Starting your own small business is a big, scary step into the unknown, but just by considering the option, you’re one step ahead. You’ve never done this before, you’re a little bit terrified, and everyone around you probably assumes that you’re crazy. Welcome to the club!
How to Start a Business in 6 Steps
- Find a Business Idea
- Write a Business Plan
- Register the Business
- Obtain Funding
- Assemble Your Team
- Learn How to Manage Your Finances
Step 1. Find The Perfect Business Idea
When first starting out in business, you’ll fall into one of two categories. You might be a reluctant entrepreneur—you’ve stumbled on an amazing business idea, but are unsure about the process of launching a new business. If that’s you, skip ahead to the market research section. Even if you think you have an excellent business idea, you need to do adequate market research to make sure your target audience feels the same way.
On the flip side, you might be have the ambitious, independent, adventurous vibe of an entrepreneur. You might be itching to get out of your day job, but have no idea what kind of small business to start. Businesses vary across many variables, and it’s important to think outside the box. For instance, a home-based business or buying an existing business could be the perfect way for you to become an entrepreneur. Asking yourself a few primer questions will get your creativity flowing until you land on theperfect idea.
What Skills Do You Have?
Figuring out how to start a small business is a steep enough learning curve without also having to gain skills for a new trade. Lenders and investors also are more likely to fund a business if you have a solid track record in the industry. So instead of reinventing the wheel with a business in a totally foreign industry, start with—what do you already know how to do?
Your answer might involve a hobby or passion, skills from a previous job, your college major, or a particular natural talent. It might be the case that your business combines knowledge from multiple areas, and you and your business partners bring complementary skill sets to the table.
What Resources Are At Your Disposal?
Do you already have a garage full of lawn equipment? Maybe you should start a landscaping company! Did you inherit a business, warehouse, or other commercial space? What kind of business opportunity might that offer? Or if you have access to a wealth of contacts that could form your customer base in a particular field, that could also be a great lead toward a new business idea.
Starting your own small business will likely require significant investment in resources to be successful. Figuring out what you already have available can help you find a business opportunity with minimum expenses and maximum profitability.
What Need Could You Fill?
As you look around your own little corner of the universe, what product, service, or convenience do you see as missing? What consumer or business need is still left to be filled? Many of the most successful business ideas come from identifying a problem and then inventing the solution. So be the customer, then build the business you wish were already available!
Remember, you don’t always have to be the first entrant in a particular industry. You can successfully break into an industry with existing players, as long as you do something better or different than they’re doing. For example, the ridesharing giant Uber actually launched after its biggest competitor Lyft. But by automating more of the ride hailing process, Uber captured the biggest market share.
If the questions above didn’t spark a particular burst of creative genius, take a lead from some of these top business ideas or get inspired by one of the currently most profitable businesses or highest growth industries.
Test Your Idea With Adequate Market Research
After you develop what seems like a strong business idea, it’s time to do some market research and see what actual customers think. Much of the market research stage involves getting information about who your customers are and what they want or need. You can use a combination of focus groups, online surveys, and phone campaigns to evaluate your buyers. You can also run online ads or content and see what level of engagement they command.
In addition to talking directly with customers, it’s also vital to understand industry trends, economic data, and market statistics and how these might impact your business idea. The findings from your market research will end up in your business plan.
Step 2. Write a Business Plan
Whichever business idea you decide to pursue, every successful small business starts with a strong business plan.
Taking the time to sit down and write out a business plan is easily one of the smartest, most important steps you’ll take in launching your business. Studies have shown that businesses with plans grow 30% faster than businesses without plans.
Of course, when you’re feeling that entrepreneurial vibe, have landed on that one best idea, and are ready to hit the ground running, nothing sounds less fun than slowing down all that momentum to sit down and write a thesis. Spreadsheets? Pie charts? Statistical analysis? No thanks!
But, the good news is that bar graphs and complex output aren’t about writing a business plan at all. In fact, in today’s business environment, long 40-page business plans are a relic of the past. The best plans are substantial enough to convey essential information that a lender, investor, or prospective business partner would need to know, and no longer than that. There are plenty of resources online that can show you what to include in your business plan and how to make it look professional.
