15 Easy Steps to Starting Your Own Small Business
The title is a little tongue in cheek, because starting a business is never easy. It takes a lot of hard work, commitment, enough capital, and paying attention to details in order to get a business off the ground these days. When I decided to start my custom home planning and drafting business, I tried hard to find a good startup guide that would lay it all out for me in a logical order. I couldn’t find anything in the library that had all the steps clearly listed without a lot of confusing fluff and filler. So, motivated mostly out of frustration, I decided to write one good article on this subject based upon my experience and make it available to others. So far, I think I’ve only just scratched the tip of the iceberg and composed a bare-bones outline at best, but I hope it will accomplish what I intend, which is to help others get pointed in the right direction.
Before you spend one dime on starting any business, talk to a few experts first and decide if entrepreneurship is right for you, especially in the field in which you intend to go. Go to your local library, or do a Google and Yahoo search on your business on the Internet. Be thorough and research every aspect of starting a new business in your chosen classification. This will give you a good basis from which to decide if you want to pursue it. Starting out, there is usually more money going out than coming in, and generally, you work long hours without a steady paycheck. Make sure you include your spouse in this decision. If you both are not passionate about it, and are just seeking a steady paycheck, then think again. The bottom line is that you need to like what you do, and you have to be dedicated and focused, or you will fail.
Evaluate yourself honestly and make a pro-and-con list of business ownership. What do you share in common with successful entrepreneurs? Are your financial reserves large enough to carry you for the first year? Do you have access to capital from banks or investors to carry you through the rough times? Do you possess the technical and management skills necessary to operate the business? Can you handle your customers and your employees? Nobody can cover all the bases, so consider all the ways you will have to compensate for your weaknesses by outsourcing these things to competent subcontractors or employees. Maybe you are a good artist, rather than a sharp business person, so team up with someone who can handle the left-brain things, or visa-versa.
Since I live in the United States, this guide is intended to address the procedures required in this country. If you live in Canada, Europe, South America, or elsewhere in the world, this article may not be very relevant to your exact situation, or address the specific conditions in your local area. In that case, please use this as a general planning guide to become familiar with some of the tasks and obligations most businesses require to launch a successful venture in this country. Chances are good that if you can start a business in the U.S., you can start one anywhere. Select the relevant information that applies to your business and disregard the rest. For example, the sequence of steps laid out in this article is in perfect order for most businesses, but you might find your business varies from the norm under your particular circumstances. You may even be able to ignore some steps altogether, but overall; most of them should be helpful in the order that they are listed to plan your enterprise.
Assuming you’ve done your due diligence, self-evaluation, and you are still passionate to start your business, here is how you need to go about it.
1. Conduct a detailed feasibility study of your planned business. Describe your typical customer profile, your product or service, and the competitors in your local market area. Identify your suppliers and their credit requirements. Determine your pricing, employee requirements, and labor rates so you are competitive. Include your banker and any loan criteria and credit score in your evaluation. Prepare a marketing plan listing all advertising, media, and promotional costs and how your budget will allow you to use them to reach your market. Think of clever ways to get the word out without breaking your bank account.
2. Write, or outsource, a complete and detailed business plan using the information you acquired from the feasibility study. Write your vision down and make it happen. Select key management personnel and list their skills and responsibilities. Build your team. You will need a good attorney, accountant, banker, insurance agent, office supply store, an Internet service provider (ISP), and a reliable vehicle. Take the time to personally meet and interview members for your team and develop a network of supporters from their friends and acquaintances. Include as much detail as possible in your business plan to describe your company and its operations, its management team, its goals and objectives, its resources, core values, products or services, the competition, market share, financial information, and realistic projections on cash flow, sales, and servicing debt obligations. Be as detailed as you possibly can; the better your planning, the better your chances will be in securing financing and manifesting your dream. A well thought out business plan is essential to any successful endeavor.
3. A key part of your business plan must address your financial situation. List all the initial, and reoccurring costs, you will need to pay when you open your doors. This will include office supplies, rent, accounting, utilities, a coffee maker, perhaps a water cooler, desks, chairs, cubicles, conference room furniture, garbage containers, computer work stations, reception area, telephone system, security system, etc. There are lots of ways to finance your business startup, from using your personal credit cards, from your savings, to securing bank loans, personal loans from friends and family, or lines of credit. If you can work from a home office for the first few years, which I recommend, then your startup costs will be much less, and you could have more tax write-offs and available cash to pay as you go.
4. Decide how you want to structure your business. Visit with a tax attorney to review your options, and then choose the one that best fits your needs. Budget an amount for this expense because it is essential to your business tax liability and should not be overlooked. There are basically three choices: sole proprietorship, partnership, and incorporation. Each one has its own advantages and disadvantages in terms of liability and tax consequences. Starting out, you can operate as a sole proprietor for the first few years and later take on a partner, or incorporate. The limited liability corporation (LLC) structure seems to be growing in popularity for many entrepreneurs these days and is easy to implement. You may be required to complete a fictitious name filing with your state and secure a city business license too.
5. Select a good name for your business and then check on the name availability for a matching domain on the Internet. Also do a Google and Yahoo search to see if you have name competition in your market. You can do a newly upgraded automated name search (NUANS) report as well, which will compare your name choices against a vast database of other business names to verify its uniqueness. Any reserved name is usually only valid for ninety days. If you intend to incorporate later, then check with the state Department of Commerce where you intend to incorporate for your name availability as well. Identify the best category listing for your Yellow Pages, and if you want to be at the top of the competition, select a name that alphabetically gives you a placement advantage in the top of the list, especially if your business depends on phone contacts.
