Introduction
Starting a business is a huge undertaking. While many people romanticize the idea of “being my own boss” and being completely independent, it’s important to remember that the vast majority of small businesses fail and that being an entrepreneur is generally a hard, thankless task that can demanding, overwhelming, and extremely stressful. That being said, business ownership can also be extremely gratifying and provide a level of financial independence that people working for a W-2 will never have. If you think that being an entrepreneur is for you, these 14 simple steps will help you get started on the right track.
1) Find a business idea you can be passionate about.
What do you think of when you ask yourself what you want to be when you grow up? It may seem like a silly question, but it’s a serious question when thinking about starting a business. Entrepreneurship is a wholesale commitment to yourself, so be sure to consider what you want when making your decision.
Most entrepreneurs will tell you that owning a business will quickly take over your life, so it’s important that you’re doing something that excites you. If your ventures don’t follow your passions, the long hours and unending responsibilities will soon overwhelm you. Find something that will give you a sense of satisfaction and give you a reason to jump out of bed in the morning.
A good idea doesn’t have to be unique. McDonalds and Burger King manage to coexist, as do Pepsi and Coke. However, a good idea should improve on an existing business model or be original and innovative in some way to be successful. Without additional improvements and innovations, most customers will have no incentive to change the way they currently do things.
2) Conduct market research on your idea.
Once you’ve settled on an idea, conduct some market research and see whether your idea is viable. Look to see how many potential customers there are, who else is competing in the market, what the market prices are for your product or services, and what you will need to enter the market and compete successfully. Answering these questions will help you decide whether your idea is worth pursuing.
Knowing the number of potential customers is important because it defines the total value of the opportunity you’re targeting. The more specialized your product or service is, the fewer potential customers you’re likely to have. It’s possible that your idea for customized Corgi sweaters, while adorable, doesn’t have enough potential customers to support a viable enterprise.
Identifying your competition will help you get an understanding of the market dynamics, what products and services are being offered in the space, and where there may be an opportunity to fill an unclaimed corner of the market. Mature markets are often dominated by a few, large competitors that have divided the market amongst them by acquiring smaller competitors while growth markets are typically full of small and medium sized operators working to innovate, grow, and capture market share. The type of market can influence your strategy and the resources necessary to break into the industry.
Learning what other businesses in your target market are charging for similar products and services will help you further home in on the value of the opportunity you’re targeting. Most entrepreneurs rely on the cost or quality of their products and services to differentiate themselves from the competition. Knowing what your competition is charging will allow you to either compete on price or emphasize the quality of your work to justify a premium.
Finally, learn what it costs to enter the market and compete successfully. It takes substantially more resources to start a nuclear power plant than it does to start a law firm. If the resources available to you don’t match the needs of your idea, it may be time to reconsider the idea.
3) Write a business plan.
Once you’ve completed your market research and decided your business idea holds water, the next step is to write a business plan. Writing a business plan is a great opportunity to take a wholistic look at all the component pieces needed to make the business work. This is a good exercise for people just getting started with a new business and for business owners who have been operating for more than a decade.
At its most basic, a business plan identifies the goals of the business owner and what the business needs to do to achieve those goals. A CPA leaving an accounting firm to go out on their own may be a great accountant, but they probably don’t have much experience with marketing. Writing a business plan will help you identify key business functions you may not be familiar with and build a plan to address them.
Another reason to write a business plan is to assist with fundraising. Writing the business plan will show potential investors that you have done your research and considered every angle. You’ll also be better able to hone your pitch and nail your facts and figures after researching and writing your business plan.
4) Choose a business name, a business structure, and register your business.
Choosing the name of your business is entirely a matter of preference. Some companies choose descriptive names that define what they do while others choose seemingly random words, sometimes in foreign languages. You can always file a doing business as (“DBA”) form with your state of organization in order to conduct business under a different name.
Selecting the proper entity type has important effects on the way the business is managed and taxed. There are many different types of entities, but the most common ones are: sole proprietorship; partnership; limited liability company (LLC); and corporation. You should speak with an attorney in order to determine which structure is right for you.
