There are risks to starting a small business, but with a thoughtful plan, attention to detail and a responsive pivot when needed, you’re far more likely to make it a success.
NEXT has worked with 450,000 small businesses in over 1,300 professions. We help small businesses to reach their goals every day. Here’s what we’ve learned about starting a small business along the way.
Read ahead to learn how to:
- Conduct research to learn the market and your customer
- Write a business plan
- Price your product or service
- Explore funding options for your small business
- Choose a business location
- Select the right business structure
- Protect yourself with small business insurance
- Pick a business name and branding
- Registration, licensing and permits
- Open a business bank account and accounting system
- Hire employees and expand
- Market your small business to attract customers
- Hone your soft skills to be a better leader
1. Conduct research to learn the market and your customer
Paul Kushner, CEO of MyBartender and a restaurant owner in the Philadelphia area, feels that a new business owners' biggest hurdle is marrying their great idea with market research. He encourages entrepreneurs to ask themselves, “Do people actually want what you are trying to offer? Does someone already do it, and do they do it better? Can you do it differently?”
Kushner explains, “We underestimate how important these hard numbers and answers are, and can rely too much on anecdotal evidence and a gut feeling.”
Consider these strategies as you research for your business:
- Pinpoint a business that solves a problem. You may think you have the best version of a product or a service, but if there’s no need for it, no one will buy it. Your business must fulfill a need, and enough people should need it.
- Find the demographic of your ideal customer. Zero in on the type of person that needs your business, then look carefully at their stats: How much money do they make? What do they like and dislike? What else do they buy?
- Conduct surveys and conversations with your ideal customer. Contact potential customers to conduct surveys and offer feedback. These conversations can give powerful insight into their needs. They will help you with future marketing, pricing and productizing.
- Create a buyer persona. Develop a customer persona for your ideal client. For example, if you’re a handyman in an urban area, you may define your customer as a high-income earner in an apartment or condo. You see a significant need for indoor upgrades such as hanging TVs, installing shades, and switching light fixtures.
- Consider startup costs. The overhead expenses of your startup and ongoing costs could shape your new business. Which part of the market makes the most sense for your business?
2. Write a business plan
A small business plan is a document that outlines your company’s goals and how you plan to achieve them. Why take the time to do this? Your business goals are likely already in your head. But writing them out allows you to take the time to explain goals and outcomes in more measurable terms.
And if you decide to apply for funding, you will also need a physical business plan to share your ideas with potential lenders.
Mike Arriola, North Carolina District Director for the Small Business Administration, says, “I would stress the importance of doing a business plan before filing your new business documents, applying for a loan, etc. It’s your roadmap by which to navigate your new business and establish your goals for revenue and profitability.”
Typical components of a business plan include:
- Executive summary
- Company background and description
- Business structure and ownership information
- Market and competitive analysis
- Products and services
- Sales and marketing
- Financial analysis
3. Price your product or service
Price your products to maximize profit and sway customers to choose you over competitors. Simple, right?
And intimidating to find the sweet spot. Small business owner Libby Diament of Diament Boutiques in Washington D.C. reassures aspiring business owners. “Early on in a business, it can be incredibly scary to make expenses when you are just getting started and don't have many streams of income.”
Here are a few things to consider as you set prices:
- Variable costs. Look carefully at your expenses for delivering each product or service. Ensure you’re reclaiming those costs while making a profit.
- Fixed costs. Some costs are constant — rent, insurance, website hosting, etc. — every month.
- Profit margin. What’s your break-even income? From there, work backward to determine your best prices.
- Competition. Your competitors can give you many hints on how to price services.
4. Explore funding options for your small business
You may be nervous about taking the full-time dive from a side hustle to starting a small business. That’s valid. The financial risk is real. But many find that understanding their funding options helps to ease worry.
The SBA’s Arriola cites lack of capital as one of the biggest hurdles for new businesses. “Many people go into the business startup process not realizing that a fair amount of their own capital is required as a condition of applying for a bank loan while the company is less than two years in business.”
He goes on to explain that, “it’s a good idea to first examine what personal resources you can bring to the table particularly if you intend to seek out sources of external funding.”
Credit cards and SBA loans are often the first places business owners turn for funding, but they’re not your only option.
5. Choose a business location
Many small businesses start out small and then grow into a commercial leased space over time. Let your finances and your business plan dictate what will work best for you.
Read more: Small home-based business essentials
6. Select the right business structure
Which business structure is right for your small business? The answer can be confusing. But know this: if you don’t fill out any paperwork or make any changes, the default structure for your business will be independent contractor (self-employed). This may or may not be the best choice for your new small business.
These are the most common business classifications for small businesses:
- Sole proprietorships: Small businesses with a single owner and operator are sole proprietorships. Sole proprietorships have one of the most straightforward registration processes, but the downside is that you may run into liability issues. Your personal assets are part of your business under this classification.
