Avoid the overwhelm many new business owners experience by learning how to start your own business in seven steps. You should start by selecting a business idea and testing the market before you write a business plan. Then, you can focus on acquiring capital, filing legal paperwork, and creating your business.
Everyone who starts a business forms a legal business entity. Doing this protects your personal assets if a lawsuit were to occur against the business. Incfile makes it quick and easy to file your business’s legal entity accurately. Register your business and protect yourself today.
How to start your own business in seven steps.
1. Select Your Business Idea
Before starting your business, you must select the idea. Many business owners overlook reflecting on themselves, but it’s an important step to create a business that is right for you. During this step, you also want to research your idea briefly, and then get clear on how the business idea will make money.
Be Honest With Yourself
Potential business owners often get excited about being their own boss and overlook what being a business owner means. Before opening your business, it’s important to reflect on your previous experience, skills, money saved, and network to ensure that you start a business that is right for you. You don’t want to start a business and realize six months later that it doesn’t match your skillset.
Most small businesses start because the owner has experience in a specific industry. Knowing how an industry works before starting a business increases your likelihood of success. For example, someone working several years as a florist manager will gain customer and management experience to run a successful floral business of their own.
If you don’t have experience in your industry, you need specific skills. For example, Karen has been creating quilts for her family and friends for years. In time, she has improved the quality and time it takes to make a quilt. Karen makes relationships with several local shops to start selling her quilts. She has used her skills creating quilts to earn an income.
You need to be honest with yourself when it comes to investing in the business. Getting a loan from a bank for a startup business is unlikely. You may need to use your own funds to start the business. However, there are other options for acquiring capital for your startup like family and friends, getting a loan from a bank, giving equity to an investor for capital, and crowdfunding.
Having a strong network of people either as business mentors or potential customers increases the likelihood of business success. For example, opening a floral shop with connections to the best flower distributors is important. If you’re trying to sell your quilts locally, it’s important to have relationships with shop owners.
Consider Business Life Goals
In addition to being honest with yourself, consider the type of business you want to run. Many people start a business, only to realize several months later that they don’t like the type of business they’re running.
For example, a person enjoys and succeeds in selling high-end bicycles. They decide to purchase a local bicycle shop. Six months later and $50,000 in business debt, they realize they loved selling bicycles and not the operational tasks that come with being a business owner.
It’s important to consider your personality when choosing a business idea:
- Would you like to work at home in silence or talk with customers in a store?
- Would you like to have a lifestyle business, which caps your income, or an 8-figure business with employees?
- Would you like to start from scratch or purchase an existing business like a franchise with systems to implement?
- Would you like to work 80-hour weeks and grow a business fast or keep a more balanced life and grow the business slowly?
- Would you like to create products and have other people sell them or sell products that other people have created?
Think about these questions to help you begin with the end in mind. Another personality based test is to notice your energy levels when doing tasks at work and home. What tasks give you energy, and what depletes your energy? Running a business that gives you energy will be much more likely to succeed.
Research the Idea
Once you reflect on yourself and the type of business you want to own, it’s time to come up with the idea. There are many ways to come up with a business idea, including identifying a need in your community, solving a problem you have, or reviewing resources online. If you’re coming up with an idea for your first business, you’re more likely to succeed if the business model is proven and has guaranteed customers. You may be tempted to come up with a new business idea, but that is riskier because the idea has not been proven.
How Will It Make Money?
Predicting financials is one of the most difficult tasks of starting a new business. At this stage, it’s important to do a rough outline of how the business will make money. If you are starting a new business model that is selling a unique product or service, how it will make money is crucial to think through. You don’t want to invest time and money into your first business for it to not work out. Test the product or service at a small scale before opening a full-time, storefront business.
2. Test the Market
Once you select your idea, it’s time to research your market and customers. Market research helps determine how competitive your type of business is and if there are customers for it. Unfortunately, getting positive feedback from friends and family about your business idea does not confirm it will be a success. Friends and family may support you whether they think the business idea is good or bad. You want to do additional research to confirm your business idea is solid.
