It's important to research your industry, find competitors, understand risk and map out your finances before starting your business.
- Understanding the work involved in starting a business is necessary for a successful launch
- The importance of proper planning cannot be understated, as these decisions are core to how your business takes shape
- Making good decisions early in can help ensure continued growth
- This article is for those who are considering starting a new business and want to learn more about what it takes to get it up and running.
Starting a business can be stressful. It often feels like there are 1,000 things to work on all at the same time. There's no avoiding this reality for new small business owners, but with a little planning, it's possible to manage expectations and take actions with a sense of purpose toward building your business.
Beyond giving it your all, it's important to direct your energy to the right tasks – especially at first. Experts say some good first steps in starting a business are researching competitors, assessing the legal aspects of your industry, considering your personal and business finances, getting realistic about the risk involved, understanding timing, and hiring help.
1. Do your research.
You want to make sure you understand the industry you'll be involved in so you can dominate. No matter how unique you might think your business idea is, you should be aware of competitors, said Ian Wright, founder of British Business Energy.
"Just because you have a brilliant idea does not mean other people haven't also had the same idea," said Wright. "If you can't offer something better and/or cheaper than your competitors, you might want to rethink starting a business in that area."
Key takeaway: Assess the market before opening your doors. Understand the industry you wish to enter, as well as its major players and your future competitors.
2. Determine your audience.
Spend time considering who your target demographic is. This audience will be the driving force in each decision you make. Understanding who needs your product or service can help fine-tune your offerings and ensure your marketing and sales strategies are reaching the right people. Part of this decision is understanding if you are a business-to-consumer (B2C) or business-to-business (B2B) enterprise. Within those parameters are multiple categories, including but certainly not limited to age, gender, income and profession. You can't earn a profit without your customers, so understand who they are and make them your priority.
"It is crucial to make sure you are delivering what your customer wants, not what you want," said Sonia Lakhany, attorney at Lakhany Law. "This will give you insight into your customer's buying decision and save you lots of experimenting down the road."
Key takeaway: Know who you're talking to. A defined target market will help you better acquire new and repeat customers.
3. Have a strong mission.
Standing out is no easy feat, and no one magic formula guarantees results. However, knowing your business's purpose is central to guiding these decisions. By recognizing your business's strengths, differences, and purpose, you can make informed choices to expand your services and markets down the line in a way that is harmonious.
Key takeaway: Knowing your purpose guides important decisions you'll make along the way, so be sure that your mission is clearly defined.
4. Choose a structure.
A key initial step to take when starting your business is choosing its legal structure, said business attorney Mason Cole of Cole Sadkin LLC. "It will dictate the taxes, paperwork, liability of the owner(s) [and] other legal aspects, as well as whether or not the company can have employees," he said.
Additionally, you must acquire the proper local and state registration required to open your business.
"This means the entrepreneur will need to create the articles of incorporation, obtain an employer identification number and apply for necessary licenses, which will vary by state and industry," Cole said.
Key takeaway: Call on legal help to best advise you on the structure to take and the necessary paperwork that needs to be filed.
5. Map your finances.
Starting a business requires money that you likely won't have right away. This is why you need to seek out ways to acquire capital.
"Most entrepreneurs start a business with a very limited amount of capital, which is a large hurdle to many," said Cole. "However, there are plenty of options available to a budding business owner. The first and most common place to seek capital is with friends and family. If that is not enough, expand the search to angel investors and venture capitalists. Should these options not provide the amount needed, then apply for business loans through banks and small business associations."
Key takeaway: Make a plan for how you will fund startup costs, whether that's your own funds, asking friends and family for money or borrowing from a financial institution.
6. Understand your tax burden.
Travis Sickle, a certified financial planner at Sickle Hunter Financial Advisors, advises entrepreneurs to be organized with taxes and fees. There are multiple payments to make, and filing any of them late could result in severe consequences.
"You have to figure out how much your payroll is going to be in order to make your tax payments timely," said Sickle. "The timing can vary depending on your payroll. You also have to figure out other business taxes, such as city, county and state."
