If you are looking to start a business, there are many factors to consider. While it is possible to skip the planning stage and just start your business and work out the details later, this is not a smart route to take.
9 Tips to Start Your Own Business
Starting a business without a well-thought-out plan increases your chances of failure tremendously. So here’s a guide for you entrepreneurial folks to help you establish your business and make sure it’s successful.
1. Determine the Type of Business You Want to Start
You may already know what type of business you’re interested in. If that’s the case, great. However, if you are still in the stage of determining what your business will focus on, consider doing something that you will enjoy – something that you are already passionate about. Making sure that your business involves doing something you love will help you to weather the storms when times are rough. If you enjoy what you do, then it won’t feel much like work.
2. Write a Business Plan
A business plan is a written document that provides details of how you plan to achieve your business goals and overcome potential obstacles to success. It will also be helpful in securing funding for your business as banks and investors will look to this document to see if you have a viable business model. To help you in the process, check out how to write a business plan by the Small Business Administration. There are lots of helpful tips there.
3. Choose a Location for Your Business
If you are planning on having a brick and mortar location, this is a crucial step for you. You will want to do some market research to determine the best place to set up shop. It’s important to start by determining who your target audience. Once you have established that, you will want to find a space that serves that demographic well. For example, if you want to start a fast food franchise, you might determine that your target audience is teenagers. That would make a location near a high school ideal. It could also be a great location for finding potential employees.
4. Figure Out How You Are Going to Fund It
There are several options for funding your business. While borrowing money from a bank or credit union the traditional way is most common, there are other options to consider. The first is going the venture capital route. This is where private investors are willing to fund your business at an early stage if they think it has a lot of potential for growth.
P2P lending is a way to cut the banks out of the equation that allows people to go online to borrow or lend money directly to each other. Prosper.com is the granddaddy in the field, but LendingClub.com has been growing nicely in recent times and actually overtaken Prosper as the industry leader.
Another way to fund your business is through crowdfunding. This is where you can set-up a profile on a site like Kickstarter, and request money from people on a mass scale to fund your business. This is not really an investment for people who are giving you money as the only thing they will get in return is a perk that you have designated for the amount of money that they give. For instance, if you want to create a new phone with the latest technology, perhaps you will give a phone case to anyone who gives you $25 toward your business venture.
The last way you can fund your business is to self-fund it. This is one of the least common, but also is the easiest to do since you do not have to rely on outside investors or banks for your capital. It’s actually what Clark did when he started his travel business. You do not necessarily have to have a ton of money to do this. In fact, there is a book called the $100 Start Up that highlights several different people who started their businesses with very little capital. In this method it’s all about efficiency.
5. Form a Business Entity
For tax purposes, you will have to determine what type of business entity you would like to establish. Here are the different options and a brief description of each:
- Sole Proprietorships – An unincorporated business owned by one individual.
- Partnerships – A business organization where two or more persons manage and operate a business.
- Corporations – An entity that provides limited liability for its owners. For instance, shareholders can participate in the profits however they are not personally liable for the company’s debts.
- S Corporations – A type of corporation that elects to pass corporate income, losses, deductions, and credits through to their shareholders for tax purposes.
- Limited Liability Company (LLC) – A business structure that limits the liability of the owners, however, it is not a corporation. Each state has different regulations so you should check with your state before starting an LLC.
Click here for more on LLCs from the U.S. Small Business Administration.
6. Choose a D.B.A. (Doing Business As)
If you want to operate under a different name than the legal name of the company, then a D.B.A registration is necessary. For instance, if the legal name of your company is John Smith & Company and you sell computer parts, that name does not really describe what you do. You could choose a name like “Computer Parts Plus”, and then you can register this name as D.B.A. so that you can market yourself as such and even take payments under that name.
7. Obtain a Tax Identification Number
While you can use your social security number for certain business types such as a sole proprietorship, you may have to get another tax identification number if you have a different type of business. For instance, if you have any employees at all then you will need and “Employer Identification Number”. This is used to identify a business entity for tax purposes. To see if you need an EIN, visit Do You Need an EIN on the IRS website.
8. Check to See if a Business Permit or License Is Required for Your Business
Certain types of businesses are required to have specific permits or licenses. For instance, if you want to start a restaurant, chances are you will need a liquor license. If you are not sure if you will need a license or a permit, the Small Business Administration makes it easy to find out by providing a way to search your state and your business type to see if one is needed.
9. Insure Your Business
This is one step that can often be overlooked when starting a business. Insuring your business is a key component to make sure that it will stand the test of time. There are several different types of insurance, but the most common type is general liability insurance. This will cover you in case of injuries, accidents or claims of negligence. Check out Small-Business Insurance FAQs for more information regarding insuring your business.
Starting a business can be an exciting time. There are many components to making sure that your business is established correctly. If you follow the steps outlined above, you will have a good foundation on which to build your business for years to come.