Research Your Competitors
The first step is to evaluate your competitors. Consider your top five competitors and list their strengths and weaknesses. For example, a strength of a competitor may be a large marketing budget or a partnership with another local business. A weakness may be poor customer service reviews online or an older storefront. What strengths do your competitors have that you cannot beat? What weaknesses do they have that you can improve upon?
If you have no competitors, that is not always a good sign. Ask yourself why there are no competitors in your area. There may be a reason. For example, the market may be too small to support your idea or people are not willing to pay for your product or service.
Conduct an Industry Analysis
Analyzing your industry and its growth trends determine if you have a viable business idea. To determine this, you can do manual research online or purchase an IBIS World Report. The report contains a recently researched industry analysis with growth forecasts. To avoid the IBIS World Report cost, you can contact your local Small Business Development Center (SBDC) and ask if they have a subscription you can use.
A manual analysis is an option, but it will take more time. In a manual analysis, you will find yourself analyzing free sources like government industry data, consumer statistics, economic indicators, and employment statistics. This type of research will appeal to certain personalities over others.
Identify Your Target Demographic
Identifying potential customers is key in deciding whether or not the business will work. There must be people willing to pay for your product or service in your area. Saying your customer is “everyone” is not a wise strategy. It’s difficult to market the business to “everyone” because that type of marketing equates to “no one.” To narrow down your customers, consider creating customer profiles for each type of customer you will have.
Once you are clear on your customers, you want to determine how many of them are in your area. ReferenceUSA is a database you can use to do this research. ReferenceUSA is a powerful tool that allows you to research customers based on demographics. Tens of thousands of local libraries provide free access to ReferenceUSA.
Find Your Competitive Advantages
You have already identified your competitors’ strengths. Now, you need to identify your own competitive advantages. Most new businesses rely on their flexibility as a competitive advantage. Additionally, if the business owner is going to be the face of the business, the owner’s personality is a competitive advantage. If those apply to your business, you will want to go more in-depth on why that is true.
A question to ask yourself is: “What is my unfair competitive advantage that the competition will never be able to beat me at?” Is it your quality of product or service, customer service, or knowledge? These questions will help you determine if you can be best at something. Being the best in a certain area of a business makes it more likely that the business will succeed.
3. Write a Business Plan
Writing a business plan shows why you think the business will be successful. The plan also shows on paper how you will start your own business. After you open, the document keeps you focused and on track with your goals. So far, you have put together informal pieces of a business plan. Now, it’s time to write down information in a document.
Determine the Type of Business Plan
The type of business plan you choose to create depends on your needs. If you’re looking for a loan from a bank or funding from an investor, you need a traditional business plan. If you are not seeking a loan or funding, you can create a new type of visual business plan called a business model canvas.
Traditional Business Plan
The traditional business plan typically is a requirement from a bank or investor. Traditional business plans vary in terminology but contain similar topics, such as an executive summary, description of the business, competitive analysis, target market, marketing plan, your team, and financial projections. Follow a step-by-step business plan guide, and you’ll find it easy to create.
Business Model Canvas
An alternative to the traditional business plan is the business model canvas (BMC). This is a more visual plan with unique sections like key partners, key activities, key resources, value propositions, customer relationships, channels, customer segments, cost structure, and revenue streams.
The financial projections are the most difficult part of a business plan. This is where you need to list the costs associated with starting your business and predict revenue and expenses. For the first two years, revenue and expenses need to be broken down monthly. Additionally, for the first three years, you need to break down revenue and expenses by year. Expenses include items like rent, payroll, marketing, and loan payments. A lot of research can go into the financial projections, especially if you are opening a storefront. You can use an Excel template to help you create your financial projections.