- Partnership: Similar to a sole proprietorship, partnerships put two people in charge of a business. You will need an operating agreement, but the registration process is simple. It shares the same liability risk as a sole proprietorship.
- Limited liability company (LLC): An LLC combines the elements of a sole proprietorship and a partnership, but it gives owners personal separation from their business to help protect them from liability issues. This type of business is more challenging to establish, but the added protection is worthwhile for many business owners.
- C Corporation and S Corporation: These business structures are complicated to set up and often require the help of financial professionals. Corporations receive some tax benefits and allow business owners to receive a salary.
7. Protect yourself with small business insurance
Many industries and states may have minimum insurance requirements for starting a small business. But even if it’s not a requirement, business insurance can help your new venture minimize risk.
Every business owner should understand the basics of small business insurance. Your insurance needs depend on your industry, location and your unique set of risks.
Here’s a rundown of the most common types of business insurance:
- General liability insurance is the most common type of liability coverage. It can cover non-employee bodily injury or accidental property damage.
- Commercial property insurance can help cover damage to a commercial property you own or rent. It also helps protect your business inventory, equipment and business interruption income loss due to temporary closures.
- Workers’ compensation insurance covers expenses related to illness and injuries for employees (and it’s required in most states).
- Professional liability insurance, also called errors and omissions (E&O) insurance, covers civil lawsuits, negligence claims and accusations of professional mistakes.
- Commercial auto insurance covers drivers and vehicles related to your business.
- Tools & equipment insurance can help protect the gear you bring to job sites.
8. Pick a business name and branding
A business name is your company’s first impression, and it can last for years. Ask yourself these questions to make sure your business name is the right fit:
- How does the name make you feel when you hear it?
- Does it reflect your values?
- How can your business name connect to a logo for a visual presence?
- Is the name taken?
- Do you like it?
- Is it overcomplicated?
Once you have the perfect name in mind, trademark it. And grab the URL and social channels related to your business name — even if you’re not ready to use them.
9. Registration, licensing and permits
Not all early-stage ventures register their business with the state, but if you plan to get a business bank account or take advantage of liability protection, this registration is key.
Every state entity is a bit different, but typically you register your business name and location and attach your name to the business. You’ll receive an EIN (employee ID number) for filling out financial paperwork and tax forms.
Some local governments also ask you to register through them, so check with the city where your business will operate.
Licenses and operating permits vary by profession and state. For example, most states require general contractors to have an up-to-date license. Check with your local governing body to know for sure.
10. Open a business bank account and accounting system
One reason to formally establish your business is to create distance between your personal and professional assets. One of the best ways to protect your personal funds is to set up a separate business bank account and its own accounting system and bookkeeping.
Financial tracking could be as simple as accounting software like Quickbooks. Or you may need to hire a bookkeeper or accountant.
Organized business finances can help you analyze ways to increase profitability. And accurate financial records can also help when it’s time to do your small business taxes.
11. Hire employees and expand
As your business grows, you may need to expand and start hiring employees. James Lintern, co-founder of staff management software provider RotaCloud, explains, “A good indication of when you're ready to hire is when you find yourself with too much work to do and not enough time to do it. Offloading repetitive tasks can be a good starting point as these are easy to train for, and gives you the opportunity to focus on growing the business and building out the operational side.”
But your work doesn’t stop just because you hire more employees. Lintern goes on to say, “You have responsibilities from the moment you post a job advert, so you need to make sure you have plans in place for everything from payroll to pensions, well before you get to the point of hiring.”
Be sure to check with your state’s employee insurance requirements. Many states require any business with employees to have workers’ compensation insurance from the first day of hire.
12. Market your small business to attract customers
All business owners want to get more customers. Boost your marketing machine early and small; you can build out your marketing strategy over time. Grow your marketing alongside your business.
Here are a few ways you can get started:
- Build a simple website. Your website should have your contact information, services or products, relevant photos of your product or service and reviews.
- Establish a Google Business profile. Google is one of the first places people go to find a business or a service provider. People can't find you if you don’t have a profile.
- Grab your social media channels. Look at your customer research. Where does your ideal demographic spend time online? What’s their preferred social media? Focus on a profile and posts only on the social media platforms that your ideal customers use.
- Consider your online business options. If you have an online business that uses ecommerce or drop-shipping, look at your options. Some ecommerce platforms can integrate many elements of online marketing in one place.
13. Hone your soft skills to be a better leader
Starting a small business takes a lot of skills. Problem-solving, communication, and work ethic are all soft skills shaped by life experience.
April Wilkerson of Wilker’s Do explains how to combine the soft skills of organization and flexibility. “Learn how to look at something huge — a big project, a big obstacle, a big challenge and understand how to break down something into bite-size pieces and have the patience to just nibble away at it.” April compares it to the famous saying about how you eat an elephant – one bite at a time.
According to Wilkerson, “If you can learn how to do that formula within your mind, within your skillset, then you can apply that to anything.”
How NEXT can help you start a small business
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