6. You can choose to incorporate in whatever state you wish due to tax and privacy reasons. Delaware and Nevada have become quite popular among startup companies because of their privacy laws and lower costs. If you want to do business in Canada, you will have to register in each province, as well, which will increase your costs. Although an attorney is not necessary to do this for you, it is always a good idea to consult with one in the planning stages to make sure you are making the right choice for your business. There are many online resources to help you gather legal information such as legalzoom.com, do-it-yourself-legal.com, etc. The proper forms can also be sent, or faxed to you, from the state office or downloaded from the Internet in most cases. Some forms can be completed and registered online, and usually there is a small filing fee due, but it is usually easy to do and convenient.
7. Contact the Internal Revenue Service (IRS) office in your area, or online, to apply for an employee identification number (EIN), if you plan to have employees. This will not be necessary if you operate as a sole proprietor. Your accountant or bookkeeper can better advise you on the details of this step, but chances are good you will have to make quarterly estimated tax payments for both federal and state taxes. Make sure you anticipate these, and any other periodic expenses in your cash flow projections.
8. If you anticipate collecting sales tax on your products or services, check with the appropriate agency in your city or state about the correct procedure and registration process. Once again, your accountant or bookkeeper can better advise you on this when you set up your record keeping and books. Choose a good accounting software program if you plan on keeping your own books, preferably one that will be compatible with your accountant’s software. You can save money if you keep your own books and then have your accountant complete your quarterly reports and tax returns.
9. Most larger municipalities require business licenses and occupational permits, especially if you operate a business from your home. Cities and counties often have strict requirements regarding parking, fire protection, handicapped access, and zoning regulations that address how your business may impact your neighborhood. If your business is done by appointment only, and doesn’t rely on walk-in traffic, you are better suited for a home based business operation.
10. Develop a basic marketing package for your business according to your business plan. This should include your Yellow Pages listing, a company identity brochure with a rate sheet, a press kit, voice mail with a lady’s voice, and a professional web site with search engine optimization. Your company identity package includes business cards, letterhead stationery, and a logo. Your press kit should include current press releases, head shot photos, letters of introduction, testimonial letters from satisfied customers, business leaders, and suppliers, articles, business journal photos, your biographical sheets and statements of qualifications for your key management personnel. You need to establish a positive image and presence on social networking sites like Linked-in, Twitter, Google Plus, and Facebook. Your web site has to be polished with great content, easy navigation, and a squeeze page to build a list of visitors. You will need to purchase and fund an autoresponder service to build your list and conduct promotional campaigns to build repeat business.
11. Set up a separate checking account for each profit center in your business, and a savings account linked to each checking account. For example, if your business has a retail product sales division, and an installation service division, keep them separate. Never co-mingle private funds, or revenue from separate ventures, with your regular business funds; have your personal bank accounts in another bank. Your bank will require your state fictitious name registration, your business license, your contact information, your social security number, your EIN number, or your corporation by-laws and documents. Your savings accounts should hold your tax money set aside for your quarterly payments, plus a small reserve to cover overdraft protection.
12. Purchase adequate liability and property insurance. Consult with your insurance agent and review the optimum coverage you will need for your particular business. Perhaps you will need key man insurance for essential management personnel, or bonds, or completed operations insurance; there are many different types. If possible, place all vehicles and property under a million dollar, or larger, umbrella policy to get the best value and protection. If you intend to have employees, you will need Worker’s Compensation Insurance and unemployment insurance as well. Depending on your business, you may wish to cover yourself even if you have no employees. Be careful not to over-insure your business and create a large expenditure when you are just starting out. Be prudent, and carefully assess your risk initially, because you can always add more coverage later as your business grows.
13. Contact all potential suppliers and creditors and set up accounts with the most favorable credit terms and payment options. Provide documentation that you collect sales tax so you only pay net retail, or wholesale, prices on products and services. Take advantage of all special discounts and sales whenever possible from whatever source. Clearly understand the return policy of each vendor and supplier.
14. If you need a brick and mortar storefront for the proper image, and decide not to operate out of your home despite the tax advantages, you will need to select a prime location. Consult with a good real estate salesperson in your area and shop for the best deal for a building or office space. Lease your business’ space for the best tax advantages. Make sure you have adequate parking, good access, high visibility, solid waste disposal services, and that your structure meets building, fire protection, and zoning codes, and all other local ordinances. Your personal and professional image may be important to your business as well, so “dress for success” as they say, and budget for a tasteful wardrobe if it is necessary. In business, you never get a second chance to make a first impression, so make the proper effort to dress appropriately, give a firm handshake, and make proper eye contact.
15. Purchase office supplies and equipment on an as needed basis initially. Don’t stockpile large supply inventories in the beginning until you are sure you are going to stay. Lease desks, chairs, cubicles, filing cabinets, vehicles, conference room furniture, the telephone system, and computer work stations whenever possible. This will allow you to experiment, prioritize, evaluate, and try before you buy expensive furnishings and fixtures. Security services should start out at a bare-bones level too, enough to cover basic protection, and increased as the business risk, exposure, and inventory grows.
So congratulations! You are now aware of what you need to do, and all that is left is for you to go out and do it. If you follow this brief guide, then you will avoid a lot of pitfalls, and hopefully develop a successful business that will prosper, and serve you for many years to come.