Use Business Plan Software
An alternative to creating your own business plan from scratch is to use software to help you walk through the steps. Live Plan is business plan software that not only walks you through the plan and financial projections but also provides hundreds of business plan examples.
Hire a Professional Business Plan Writer
If the thought of creating a business plan overwhelms you, there are professional business plan writers you can hire. They will conduct research and work with you to create a business plan.
4. Acquire Capital
Once you determine how much money you need to start the business and at what point the business will be profitable, you want to acquire the necessary capital. Not all businesses require money to start. If you’re starting your first business, it’s wise to start a business that requires little upfront capital to ensure less financial risk on your part.
Debt Financing for a Business
Debt financing is where you, as the business owner, take on debt to start the business. Unfortunately, most banks don’t lend to a startup business. If the bank does lend to a startup, they require a personal bank account accessible to recover the funds if the business fails. For example, if you need a $200,000 loan for a startup business, the bank will require $200,000 in a CD account.
Credit cards are also a common way to debt finance a business. One factor to keep in mind with credit cards is the high interest rate. Credit cards used for this purpose are considered a high-interest rate microloan.
Equity Financing for a Business
Equity financing is when you give up a percentage of the business for funding. This is also called angel investing or venture capital. Many business owners are hesitant to do this because they do not want to give up future profit of their business. You want to look for equity financing if you don’t want to take on debt and believe someone would invest in your business plan. The best place to find an angel investor is through local networking. Many angel investors want to meet and know the person who they are investing in.
Crowdfunding for a Business
Crowdfunding is growing in popularity as a way to raise capital before your business opens. This funding source is where you create an online campaign and get people to purchase products or services in advance of receiving them. This is a great way to test your idea without a lot of startup costs.
Crowdfunding is also a tool to vet your idea. Popular crowdfunding platforms include Kickstarter and Indiegogo.
A successful crowdfunding campaign requires you to have a network of people who will contribute to your campaign. You cannot rely on the crowdfunding platform to provide backers for your project. A successful campaign also requires excellent marketing to persuade people in your network to contribute. Crowdfunding platforms typically charge a fee to use the platform. For example, Kickstarter required a 5% fee of all funds raised. The payment processing fee is 3% to 5%.
Grants for Starting a Business
Unfortunately, grants for starting a business are difficult to obtain. Most grants from the government are for research-based businesses. Most grants from companies and organizations are for owners with diverse backgrounds and interesting stories. These grants typically are competitions with tens of thousands of entrants. For example, the Amber Grant is for women-owned small businesses, StreetShares Commander’s Call Veteran Business Award is for veterans, and the U.S. Department of Agriculture (USDA) Value-Added Producer grant is for rural small businesses needing energy efficiency upgrades.
5. File Legal Paperwork
Now it is time to file the necessary legal paperwork. You want to take the steps below to comply with city, state, and federal laws. You also want to protect your personal assets if something happens in your business that results in a lawsuit. Additionally, if you have a unique business idea, you want to protect that from competitors.
Register Your Business Entity
Registering the business entity, such as a limited liability company (LLC), S corporation (S-corp), or C corporation (C-corp), protects your personal assets if legal action is taken against the business. Registering the business also makes you look legitimate when a customer or vendor look you up in the state’s business registry. Each business entity has advantages and disadvantages depending on the type of business and needs of the business owner. Typically, most startups file as an LLC because of the smaller amount of paperwork.
Get Licenses and Permits
Your city and state may require several licenses and permits, or it may require none at all. It depends on your type of business. Most cities have the required licenses and permits for businesses listed on their official website. For example, a home-based business that receives customers may need a city license or a childcare facility will need a state license to operate.
Obtain Tax ID Numbers
Your business’s federal tax number is called employment identification number (EIN). The EIN is used to pay federal taxes to the IRS. Additionally, the EIN is often required to open a business checking account. Depending on the state your business is registered in, you may need to obtain a state ID Number. This is used for state tax reporting.
