Starting a small business is a thrilling time, full of opportunity and excitement. The foundations of starting your own business begin with you.
Your vision, dreams, and aspirations are an important component to any successful business venture. As your vision for your own business becomes clear, it is time to sit down and follow a thoughtful plan to help you through the steps necessary for success. With the proper guidance and initiative, your business will be up and running in no time.
Write a Business Plan
Creating a business plan is an important first step. The business plan answers fundamental questions about your business, such as what its purpose is, what are your goals, and what will the business be like in three to five years. The business plan typically includes the following elements:
- Executive Summary
- Company Description
- Market Analysis
- Organization and Leadership
- Products or Services Provided
- Marketing and Sales Approaches
- Funding Mechanisms
- Financial Projections
Nearly every business requires capital to get going. You need a clear sense as to how your business will be funded. Do you have the financial means to keep the business afloat at first or will you need to borrow money?
Loans are available via commercial lenders or the U.S. Small Business Administration (SBA). The SBA has a number of available loan programs, including startup loans, working capital loans, and real estate and equipment loans.
Larger startups looking for small business funding may need an investor, who can provide larger sums in return for a percentage of profits and involvement in running the company.
Decide on a Legal Structure
Not all small businesses are alike. You will need to establish a legal structure for your small business. Each has its advantages.
A sole proprietorship means you own the business outright and are responsible for all debts and obligations.
A partnership spreads ownership and responsibility among two or more persons. A limited partnership gives one person operational control while other partners invest and collect a portion of profit.
A limited liability company (LLC) is a hybrid of the two others, allowing owners to limit their legal personal obligations while still enjoying tax benefits. Under an LLC, members are safe from personal liabilities unless it can be proven they conducted business illegally, unethically, or irresponsibly.
A C corporation is a legal structure in which the corporation is taxed separately from its owners. The most common type of corporation in the U.S., this structure limits the owners’ personal liability. Since profits do not flow through to the individual’s taxes, the individual’s tax bracket is not affected. This structure offers certain tax advantages as well as unlimited growth potential.
The legal structure you choose also affects the taxes you need to pay, including income tax, self-employment taxes (Social Security and Medicare), employer withholding tax, and excise tax.
Choose a Location
Location matters. You want to select a location that works for your type of business. Selecting the right location depends on a number of factors, including:
- Local labor market strength
- Proximity to your supply chain
- Location of competitors
- The brand image you want to convey
- Plans for future growth
- Zoning requirements, and other state and local laws that may apply
Financial considerations play a role in selecting the right location. Beware of hidden costs like renovation, decoration, signage, utilities, and ongoing maintenance costs not included in a lease. Taxes and minimum wages also play a factor in where to set up shop. Additionally, you may want to consider, if appropriate, locating in an area where there are financial incentives provided by state, local, or federal agencies.
Finally, you need to consider the impact of your location on customers. An office suite may be fine if you are a cloud-based software company, but not if you rely on foot traffic.
Register Your Business
You must register with the government in order to be considered an official business entity. If you are a sole proprietor, that means creating a “doing business as” entity. Corporate entities need to submit articles of incorporation that include name, purpose, structure, stock information and other details.
A registered business will need to apply for an employer identification number (EIN) from the Internal Revenue Service. In addition, you may want to apply for a trademark for your business name.
Apply for Licenses and Permits
Whether you are required to obtain licenses or permits depends on the type of business you operate. If your business activities are operated or regulated by a federal agency, you’ll need to obtain a license or permit at the federal level. Various regulations are in place in industries ranging from agriculture and alcohol to energy and transportation. Additionally, there are usually specific requirements at the state, city, local and municipal levels for licenses and permits.
Two of the different license and permit types are professional licenses and sales tax licenses. Professional licenses indicate a level of expertise that a business owner or employee has. Among the professionals who are required to be licensed are doctors, dentists, hair stylists and veterinarians. Sales tax licenses or permits are necessary when you are selling goods or services.
Keeping track of the various licenses and permits can be challenging. Here are a few tips for managing the process:
- Keep a copy of all licenses and permits within your business records.
- Monitor and track all of your renewal dates and application websites.
- Display licenses and permits properly. Most states require businesses to display prominently any licenses and permits so they can be viewed by customers.
- Be mindful of any expansion of your business, which can trigger a need for additional permits or licenses, whether the growth is to physical space your business occupies or the products and services you provide.
Select Your Equipment
Purchasing the right equipment is important for ensuring you and your employees have the tools necessary to get the job done. You need to make cost-effective decisions about the purchases you make. Whether it is computers, office furniture, white boards, copy machines, printers, machinery, or basic office supplies, you have options.
