Starting a small business can be an exhilarating and creative venture. The idea of creating products or providing services that people want, and come back for time and again, is pretty heady stuff. Regardless of industry or market, every business must follow standard steps to get off the ground properly. If you’ve got a great idea for a business, here’s how to act on it.
1. Create a Business Plan
A business plan is a road map that describes the purpose or mission of the company, how it will operate and be managed, and how it will be successful in the industry. Does every small business need a plan? I didn’t create one, at first. I worked for a very small publishing/consulting firm that got bought out several times. The last company had nothing to do with publishing, and I was the last person in the department, so they laid me off. But they said I could take the work and clients, along with several months of severance pay – an instant business! Since then, I created a plan mainly to help my business grow. I found that going through the planning exercise set the foundation for responding to Requests for Proposals (RFPs) for larger projects and facilitated onboarding with corporations for contract projects.
The U.S. Small Business Administration offers business plan templates that guide you through the process. Take your time and include as many details as possible. Think through exactly how the business will run, the costs involved, and how and when you’ll turn a profit. Most business plans include sections on market analysis and financial projections, which are mainly for the bank or lender if you pursue funding. However, working through market analysis and financial projections also helps you determine if your business is likely to be viable.
2. Determine Your Legal Business Structure
Part of the business plan involves determining your legal business structure, such as sole proprietor, partnership, C or S corporation or limited liability company (LLC).
Although a sole proprietorship is straightforward (it’s just you!), it offers the least protection compared to partnerships, corporations and LLCs. There are many factors to consider before choosing a legal structure. Each type of structure affects how much you’ll pay in taxes, the extent of personal liability you’ll face and whether you can get the funding you need. You’ll have to research all options. If you’re unsure which one to choose, talk to a certified public accountant (CPA) or a business attorney.
3. Register Your Company and Complete Required Paperwork
A sole proprietorship often involves a DBA, or “doing business as,” which is a name you choose for your business if you don’t want to use your personal name. Corporations and LLCs can also operate under a DBA, too. To do business under a DBA, you must first complete a form and pay a filing fee, usually through a county or state agency.
If you choose to structure your business as a corporation, you’ll need to create articles of incorporation and file them with your Secretary of State. LLCs file articles of organization. Article documents make your company a “legal” or “official” business entity.
You also need to apply for an Internal Revenue Service (IRS) employer identification number (EIN), which is a federal tax ID number that identifies your business. Sole proprietors can use their Social Security number (SSN) instead of an EIN, but the fewer instances in which you need to share your SSN the better. For example, if you hire contractors, you’ll need to issue MISC-1099s forms to them if you paid $600 or more for their services within a tax year. The MISC-1099 form requires the sole proprietor’s tax ID number. In this case, it’s safer to use an EIN rather than your SSN.
4. Set up Financial Accounts
A general rule for companies, whether run as a sole proprietorship, partnership or corporation, is no commingling of funds. That means you should maintain separate checking and savings accounts for both personal and business finances. Doing so makes it much easier to do taxes, prepare for an audit and to secure funding.
Unless you start with ample operating funds, you’ll need to secure a line of credit through your bank. After you’re approved, your line of credit is available to draw from, in any amount, when needed. The beauty of a line of credit is that you can move cash from a line of credit to a checking account much like transferring from a savings account. However, a line of credit is a loan that accrues interest.
You should also consider using an accounting service to handle bookkeeping if you don’t do it in-house, and retain a CPA for tax purposes.
5. Get Business Insurance
The type of business you operate will dictate the type(s) of insurance you need. The three main types are general business liability, workers’ compensation and professional liability insurance (PLI), but there are many others.
Where general business liability protects your business from claims involving bodily injury or property damage, and workers’ compensation insurance covers medical and wage benefits for employees who are injured at work. PLI, also called errors and omissions, protects you and your business if you’re found legally liable for failing to provide a contracted service, offered faulty advice or were otherwise negligent when providing a service.
6. Create a Brand
Once you establish your legal structure and business name and file all necessary paperwork, it’s time to create your brand. A logo represents your business visually, and it’s worth the money and effort to work with a graphic artist or service to create a logo that’s clean, simple and recognizable. Many small business owners think they can create a DIY logo, which usually has less than stellar results. It’s harder than you think. With a great logo in hand, you’ll want to include it on all marketing materials, your website, product packaging, signage, invoices and letterhead.
Nowadays, a small business needs a social media business presence to help “tell its story” and draw customers. That means creating a Facebook company page, a Twitter account and a LinkedIn account at a minimum. Many businesses are turning to Instagram and creating a YouTube channel as well. It all takes time to launch and keep current, but it’s free or inexpensive advertising. And you are exposed to a much wider customer base.
7. Execute the Plan
Putting your plan into action means setting up a place of business, which might be an office in your home, a coworking space, storefront or other facility. Unless you have a good reason to do otherwise, start small and move up as your business grows.
Creating a business also entails purchasing or leasing computers, software and equipment, and creating relationships with vendors for materials. You also need to carve out time to hire employees or engage with temporary staff or contractors. Hiring employees ensures labor availability but requires your business to operate steadily to keep them employed. You can use temporary staff or contractors as needed but their availability isn’t always guaranteed. Weigh your options carefully.
Starting a small business takes immense effort, and it’s risky, but what a feeling of accomplishment when it works. Invest the time up front to ensure your business will thrive over the long term.