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Everyday people dream of starting their own successful business. In 2021, entrepreneurs filled out almost 5.4 million applications to create new companies in the United States.
Of course, starting a business does come with challenges. But when you have the right plan in place, you may be able to take your ambitions and turn them into something real.
Read on to discover eight steps that could help you whenever you are ready to start a business. This step-by-step guide doesn't cover everything there is to know about running a company. However, it does provide valuable advice on how to get your small business plans out of the starting gate.
Step One: Define Your Why
Having a business idea can be great, especially if it’s something about which you feel passionate. Many successful businesses begin with a good idea. Yet an idea alone isn’t enough to start a business — at least not a successful one. Instead, you need to take further action to turn your idea into something more.
To begin, you'll want to define why you want to be in business for yourself and what problem or need your company will aim to solve for others (aka your customers). Consider the following example. Let's imagine that you loved technology as a child. As a result, you developed skills that eventually helped you support yourself and your family. Because of your past experiences, you might be inspired to start a computer coding school to help children and teenagers in your community learn important skills that they might not learn in a traditional classroom.
Here's another example. Maybe you’re an animal lover who lost a family pet as a child due to the pet's lack of training. As a result, you might be interested in starting a training facility where families can take their beloved dogs for some much-needed obedience school. Or perhaps you want to start by creating do-it-yourself dog training tools that anyone can purchase online through an e-commerce website.
There are countless business ideas and sources of inspiration. The key is to make sure that you are clear on your idea, why it’s something you could feel passionate about over the long term and why you believe the business could be attractive to potential customers as well. If the business idea is something that seems like it could be scaleable, all the better.
Step Two: Market Research
Understanding what you want to do and whether there’s a need for your product or service matters. However, it’s also critical to figure out whether other companies are already fulfilling the particular need that your new business aims to serve as well. In other words, you need to do market research.
Market research can help you scope out the competition and determine whether there may be enough demand for the services or products your new business would provide. The analysis you conduct during this stage may also help you niche down and choose a more specific type of customer or audience (aka your target market).
For example, instead of creating a general marketing agency that's a one-stop shop for every small business owner in your area, you might try a different approach. Instead, you could offer social media management services to businesses within a specific industry that are looking to grow a target audience and increase brand awareness in their space.
Are you looking for tools to make the market research and competitive analysis process easier to navigate? The U.S. Small Business Administration (SBA) provides many free resources you can use to find information on various industries, consumers, potential customers and more.
Step Three: Write a Business Plan
A solid business plan can be instrumental in the success of your new business. It can help you determine how much capital you need to raise or borrow as a new start-up company, whether you plan to take on investors (and how to attract them), and how you intend to structure your company.
A thorough business plan may contain many details, including (but not limited to) the following:
- An executive summary explains the goals of the company and how you plan to achieve them. This section may also include the mission statement of your business.
- The organization and structure of your business section should have details regarding the type of business entity you're forming and who will be running it. Consider using an organizational flow chart to illustrate who's in charge and highlight their skills and credentials.
- The products and services your business will offer to customers should also appear in your business loan. Include how these products and services compare to what the competition has to offer and how your business intends to outperform others.
- A financial plan that details the budget you intend to follow, projected financial statements (e.g., income statement, balance sheet, cash flow, etc.), and more should have a plan in your business plan too. If you're seeking funding for your business (e.g., business loan, business line of credit, etc.), you would typically include that information in this section as well.
- A marketing plan should have information about how you plan to reach your target customer with information about your products and services. You should also include a projected marketing budget that estimates how much you anticipate to spend.
Once again, the SBA offers free resources online to help entrepreneurs develop their business plans. You may also be able to connect with a free business counselor to see if you're eligible for one-on-one guidance. Special business plan guidance may be available to minority-owned businesses and women-owned businesses through the SBA as well.
Step Four: Choose a Business Name
Selecting the right name for your start-up business might not be as easy as it seems on the surface. Here are some key details to consider during the business naming process.
- Does another business already share the same name? If the company name you choose is already registered in your state or trademarked, you'll need to come up with an alternative.
- Is the name memorable and attractive from a marketing standpoint?
- Is the domain name available?
Step Five: Pick a Structure and Register Your Business
Next, you'll need to choose how you want to set up your business entity. The legal structure of your business can be one of several different options including:
- Limited Liability Company (LLC)
- Corporation (C corporation or S corporation)
- Sole Proprietorship
The type of business structure you choose can impact you in several ways as a small business owner — from how you pay taxes to your personal level of liability. Therefore, it's wise to discuss your options with a reputable small business tax professional and an attorney before you decide on your business structure and register with your state.
Step Six: Apply for a Federal Tax ID
Once you register your business, the next step you'll want to complete is to request an Employer Identification Number (EIN) from the Internal Revenue Service (IRS). It's important to set up an EIN for your business because you'll need this information to file business tax returns, open a business bank account and more.
The IRS does not charge business owners to apply for EINs. However, if you use a third-party service to handle the application process on your behalf, you may incur some fees. Note that if you complete your EIN application online with the IRS, you may receive your business tax ID number within a few minutes or less (assuming you're eligible).
Step Seven: Separate Your Business and Personal Finances
As a small business owner, it's essential to keep your business and personal finances separate. By maintaining a clear division between your business and personal funds, it should be easier to manage your tax obligations, track tax deductions and hopefully protect yourself from personal liability in business-related matters as well.
Business Bank Accounts
Separating your finances begins by establishing a business bank account for your company. You may want to consider opening both a business checking account and a business savings account, to give your company multiple money-management solutions. You can even find small business bank bonuses that are easy to earn and potentially give your company a little extra spending money in the process.
Small Business Credit Cards
Another potential way to maintain separation between your personal and company funds is to apply for a small business credit card. Small business credit cards can give your company the ability to build good business credit when you manage the account responsibly. Plus, the credit line may provide cash flow flexibility with the potential to help your company solve some short-term financing challenges.
Even if you’re a freelancer, sole proprietor or self-employed you might be eligible to open a small business credit card. You might even be able to earn valuable rewards on your everyday business purchases.
Step Eight: Continue to Learn and Seek Advice
Once you officially open your business, it's easy to get tied up with day-to-day tasks and responsibilities. Yet it's important to make a commitment to continuing your education where business management and growth is concerned.
When you spend time honing your skills as a business owner, those efforts have the potential to pay off in big ways. And remember, it's okay to seek advice from other entrepreneurs and trusted experts when you come up against problems that you can't figure out on your own.