Want to start your own business but don’t know what to do: here is an insight into your entrepreneurial journey.
Do you plan on starting your own business but are wondering what does that involve? To help you get clarity on what that would entail, the Small Business Administration (SBA) broke down the process into steps that you should take. The steps are as follows:
STEP 1: CONDUCT MARKET RESEARCH
Market research is an essential first step. It will tell you whether there’s an opportunity to turn your idea into a successful venture. You will need to perform market and competitive analysis.
You will research consumer behavior. You will also use economic data to confirm whether there are consumers out there who potentially would be interested in using your service or buying your products. If you have the time and the budget, you should interview consumers regarding your own product and service. The benefits of doing your own market research are as follows:
Direct market research
Direct market research offers the following:
- It gives you a nuanced understanding of your specific target audience.
- It helps you answer questions about your specific business or customers: where customers might go instead of your business, what are customers’ reactions to your new brand identity, etc.
You may use several methods to collect data: surveys, questionnaires, focus groups, in-depth interviews.
Use of existing source
Instead of doing your own market research, you may use existing sources to validate your business idea. While this would save you time and energy, the information that you get may not be as relevant as you’d like.
STEP 2: WRITE YOUR BUSINESS PLAN
Your business plan is a formal outline of your strategy, how you plan to structure, run, and grow your business. Its preparation may be challenging even if you have good writing skills.
Benefits of preparing a business plan
A business plan is a critical tool for the success of your venture. It helps you in the following ways:
- Evaluate the viability of your business idea and identify potential challenges;
- Plan the amount of time, money, and other resources that you’ll need to get started;
- Demonstrate to marketers evidence of customer interest and a viable market.
- Demonstrate your project’s status, current needs, and expected future.
Business plan format
You should choose a business plan format that meets your needs. However, most business plans fall into one of the following categories: traditional, lean startup, nonprofit.
- Traditional business plans: these are the most common business plans. It will take you longer to write and can be dozens of pages long.
- Lean startup business plans: these are less common business plans. They have the same structure as the traditional business. They’re simply shorter than the traditional business plan.
- Nonprofit business plan: these are plans for organizations that operate for public or social benefit. A nonprofit business plan covers the topics in the traditional business plan plus a description of the social impact that the organization plans to make.
STEP 3 – FUND YOUR BUSINESS
Your business plan helps you determine how much money you need to start your business. The amount of money that you need depends on the industry that you’re in and on the vision for your business. You may get funding from several sources:
Self-funding
You use your own financial resources, friends and family’s financial resources to support your business venture. Even if this is your own money, you should spend it wisely.
Venture capital
You may get funding from venture capital investors (VCs) in exchange for an ownership interest or shares of your company. Some investors may also want to have a say in how the company is run.
Crowdfunding
You get funding by selling ownership interest or shares of your company to many Crowdfunders. Learn more.
Small business loan
You get funding from a bank in the form of a loan. To help your bank determine whether they’re making a smart choice, you should be prepared to provide to them the following documents:
- A copy of your business plan;
- A copy of your most recent financial statements; and
- A copy of your financial projections for the next five years.
It may be challenging to get a bank loan if you just started your business. Banks usually don’t lend money to early-stage businesses.
SBA Loans
The SBA runs several loan programs that may benefit your business.
STEP 4 – PICKUP YOUR BUSINESS LOCATION
Where you decide to locate your business is important. This choice could for instance affect the following:
- Your business registration requirements.
- The licenses and permits that you’ll need.
- Where you file payroll tax, income tax, sales tax, etc.
- Your legal requirements.
To determine where your business should be located, you may consider the following:
- The location of your prospective clients and your business partners;
- The costs and benefits of doing business from that location;
- Government agencies restrictions;
- Easy access and infrastructures, etc.
STEP 5 – CHOOSE A BUSINESS STRUCTURE
The choice of your legal structure must be carefully considered. It determines in particular :
- Your personal liability;
- How your business files taxes;
- Your daily operations.
STEP 6 – CHOOSE YOUR BUSINESS NAME
Your business name should reflect your brand identity and be consistent with the types of goods and services that you offer.
STEP 7 – REGISTER OR INCORPORATE YOUR BUSINESS
You should register or incorporate your business for it to become a separate legal entity. The following are the various ways that you may register your business name.
- Entity name: this should be registered with the state Secretary of state.
- Assumed Name: the state Secretary of state may ask you to register an assumed name if the business name that you chose is not available. The assumed name is also called “doing business as” (DBA). You may also want to register for a DBA if you’re not doing business under a legal entity’s name.
- Trademark: your brand identity may be registered as a trademark. It offers you a nationwide level protection.
- Domain name: this protects your business’ website address.
- Tax registration: if you’d like to become a nonprofit, an S Corporation, you must file an application for registration with the Internal Revenue Service (IRS).
STEP 8 – GET A FEDERAL AND STATE TAX ID
You must apply for a federal tax ID with the IRS. The federal tax ID is also known as Federal employer identification number (FEIN or simply EIN). You’ll need a copy of the EIN confirmation letter and your business registration or incorporation paperwork to open a bank account or apply for business licenses and permits.
You should also prepare and file an application for registration for a state tax ID in the state(s) where you have your office, employees, inventory, etc.
STEP 9 – APPLY FOR LICENSES AND PERMITS
The license(s) that you need to apply for depend(s) on the business you’re in and where your business is located.
Example: you will need to get a federal and state license or permit if your business is regulated by federal and state agencies. Activity that states often require license and permit for include food restaurants, auction, gambling.
STEP 10 – OPEN A BANK ACCOUNT
You need a small business bank account to pay your business expenses such as legal fee, accounting fee, etc.
Small businesses are the backbone of the U.S. economy. There are 33.2 million small businesses in the United States of America, that’s 99.9% of businesses across the U.S. They employ 61.7 million workers, which is 46.4% of all U.S. employees. In the last 25 years, they created 12.9 million net new jobs. Freelancers, independent contractors account for 81% of small businesses in the United States. Small businesses that employ paid workers account for 19% of the total small businesses in the United States including family-owned company management and utilities (50%) and accounting (47%). Gen X accounts for 46% of small business owners versus 41% of Baby boomers.