At its core, writing a business plan is about thinking through and answering really hard questions about your small business—questions that, when considered, will force you to contemplate the purpose of your business, the market you serve, and challenges you might not have otherwise have thought of. When done right, the process of writing your business plan will lead you to refine your initial idea into something much more resilient and clear, and ultimately more successful than it would have otherwise been.
Step 3. Register Your Business
Now that you’ve done the big picture planning, it’s time to get down to some of the finer details. When you’re first starting out, you’ll face more paperwork and legal hoops to jump through than at any other point in your business.
This part is no fun, but persevere! Taking the time to properly establish your new business from the beginning will save you a lot of headache (and potentially even greater consequences) down the line.
Here are the main steps you’ll need to take to get your business legally established with the proper federal, state, and local authorities.
Get a Business License
Many localities and states require new businesses to get a permit or license before they can start operating. In some communities, there’s a generic business license for every type of business. In other areas, certain highly regulated businesses, such as child care centers and food service businesses, need to apply for special permits. Don’t skip this step—you should be absolutely certain that you are legally starting your new business.
Register Your Business Name
If you plan to use a trade name for your business, file your fictitious business name, also known as a “doing business as” name, with your state’s agency. In most cases, only sole proprietorships and partnerships need DBAs. But, LLCs and corporations can also use DBAs to operate multiple businesses without having to create separate legal entities for each. Even if you decide to change your legal structure down the line, filing your DBA early will keep you from losing your clever name idea to a fellow entrepreneur.
Choose Your Legal Structure
When you’re ready, the next “official” task on your new business to-do list is to decide on a business entity structure for business. The structure you choose will impact how you file state and federal business taxes, the roles of different team members, and how you can be held liable in the event that a customer or other stakeholder files a legal claim against your business.
Because of the long-term and potentially weighty impact of your chosen business structure, it’s a good idea to consult a business attorney to help you make this choice.
Step 4. Obtain Funding for Your Small Business
At some point in the financial trajectory of your business, you might find yourself wondering how to finance a business—either to deal with short-term cash flow challenges or to fund the growth of your business. There are some businesses which are completely bootstrapped by profits, but that isn’t the norm. Most business owners must obtain business loans or other external funding.
Entrepreneurs choose to finance their businesses in any variety of ways. Maybe you’ll reach out to friends and family, pursue debt financing in the form of a business loan, or even work with an investor. Below, we’ll review the basics of various financing options you may want to consider.
Small Business Loans
One of the most common ways small business owners access financing is by borrowing funds from a bank or alternative lender. The growth of the alternative lending market has brought about a wide variety of loan products to meet the needs of entrepreneurs, each with different costs, payment structures, and application processes.
If you think you may eventually need a loan to fund your business goals, read up on how to get a loan to start a business, and take a moment to review this quick breakdown of the most common loan types sought by small business owners.
Step 5. Assemble Your Team
A small business is really only as effective as its people. When a business is small, it is very clear who can help take the business to the next level and who isn’t pulling their weight. To have a successful small business, you don’t necessarily need to hire W2 employees. Your team might consist of freelancers, virtual assistants, consultants, and contractors. Any driven person or business who delivers on your company’s mission is part of your core team. This includes your accountant, attorney, key investors, and business mentors.
If you hire employees or contractors, devote a good chunk of time to creating job descriptions and interviewing. Job descriptions only go so far at a startup, so use interviews to get a sense of people’s attitudes and their level of comfort with uncertainty. If a person has a proven history of using initiative to get results, then they are probably a good fit.
At the beginning, most business owners don’t have the budget for a full-scale HR team. If possible, hiring even one HR staff member early on can save you a lot of time and legal headaches. Hiring is an area that’s fraught with regulation. You want to ensure that you have an equitable, fair hiring process that’s open to all qualified candidates. If you can’t hire HR staff in-house, consider working with a professional employer organization or staffing agency. They can help you with hiring as well as other HR issues, such as benefits administration.
Step 6. Learn How to Manage Your Finances
Most small business owners are not finance or management experts. They have a great business idea and a lot of drive, but don’t know much about or don’t care to know much about the dollars and cents of running a business.
If the idea of managing finances for your small business is giving you heart palpitations, don’t panic! There are some core financial concepts that you should understand, even if you’ll be hiring an accountant or tax professional, but they are not as complicated as they seem.