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So you want to start your own business? You're not alone. Nearly half of all Americans say they want to become entrepreneurs. Running a small business isn't without its challenges, but being your own boss and doing what you love can be incredibly rewarding. If you're thinking of launching a startup, this step-by-step guide will walk you through all you need to know, from coming up with an idea to building your brand.
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. Come up with a list of businesses you could see yourself starting. You could start a home-based business like an event-planning company or child care service, or maybe an Internet business like app development or online tutoring is more your speed. Wherever your interests lie, it's almost guaranteed that there's a way to turn it into a business.
Another option is to start a franchise of an established company. If you choose to go this route, a lot of the legwork has been done for you. 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.
When you're thinking of ideas, you'll also want to consider your business model — the logistics of where you'll be doing business and how you'll make money. This article on Startup Nation outlines a few different types of business models with the pros and cons of each.
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.
Build a business plan
Now that you have your idea in place, there are a few important questions you need to ask yourself. 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, but these are the basic sections you will need to cover:
- What your business is about and how you will accomplish your goals.
- Your extended goals and how you will fill your market's needs.
- Your research on your target market.
- Organization and management of your company.
- Your service or product line, including copyright information and R & D activities.
- Strategies for market penetration and growth.
- Estimated costs and funding request (if you need financial assistance).
If you're feeling a little overwhelmed at the thought of writing your business plan, there are plenty of online resources and sample plans for you to use as a reference. This may seem like a daunting task, but it's a critical step to getting your company off the ground.
Assess your finances
You've determined the approximate amount of money you'll need to get your business off the ground; now you need to figure out 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 your business is one that you can run on the side of a day job, you might be able to cover your initial costs without going into debt. BusinessNewsDaily interviewed Dreamstime.com's business manager and CFO Noelle Federico, who recommends working on your startup part time until you've grown enough to be able to sustain your salaries. For many entrepreneurs, starting a business is a way to break free of their day jobs, so this method may not be an option for everyone. 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 to sustain yourself in the beginning before you start making a profit.
While 80 percent of entrepreneurs put their own money into their new companies, it's very possible that you'll need a little bit (or a lot) of financial assistance depending on the type of business you're starting. A commercial loan through a bank is a good starting point, although these can often be 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). Before determining your eligibility for a loan, the SBA will scrutinize your business plan — yet another reason to make sure yours is thorough and well-written. Smaller loans from family and friends are another good way to make ends meet in the beginning, as long as you eventually pay them back!
Startups requiring a lot more funding up front may want to consider venture capital. This is money, usually in the amount of several million dollars, provided to a fledgling company by a firm or business with the expectation that the backers will have a hands-on role in running your business. Alternatively, you could use an angel investor, a private individual that will provide up to about $1 million for a project.
Using a home equity loan or a small business credit card to finance your startup is a viable solution, but it isn't recommended. A credit card is best used as a means to keep your business on course, or to make big-ticket purchases you wouldn't otherwise be able to afford. Personal finance author Eric Tyson told BusinessNewsDaily in a previous interview that entrepreneurs using credit cards should carefully compare interest rates and financing terms, and strongly advised keeping business and personal cards separate from each other.
You can learn more about each of these capital sources 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. A partnership, as its name implies, means that two or more people are held liable as business owners. A company that will have multiple employees should file as a corporation or a limited liability company (LLC). If you decide to make your business a corporation, you'll need to choose C or S. The main difference between these is the income taxing, with an S corporation owner only being taxed on a personal level. Forbes provides information on eligibility and what the best choice for a small business is. Forming a LLC is a popular option for entrepreneurs because it is taxed like a sole proprietorship but offers the limited liability protection of a corporation. 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 are outlined on the SBA website.
Register with the government and IRS
To become an official recognized business entity, you must register with the government. If you are registering as a corporation, the most important thing you'll need is an articles of incorporation document, which includes your 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 or 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 Internal Revenue Service. 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.
Finally, some businesses may require federal and/or state licenses and permits in order to operate. You can use the SBA's online database to search for licensing requirements by state and business type. For general information on business licensing, refer to our requirements guide.
Brand yourself and advertise
You've written a solid business plan, secured your funding, and jumped through all the legal hoops. You're ready to start doing business, right? Not so fast. A great startup idea won't do you any good if people don't know about it. While there's still a lot of value in word-of-mouth advertising, you're going to need to do more than just tell your social circles that you're starting a business. 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.
When establishing your brand, Startup Nation recommends creating a "Brand DNA" or Essence as the foundation for all your business, marketing and communication decisions. This includes your purpose in the marketplace, what sets you apart from your competitors, the human-like personality traits you want your brand to convey, and the emotional promise you make to your customers or clients.
A Web presence in the form of a company website and social media profiles is 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 digital platforms. Use social media to spread the word about your new company. You can even use it as a promotional tool: for example, you can write on your company's Facebook page that the first 25 people to "Like" it will receive a coupon when you officially launch.
Launch and grow your business
There's nothing quite like the feeling you'll get when you make your first transaction. You may even enjoy immediate success with orders pouring in shortly after you launch. But remember that your task is only just beginning — 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. There are also a lot of great tech tools available to help small businesses reach the next level of growth.
Starting a business can be a risky decision, but armed with the proper tools and information, you can be on your way to entrepreneurship in no time. Visit the Small Business Administration website for more information on these steps, and keep checking BusinessNewsDaily for the latest tips for small business owners.