Open a Bank Account
Once you have the tax ID numbers, it’s time to open a business checking account. Keeping a separate business and personal checking account ensures you are not mixing business and personal finances. Chase Bank offers safe and secure business checking accounts.
File Trademarks, Copyright, or Patents
You need to file trademarks, copyright, or patents if you have information that you want to protect from competitors like a brand, original works, or product ideas. It’s best to speak to a local business or patent attorney to help through this legal process. A trademark registration can cost $100 to $400, copyright registration is $35 to $55, and the cost to file a patent with legal fees is $8,000 to $15,000.
Register Your Website Domain Name
A website domain is a name (www.yourcompany.com) that is used to find your website online. You need to register a domain name so that another business does not claim it. If your desired domain name is already claimed, you can get creative by adding your city in the name or purchasing a unique domain ending, such as .co or .biz.
Registering a domain name is just the first step in creating your website. You will also need to find a host and a platform to create the website. Additionally, you may want to hire a web designer to create a professionally designed website. The next step to creating a website after purchasing the domain is to buy hosting. Bluehost provides secure and reliable hosting for small business websites.
6. Build Your Business Team
You don’t have to build your business alone. There are local experts who can assist you on your journey. Even though you are an expert in your industry, turn to others for help and guidance. Local professionals like attorneys, accounts, and bankers can help you make informed business decisions. Employees may be needed to create products or talk with customers. Plus, there is local no-cost assistance for small business owners provided by the government.
Hire Local Professionals
Local professionals are attorneys, bankers, insurance agents, and other professionals who have specific expertise that you may not have. Many business owners have relationships with a local business attorney, accountant, banker, and insurance agent. You can go to these experts when you have questions about how to start your own business.
A common task that business owners choose to do themselves instead of hiring a professional is accounting. It’s important to have a firm grasp of what revenue is coming into the business and where it is going. Use the online accounting software QuickBooks to document your income and expenses.
Not all startups need to hire employees. A common saying to determine if you need to hire employees is if “you run out of you,” which means you cannot keep up with customer demand. When hiring, you want to make sure you’re complying with federal employment and labor laws. If you’re unsure about how to follow these laws, contact your local business attorney or human resources consultant.
Connect With Local Resource Providers
There are local government-funded resources that provide no-cost consulting and counseling to business owners. The SBDC is a government program that provides low-cost training and no-cost consulting to small business owners. There are more than 1,000 SBDC offices throughout the U.S. The Service Corps of Retired Executives (SCORE) Association is also a government-funded program that provides no-cost counseling to small business owners. Employees in the SBDC and SCORE offices are previous business owners who can provide direction for business challenges.
Network With Local Business Owners
In many industries, there are local networking groups. The members help each other grow their businesses through referrals. For example, if your business is in the wedding industry, you may find a group of local wedding vendors, like wedding planners, florists, and DJs that have a monthly networking meeting. A resource to find local networking events for your industry is Meetup.com.
7. Market Your Business
The last step in starting a business is making sure your ideal customers know about your business. Marketing your business can be done with traditional strategies, or online. You also want to make sure the local media knows about your newly-opened business.
Traditional marketing is a necessity if you are opening a brick-and-mortar location or are doing local networking. This type of marketing includes business cards, flyers, and signage. When creating different traditional marketing materials, make sure your branding is consistent. Colors, fonts, and words used to describe the business need to be consistent across all marketing. Inconsistent branding will make your business look unprofessional.
If you are meeting with customers in person, you want to create a card directing customers where to leave you an online review. This is overlooked by many business owners but is recommended because of your potential customers looking for your products or services online. Which review website to direct them to depends on your type of business. Google My Business, discussed below, is typically the best online directory to start collecting customer reviews.
Online marketing is evolving constantly, and it’s difficult to keep up with all the new opportunities. A great online presence can help a business get in front of their ideal customers online when they are searching for what your business provides. Many business owners struggle to keep up with online marketing trends.