Key takeaway: Understand when, how and to whom you pay taxes and fees.
7. Understand the risk.
Of course, there will always be a level of risk with launching a new business venture. Calculating, understanding and planning for risk is an important step to take before you start working on your business. This means assessing your industry's risks before moving forward with a business plan.
"Entrepreneurs should know their industry's risks before purchasing business insurance," said Jeff Somers, president of Insureon. "For example, accountants will want to consider professional liability insurance in case a client files a lawsuit, claiming there was a costly error on their tax return. Restaurant owners are more likely to need general liability for slip-and-fall accidents and liquor liability insurance, which can pay for lawsuits."
Key takeaway: Be honest with yourself and business partners about the risk involved, as this can help you prepare by obtaining the right types of insurance that can protect your new business.
8. Put together a business plan.
A business plan outlines the steps you need to take for a successful launch and continued growth. This document is important for establishing a focus for your business, attracting C-level professionals to work for you, and seeking and retaining capital. A business plan ensures you put your best foot forward with other professionals who are evaluating your company, so be sure to have this document on the back burner and ready when requested. [Looking for help putting together a business plan? Check out our recommendations for the best business plan software]
Take the time to put together the main components, including:
- Your mission statement
- A description of your business
- A list of your products or services
- An analysis of the current market and opportunity
- A list of decision-makers in the company, along with their bios
- Your financial plan so those who review can understand the opportunity
Key takeaway: Even if you don't think you need it, put together a professional and polished business plan that's ready to go when it comes time to recruit executives, fundraise or expand.
9. Time it right.
Timing is an important element of building a business. Sure, you want to start your business at a time when the economy is healthy and your prospective industry is expanding, but there's also a flow to decision-making that's important to be aware of. Kevin MacCauley, founder and CEO of Upper Hand, said that it's important to be decisive when you're building a business.
"I wish I understood how detrimental the role of time [can be] in building a business," he said. "You only have so much time to find out if you've made the right business decisions. As I once read, if you're 70% of the way to making a decision, make the decision. If you try to get to 90%, you've waited too long. If I could have had that mindset from day one, I would probably have had fewer sleepless nights when I was going through tough times."
Key takeaway: Launching at the wrong time can make it challenging for your new business to succeed. Take the leap when the timing and circumstances suggest it's right.
10. Look for a mentor or advisor.
Starting a business should not be an independent journey, no matter how tempting that sounds. Finding those who have made this journey before can help set you up for success. Network with other professionals in your industry, attend industry-specific workshops and events, and reach out to thought leaders in your industry to learn their approach. Alternatively, you may want to consider hiring a coach who can give you pointed advice.
Key takeaway: Learn directly from someone else who has gone through the process to help you set up your new business for growth.
11. Bring in the professionals.
It's impossible for entrepreneurs to know everything about running their new venture. Tapping into the experience of seasoned professionals can make sure you're starting on the right foot.
It's especially important to have legal assistance to ensure you are protected and going about the process the right way.
"We often make the assumption that legal counsel is for when we get ourselves into trouble, but preventative and proactive legal preparation can be the very best way to set your business on the path to long-term success," said Katy Blevins, co-founder and CEO of The Modern Femme Movement. "When you call on legal counsel after you've run into a problem, it's often too late or could critically impact your business in both the short and long term. Investing in their insight at the start of your business can pay a huge return later on by keeping you out of trouble before you even get into it."
Another smart hire is an accountant. It's nearly impossible for one person to handle every aspect of a company, and above all, your finances should not be put at risk.
"I had a full-time job as I considered starting my own business in 2009, but I did a lot of groundwork before I started, and bringing on an accountant was an important step," said Sarah Burningham, president and founder of Little Bird Publicity. "It helped me understand what I needed to do to make this work from a profit standpoint, [as well as] the ins and outs of state, federal, and local taxes."
Key takeaway: Bringing on experienced professionals, such as those for legal and accounting advice, can pay huge dividends when it comes to making sure you are operating as best as you can.