delivery.
Does your customer base purchase from your competitors online? What are online buying trends within your market niche?
If you have a brick and mortar location, you may want to think about employing a web developer to create a website for your company, which means you'll need to work on search engine optimization so that your clients can locate you when they do a Google search for your kind of products or services.
You may also consider opening social media accounts for your business so you can batter interact with customers.
What can you do to make your product or service stand out from the rest?
For for ultimate business success you need to think how to make your business unique through ancillary products or services.
Is there a supplementary product or service that you may include to set yourself apart from the competition? What additional goods or services would be of benefit to your potential consumers?
The business name is very important. Consider whether you want a business name that communicates the products or services your small business trades in (Peet's Coffee) or whether you want a business name that is arbitrary (Starbucks) so that your product or service defines the name.
3. Business plans
Starting a business involves planning. Another essential step to start a business is developing a basic business plan which will include a clear organizational business structure.
Although it might be time-consuming, creating a business plan serves as an excellent basis for your start-up. The plan will include details addressing legal structure, business structure, financial projections, financial planning (how much money is needed to start a business), considerations involving project management teams, operations teams, future expansion plans.
Lean Canvas Business Plan
Traditional business plans can be quite lengthy. There are new methods which can synthesize the essence of a lengthy business plan into a single page.
An example of a one page business plan is the Lean Canvas . It is an exercise in validating the concept. Too many startups make assumptions based on what they want to believe rather than reality.
Even though these elements will surely change as your business grows, they should be thought through in detail, with careful consideration for all parties involved, including your owners, employees, and customers.
Business Plan Uses
Your initial business plan will serve as a guideline or roadmap for your business, and will also help to attract potential angel investors if needed. Commercial lenders and organizations offering small business loans and small business grants often want to see a well thought out business plan.
One of the most crucial things in starting a business is crafting a clear budget for your business as many startups and small business owners give up on starting a business because in the early stages they overshot their budget and don't set aside enough money to pay taxes.
Startup costs, marketing, rent costs for office space, hiring independent contractors, paying taxes, business insurance and general business costs also known as costs of doing business should be taken into consideration when contemplating starting a business.
Many small businesses get started with loans or grants from the small business administration. If you are are starting a business, you may as well take advantage of loans and grants. Many loans and grants are contingent on the business structure.
This is an excellent method to show that you're serious about growing your business. It's usually a good idea to create a scenario for three years and for five years. The end product provides a clear picture of the company's growth expectations and revenue targets.
Whether you own small businesses by yourself as a sole proprietor or have a business partner or even have multiple owners across your small businesses, business structure will dictate how decisions are made and by whom.
A business partner may bring an established business relationship necessary to start a business or expand existing small businesses.
How much revenue can this business partner's business relationship generate is a question to ask yourself. Is it best to have your own business or to include partners. A business starting from scratch may benefit from existing relationships.
You may want to raise capital to promote growth. Negotiating with venture capitalists or applying for a small business loan or a business credit card can be challenging when you need to get the approval from the other business owners.
4. Name Your Business
Choosing a business name is an essential step in how to start a business. When you’re naming your start-up, brainstorm aggressively and go way beyond the practical and obvious name ideas. Get feedback from family, friends, and other trusted people. The right name can be very memorable and powerful—a big advantage when marketing to your target audience.
5. Choose Your Business Entity Type
When you go through the many steps involved in how to start a business, it is important to learn the main differences between the types of business entities.
They all have various strengths and weaknesses, and the best business entity for you will depend on the type of business you’re starting and how you’re going to serve your market.
The main entity types include a sole proprietorship, an LLC (Limited Liability Company), a General Partnership, a C Corporation, an S Corporation, and a Nonprofit Corporation.
You might want to consult with an accountant, lawyer or business advisor to determine the best entity type for your business.
6. Choose a Registered Agent
A registered agent is an individual or business designated to receive legal documents and other correspondence on behalf of your business.
These documents are an important part of how to start a business because they include tax and regulatory notices, and subpoenas—in the case of a lawsuit.
Many states require that lawsuits be served in person, and therefore, having a registered agent is a requirement for every business entity other than a sole proprietorship. You can be your own registered agent, however, most businesses choose to hire a registered agent.
Registered agent services are professional and will save you the time involved in keeping track of important regulatory and tax notices yourself.
Also, the name and address of your business’s registered agent is public record, and most owners want their personal information to remain private—especially if the business is home-based.
7. Form Your Business Entity
Personal liability protection also called the corporate veil is as the name suggests, protection of your personal assets.
This means that the business is a separate entity from the owner. It is very difficult for creditors and litigants to go after assets which are protected by an LLC read What is an LLC?
Business structures in the United States such as Limited Liability Corporations (LLC) are very beneficial to business owners.
The LLC business structure allows business owners to enjoy dual benefits; personal liability protection and the business structure of a corporation without double taxation.
8. Obtain an IRS EIN
The last, but not least important stage in how to start a company is to obtain an IRS EIN (Employer Identification Number), also known as a Federal Tax ID number.
The IRS EIN serves as your business entity's social security number. This number will be used for submitting your company's tax returns, and it allows you to open a business bank account.
An EIN is required for every type of business entity other than a sole proprietorship.
LLCs, C Corporations, S Corporations, and Nonprofit Corporations all need an EIN in order to open a business bank account (which allows you to build your business credit), and to hire employees. Obtaining a business loan and attracting investors, if needed, is much easier if you’ve built a good credit rating for your business over time.
We hope you’ve enjoyed learning the key steps involved in how to start a business. At Business Registration, we are LLC business formation specialists and successful business owners. We are right here in the USA to help you form your business and stay compliant. We love all things business and look forward to helping grow your dreams. Read Start an LLC (link) to begin--leave the filing to us!