How to Start a Business in 6 Easy Steps?
While researching, you'll find several ideas and resources for setting your company up for success. Save yourself time throughout the process by organizing your findings from the beginning. Open a Word document, grab a notebook, and follow these steps to learn how to start a business.
Step 1: Create Your Business Idea
If you already have a business idea, write it down, and move on to step two. If you don’t, start by exploring one or more business ideas and revenue streams.
Ask yourself some of the following questions:
1. Do I want to work from home or in an office or shop?
2. Do I envision interacting with customers in person daily?
3. Would I rather conduct business primarily online?
4. Do my friends and family ask for my help or opinion on a specific task or subject?
Ideally, you want a business idea that relates to an industry you’re familiar with. You also want to be doing something you love.
Another way to brainstorm business ideas is by thinking about a problem in your life and what type of service or product would help. Could your concept solve a pain point for others like you? Or is there an existing product or service that falls short of your expectations? You don't have to reinvent the wheel when starting a business. Instead, focus on what you can do better than others and how to translate that opportunity into a long-term revenue stream.
Step 2: Perform Market and Competitive Research
Even the best ideas flop when entrepreneurs lack insights about their target market and competitors. Suppose you're starting a restaurant. What makes it more unique than the diner down the street? If you're opening an e-commerce store, what differentiates you from other online shops? Market and competitive research can help answer these questions and more. Learn about potential customers by gathering demographic information, like age, income, and buying habits. Think about where your customers might live and work and how various economic conditions affect spending on your products or services. Industry data is a good starting point. Then use market surveys and questionnaires to narrow your scope and focus on your specific audience. Once you understand the potential size of your market, look at your competition, the current number of options for your target audience, and the price ranges. Learn what you're up against by performing a competitive analysis. Gather company data, such as annual sales, number of employees, and years in business. Read reviews and social media mentions. Then test their services or products yourself. Next, consider your competitor's strengths and weaknesses. For instance, if your startup marketing budget is significantly smaller, will that prevent you from gaining brand awareness? Likewise, is there an opportunity to win over a competitor's clients by offering better customer service or more convenient shipping and return options?
Step 3: Choose a Business Structure
Your business structure impacts your personal liability, management strategy, and taxes. Consequently, there are many things to consider when selecting a legal entity.
For example, a sole proprietorship is easy to set up, but it doesn't protect personal assets if someone sues your business. In comparison, the government gives a corporation its own legal rights, separate from its owners. A limited liability company (LLC) provides similar protections as a corporation but more flexibility. Moreover, each state government has different requirements for business structures.
Key business structures to compare include the following:
1. Sole proprietorship: For single-owner companies wanting to claim business income on their personal taxes. No liability protections.
2. Partnership: A general partnership is similar to a sole proprietorship, except there are two or more owners. Other options that may limit liability include a limited partnership (LP) or a limited liability partnership (LLP).
3. Limited liability company (LLC): It has one or more owners and provides liability protections. Individuals can opt to be taxed like a sole proprietorship or corporation.
4. Corporation: Along with one or more business owners, a corporation has a board of directors, officers, and shareholders. It offers liability protection.
Start by reviewing your state's business formation rules and IRS regulations. Then consider speaking with a tax professional, accountant, or lawyer. They can help you weigh the pros and cons of each entity type.
Step 4: Estimate Startup Costs
Startup costs include one-time fees, like permits or equipment purchases, required to open your business. Most companies aren’t profitable for at least one to two years, so at a minimum, it's best to outline your fixed and variable costs for the first year.
Outlining these costs can help you identify when you may need external funding, how much you'll need, and what it'll be used for. This information will also go into your business plan, and investors or lenders may want to see forecasts for one or more years.
You will first want to create a list of all one-time expenses, after which you can think about monthly operating costs.
Get quotes from third parties – from logo designers to lawyers – to have accurate estimates. Research products and services to find the average cost for companies similar to yours. While it’s challenging to predict the exact price of all expenses, with some research, you will have a good idea.
Step 5: Craft a Business Plan
Think of your business plan as a roadmap. It describes what your company does, who it serves, and how you'll make money. If your concept is fairly simple and you don't need external funding, you can briefly explain your value proposition, target audience, and finances.
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However, you'll need a more comprehensive plan if you're looking for business partners or investors or applying for a startup loan.
A conventional business plan consists of the following:
1. Executive summary: A high-level overview of the information you'll detail in your document.
2. Business description: Explains what your company is, the problem it solves, who it serves, and why it will succeed.
3. Market analysis: Shares information about your industry – including competitors – and your target audience.
4. Company organization and management: States your chosen business entity and lists members of your executive team.
5. Your service or product line: Outlines what you sell, how it helps customers, and why your market needs it.
6. Marketing and sales: Tells readers how you'll attract customers and make a sale, including your strategy for customer retention.
7. Funding requirements: Provides information about what type of funding you need, how you'll use it, and where it'll come from.
8. Financial projections: Uses charts and graphs to show your five-year financial outlook. Includes a balance sheet, cash flow statement, and income statement.
Step 6: Choose a Name and Register Your Business
With all that hard work behind you, it's time to commit to a business name and formally register your business with local, state, and federal agencies. You can continue to do it yourself or work with a third-party. A third-party business formation service can confirm that your chosen name is available and submit your formation paperwork to the state.
Many state business departments, often the secretary of state, let you search their database for business names. In most cases, you can't have the same name as another company in your state.Consider checking if your business name is available as a website domain and on social media channels. Consistency is vital for brand awareness and having the same name across your website and social channels can help your marketing efforts.
You can officially create your business entity with your state and pay filing fees. If you select an LLC or corporation, you must also designate a registered agent. The state will review your paperwork and, if approved, send the documentation that lists your business name and entity details.
When Is the Best Time to Start Your Business?
Startup timing is a personal preference, and the best times vary by industry, financial situation, and individual circumstances. To ensure brand awareness, entrepreneurs with seasonal businesses should begin and market their companies well before peak season.
Others may take advantage of the new year to start a business, giving them a little over 12 months before filing taxes as a business owner. Some entrepreneurs begin a company as a side hustle while working full-time, whereas others open shop when faced with job loss.
However, only some companies are profitable at startup. And many others fail due to poor preparation and financial challenges. Therefore, the ideal time to start your business is when you feel comfortable (and ready) to take the next step.
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