Right now, aspiring entrepreneurs all across the country are planning their paths to business ownership. It's a journey that requires a lot of hard work, and many people end up failing. But if your company survives, the rewards of entrepreneurship are well worth the obstacles you'll face on the road to success.
If you think you're ready to start your first business, here's a step-by-step overview of what you need to do to make it happen.
In this article…
1. Brainstorm ideas
2. Build a business plan
3. Assess your finances
4. Determine your legal business structure
5. Register with the government and IRS
6. Purchase an insurance policy
7. Build your team
8. Brand yourself and advertise
9. Grow your business
Every new business starts with an idea. Maybe there's something you're really knowledgeable and passionate about, or perhaps you think you've found a way to fill a gap in the marketplace. Wherever your interests lie, it's almost guaranteed that there's a way to turn it into a business.
Once you've narrowed your list of ideas down to one or two, do a quick search for existing companies in your chosen industry. Learn what the current brand leaders are doing, and figure out how you can do it better. If you think your business can deliver something other companies don't (or deliver the same thing, but faster and cheaper), you've got a solid idea and are ready to create a business plan.
Another option is to open a franchise of an established company. The concept, brand following and business model are already in place; all you need is a good location and the means to fund your operation.
David Silverstein, a global business consultant and CEO of operational strategy consulting firm BMGI, cautioned would-be entrepreneurs against starting a business just for the sake of being a business owner: You need a viable business model, not just an idea, he said.
Build a business plan
Now that you have your idea in place, you need to ask yourself a few important questions: What is the purpose of your business? Who are you selling to? What are your end goals? How will you finance your startup costs? All of these questions can be answered in a well-written business plan.
A business plan helps you figure out where your company is going, how it will overcome any potential difficulties and what you need to sustain it. A full guide to writing your plan can be found here.
Assess your finances
Starting any business has a price, so you need to determine how you're going to cover those costs. Do you have the means to fund your startup, or will you need to borrow money? If you are planning to make your new business your full-time job, it's wise to wait until you have at least some money put away for startup costs and for sustaining yourself in the beginning before you start making a profit.
While many entrepreneurs put their own money into their new companies, it's very possible that you'll need financial assistance. A commercial loan through a bank is a good starting point, although these are often difficult to secure. If you are unable to take out a bank loan, you can apply for a small business loan through the Small Business Administration (SBA) or an alternative lender. [See Related Story: Best Alternative Small Business Loans]
Startups requiring a lot more funding up front may want to consider an investor. Investors usually provide several million dollars or more to a fledgling company, with the expectation that the backers will have a hands-on role in running your business. Alternatively, you could launch an equity crowdfunding campaign to raise smaller amounts of money from multiple backers.
You can learn more about each of these capital sources and more in our guide to startup finance options.
Determine your legal business structure
Before you can register your company, you need to decide what kind of entity it is. Your business structure legally affects everything from how you file your taxes to your personal liability if something goes wrong.
If you own the business entirely by yourself and plan to be responsible for all debts and obligations, you can register for a sole proprietorship. Alternatively, a partnership, as its name implies, means that two or more people are held personally liable as business owners.
If you want to separate your personal liability from your company's liability, you may want to consider forming one of several different types of corporations. This makes a business a separate entity apart from its owners, and therefore, corporations can own property, assume liability, pay taxes, enter into contracts, sue and be sued like any other individual. One of the most common structures for small businesses, however, is the limited liability corporation (LLC). This hybrid structure has the legal protections of a corporation while allowing for the tax benefits of a partnership.
Ultimately, it is up to you to determine which type of entity is best for your current needs and future business goals. More details about the different business structures can be found here.
Register with the government and IRS
To become an officially recognized business entity, you must register with the government. Corporations will need an "articles of incorporation" document, which includes your business name, business purpose, corporate structure, stock details and other information about your company. Otherwise, you will just need to register your business name, which can be your legal name, a fictitious "Doing Business As" name (if you are the sole proprietor), or the name you've come up with for your company. You may also want to take steps to trademark your business name for extra legal protection.