Leasing is often a viable option for larger and more expensive items. Leasing can save time in the selection and hassle of purchasing items and is often as easy as having a business extending a line of credit when you make a purchase.
Leasing also lets you leverage the latest technology without making wholesale new investments. Short-term leases let you assess new possible tools before committing to a purchase or longer lease.
When leasing or buying equipment, there are potential tax benefits as lease and rental payments are fully deductible in most cases.
The advantages of purchasing instead of leasing include the overall cost, which is likely to be lower when items are bought outright. With purchased items, you also retain ownership, eliminating the necessity to purchase outright at the end of a lease or to lease new equipment.
Know the Law
Once your business is operational, you are required to abide by legal requirements. Among the laws and regulations, you should know are:
- Advertising and marketing law, designed to protect against false claims and protect customers
- Contracts law, which covers out-of-state financial transactions, including leasing equipment, borrowing money, entering into contracts, and selling goods or services. This area of law is covered by the Uniform Commercial Code (UCC), a set of rules that are consistently applied throughout the United States.
- Employee eligibility law, which requires you, as an employer, to verify that an employee is eligible for work in the United States. Specific types of documents are required to verify eligibility and the I-9 form must be filled out for each employee within three days of beginning work. Additional laws apply to hiring foreign workers.
- Employment and labor law, which covers the regulations you need to follow in the hiring, promotion and firing of employees; anti-discrimination statutes; and unemployment payments.
- Environmental regulations, which protect the general public from harmful emissions, waste disposal, and use of natural resources. The U.S. Environmental Protection Agency oversees a large number of programs intended to ensure businesses comply with federal guidelines. Additional state and local laws may also apply here.
- Finance law, which protects investors, businesses, and customers. These laws govern antitrust regulations, bankruptcy provisions, and securities guidelines.
- Intellectual property law, intended to protect your company’s core assets such as patents, trademarks, service marks, and copyrights. This area of law also ensures that you do not infringe on the intellectual property rights of others.
- Online business law, which includes regulations and guidance whether you sell products on eBay, Amazon, or other popular auction sites, or you engage in ecommerce. These laws address how to collect sales tax from online transactions, whether domestic or international.
- Privacy law, providing protection for customers and employees. Businesses need to understand what data is being collected and ensure that the data are protected and, when necessary, disposed of in a safe and secure manner. These laws cover such topics as how you collect, store, and use customer and employee data; use and disposal of credit reports; enforcement of data security protocols; prevention of identity theft; and protection of sensitive financial data.
- Workplace safety, which protects you and your employees. Safety guidelines and requirements vary by industry and work being done, while insurance requirements are set at the state level and are also contingent on the type of work and the number of full-time and seasonal employees.
Grow Your Business
Business growth requires planning, ingenuity, and tenacity. Today, there are a number of strategies to take for business growth.
There are two core areas for consideration:
- Existing customer retention. You need strategies to keep customers coming back, including loyalty programs, discounts or early access to sales and deals.
- New customer acquisition. Every business needs a pipeline of potential new customers that can become paying customers. Managing customer acquisition means providing them with different types of information and securing different types of buy-in at each step within the sales funnel.
Establishing an ideal customer profile is a sound way to understand the customers for which you are looking. This profile is a how-to guide for your sales and marketing teams to close deals.
The profile contains information about a customer’s needs and wants, what problems your product or service solves, and what messaging appeals to potential customers. Your profile also contains broad descriptions of the roles your customers play (in a business or a household) and basic demographic information.
Build Your Team
You may start out as the cook, chief, and head bottle washer, but inevitably a successful business will need to add employees to grow. Before you hire, think carefully about the skills you need, which skills will complement your own, what role a new employee will fulfill, and how you will measure success.
Growth may not mean hiring another full-time employee. Contractors, consultants, temporary employees, on-demand employees, and remote employees are increasingly commonplace in business today. Hiring these skilled professionals can help you get the job done while avoiding payroll increases and the expense of taxes and benefits that come with each new employee.
Transitioning from a sole proprietor to a manager brings with it a range of new opportunities and challenges. Management, human resources, employee development and assessment all require a new skill set on the part of the small business owner. Understanding how roles will change … and leading that change from the top … will help reduce the growing pains that can be inherent as a staff expands.
Hire Our Team
At Benetrends, we have worked closely with more than 15,000 entrepreneurs over the past 35-plus years. We provide expert advice and guidance on business financing options. Our clients count on us to help them start their new businesses quickly, safely, and economically — and with enough cash to withstand any unforeseen circumstances. Schedule a consultation today.