Consider these channels when determining how to start your own business:
- Website: A website is a resource you use to promote your business online. To create a website, you need a domain name, hosting, and a website platform.
- Google My Business: Google gives every business looking for local customers a free business listing. You want to create your listing before your business opens so that customers can start leaving you Google reviews right when your business opens.
- Online directories: Almost all industries now have online directories like Yelp, TripAdvisor, and Yellow Pages. You want to create your business’s listing on directories important to your industry so potential customers can find your business online.
- Social media: The type of social media accounts to create depends on the industry you are in. Social media is not a requirement to have a successful business but, when used correctly, it can be an asset.
- Email marketing: It’s important to start collecting email addresses from customers on day one of starting your business. By sending high-quality and valuable emails to your customers, you keep your business top-of-mind.
You want local media to know about your new business. Local media prefers information about your business submitted to them in a press release. A press release is a summary and story of your business. You also want to include owner headshots and photos of the business in the press kit. It’s important to include a hook, which is a way to present your business that creates interest so that the business journalist will cover the opening of your startup.
Frequently Asked Questions (FAQs) About Starting a Business
This section includes the most frequently asked questions about starting a business.
How do I start my business from home?
Starting a business from home requires either a strong network of potential customers or effective marketing skills. Since you do not have a storefront, it is important to know a lot of people who are interested in receiving the product or service you are providing. If you are not well networked, you need to have an additional skill like online marketing to reach customers.
How much does it cost to start my own business?
Starting a business does not need to cost a lot of money. If you’re providing a service like resume writing, the only cost is registering the business in your state. As you add additional components to your business like a website, accounting software, and a branded email address, your business costs will increase. For example, adding a low-cost website is another $100 or more per year. A branded email address will cost another $100 or more per year.
How do I start a business with no money?
A business can be started with no money, but it is not recommended. You aren’t required to spend money to register your business. When you don’t register, it is called a sole proprietorship. The problem with not registering is that your personal assets are at risk. For example, if you’re starting a lawn care business and something costly gets destroyed at a customer’s property, that customer can sue you for damages, and your personal assets are at risk.
How hard is it to start your own business?
Generally speaking, the more earning potential the business has, the harder it is to start. This is because, typically, higher profit businesses are scare. You will need a scarce resource like higher education or extensive expertise, equipment, inventory, or an in-demand location. If this is your first business, it’s smart to start small and learn the basics like getting customers, contracts, managing customers, getting paid, and marketing.
What must an entrepreneur assume when starting a business?
When starting a business, an entrepreneur must assume some customers will be unhappy with your product or service. Hopefully, the unhappy customer is not your first sale. To avoid unhappy customers, it’s important to have a quality product. If you are providing a service, make sure expectations of what you will do is made clear.
What are the most successful small businesses?
The most successful full-time small businesses are when people use the experience they’ve built up over the years and apply it. For example, let’s say Jill worked at a gym for eight years. She gives several weekly classes and manages five personal trainers. Jill has experience providing an in-demand service and managing others. This experience helps her when she is ready to open a fitness business.
Another type of business that can have a high success rate are franchises. When you buy into a franchise, you are buying proven business systems. Franchises don’t guarantee you will be successful, but you have a higher likelihood of success with one than starting a similar business without any business systems in place.
What is the easiest business to start?
The easiest business to start is one that relies on your expertise. People pay you for your expertise because you know more than they do. For example, if you are a social media manager for a business, you can take your social media marketing expertise and charge local businesses to manage their accounts. There is little cost to this type of business because your time and expertise are the product.
Starting a business can feel like an overwhelming process. With planning and microsteps, you can figure out how to start your own business. Start with researching an idea and writing a business plan. Then, acquire the necessary capital, build your team, and market the business to your ideal customers.
Every business needs to be registered as a legal entity to protect the owner from personal financial liability. Incfile helps you walk through business entity registration in a simple and secure manner. With Incfile, you can register your business for only $49 plus state fees. Register your business today and get protected.