After you register your business, the next step is obtaining an employer identification number (EIN) from the IRS. While this is not required for sole proprietorships with no employees, you may want to apply for one anyway to keep your personal and business taxes separate, or simply to save yourself the trouble later on if you decide to hire someone else. The IRS has provided a checklist to determine whether you will require an EIN to run your business. If you do need an EIN, you can register online for free.
Regardless of whether or not you need an EIN, you will need to file certain forms to fulfill your federal and state income tax obligations. The forms you need are determined by your business structure. A complete list of the forms each type of entity will need can be found on the SBA website. You can also find state-specific tax obligations there. Some businesses may also require federal or state licenses and permits in order to operate. You can use the SBA's database to search for licensing requirements by state and business type.
Purchase an insurance policy
It might slip your mind as something you'll "get around to" eventually, but purchasing the right insurance for your business is an important step that should happen before you officially launch. Dealing with incidents like property damage, theft or even a customer lawsuit can be costly, and you need to be sure that you're properly protected.
Gyawu Mahama, social media and marketing manager at small business insurer Hiscox, said to choose insurance that's tailored to your specific business practices to ensure you're not paying for more coverage than you need.
"As a small business owner, you don't need a once-size-fits-all insurance plan," Mahama said. "Coverage doesn't have to cost a lot. General- and professional-liability insurance coverage for a sole proprietorship can be purchased for a few hundred dollars a year."
If your business will have employees, you will, at minimum, need to purchase workers' compensation and unemployment insurance. You may also need other types of coverage depending on your location and industry, but most small businesses are advised to purchase general liability (GL) insurance, or a business owner's policy. Mahama said GL covers three basic categories: property damage, bodily injury, and personal injury to yourself or a third party.
If your business provides a service, you may also want to considerprofessional liability insurance. It covers you if you do something wrong or neglect to do something you should have done while operating your business, Mahama said.
Mahama advised checking in with your insurance provider throughout the year to keep the provider updated on any changes happening in your business.
Learn more about the types of insurance policies your business might need here.
Build your team
Unless you're planning to be your only employee, you're going to need to hire a great team to get your company off the ground. Joe Zawadzki, CEO and founder of MediaMath, said entrepreneurs need to give the "people" element of their businesses the same attention they give their products.
"Your product is built by people," Zawadski said. "Identifying your founding team, understanding what gaps exist, and [determining] how and when you will address them should be top priority. Figuring out how the team will work together ... is equally important. Defining roles and responsibility, division of labor, how to give feedback, or how to work together when not everyone is in the same room will save you a lot of headaches down the line."
Visit this Business News Daily article for tips on building a great startup team.
Brand yourself and advertise
A great startup idea won't do you any good if people don't know about it. Before you start selling your product or service, you need to build up your brand and get a following of people ready to jump when you open your literal or figurative doors for business.
A company website and social media profiles are practically essential for any small business in today's world. Create a logo that can help people easily identify your brand, and be consistent in using it across all of your platforms. Use social media to spread the word about your new company. You can even use social media as a promotional tool to offer coupons and discounts to followers once you launch. Be sure to also keep these digital assets up to date with relevant, interesting content about your business and industry.
For more information on creating an effective marketing plan for your business, visit our guide here.
Grow your business
Your launch and first sales are only the beginning of your task as an entrepreneur. In order to make a profit and stay afloat, you always need to be growing your business. It's going to take time and effort, but you'll get out of your business what you put into it.
Collaborating with more established brands in your industry is a great way to achieve growth. Reach out to other companies or even influential bloggers and ask for some promotion in exchange for a free product sample or service. Partner with a charity organization and volunteer some of your time or products to get your name out there. In this article, Business News Daily offers some suggestions for rapid growth.
Starting a business can be risky and challenging, but armed with the proper tools and information, you can put yourself on the path to entrepreneurship.
Some source interviews were conducted for a previous version of this article.