Once you’ve decided on a name and a structure for your business, the last step is to register with the state. In most states, the Secretary of State is responsible for registering new businesses. The registration will typically identify the name and address of the business as well as the name and address of the business’ registered agent and the company’s unique identifier such as a registration number.
5) Get your Federal Employer Identification Number (FEIN).
A Federal Employer Identification Number (“FEIN” or “EIN”) is a number issued to a business that applies online or submits a Form SS-4 to the IRS. An EIN is like a social security number for your business and it’s what the IRS uses to identify the entity for tax purposes. You will need your EIN to file your taxes, obtain a bank account, apply for a loan, and other important applications.
6) Open a business bank account and credit card.
An entity like a corporation or a limited liability company is technically a separate person, completely distinct from its owners. Because of this, a company can have its own bank account and lines of credit which are not tied to the owners’ individual accounts. Having a separate bank account and credit cards for your business is critical to prevent comingling your company and personal funds.
Separating your company and personal finances also it easier for you to manage your business’ accounting. Most accounting software connects directly to your company bank account and credit cards, making it easy to reconcile expenses and generate financial statements. At the end of the year, your accountant will have all the information they need to file your taxes.
7) Set up accounting software and identify third-party bookkeepers and tax professionals.
Speaking of accountants, it’s never too early to get one involved in your new business. A good accountant can help you identify the right accounting software and tailor the features of the software to your business’ specific needs. It’s easier, and cheaper, to hire a professional help set up your accounting software than it is to hire one to clean up the mess you made and set up your accounting software after attempting to DIY.
Once you’re accounting software is set up, identify a bookkeeper who’s familiar with your industry who can maintain your books. The accountant who helped set up your accounting software may provide bookkeeping services or be able to provide a recommendation. A bookkeeper can efficiently reconcile and close your books each month leaving you free to focus on growing your business. Having your books managed by a professional bookkeeper will also make it easy to file your tax returns each year.
8) Start Fundraising.
It takes money to make money goes the old cliché and unfortunately there’s more than a kernel of truth to this one. If you compare your company to a vehicle, money would be the gas that makes the vehicle go. Without the funds to operate, your vehicle will stay parked in the garage just gathering dust.
The two main ways to raise funds for a business are to issue debt or equity. Issuing equity involves selling an ownership interest in the business in exchange for an amount of money. Issuing equity means that the prior owners of the business will have a smaller ownership interest afterwards, a process known as dilution. On the plus side, equity investments do not need to be repaid like a loan does.
When a business issues debt it promises to repay the loaned amount plus agreed upon interest over the term of the loan. A common form of debt issuance is a promissory note which details the terms of the loan between the business and its creditors. While debt does need to be repaid with interest, debt fundraising does not involve the issuance of equity and therefore is non-dilutive to the business owners.
Unfortunately, a new business with no assets or business history can find it difficult to obtain funding from third parties. Debt funders typically require physical collateral or company revenues to secure the loan which a new company may not have. Similarly, there are a limited number of investors that will invest in pre-revenue businesses which leads to an entrepreneurial chicken and egg scenario. That’s why many early-stage businesses bootstrap their initial operations or rely on friends and family to get started.
9) Build a website.
In our increasingly digital world, a solid web presence anchored by a quality website is a critical component for growing a business. The internet has become the most efficient way to reach potential customers and sell your products and services. Without an effective website, your business will have to invest more resources into customer acquisition than your competitors which will ultimately reduce your profits, market share, or both.
Depending on the type of company you’re planning to start, your website could be a simple, informative one page site or a more complex website with e-commerce capabilities. There are numerous options for building your own website online and more technically inclined entrepreneurs may be able to create their website without any outside assistance. If you have no interest in learning to build your own website, there are also plenty of companies that will design and build a website for you.
10) Obtain business licenses and permits.
Most businesses will require state or local licenses and permits to operate. If you’re selling physical goods for instance, your business will need a sales tax license in order to collect and remit sales tax to your state and local government. The city or municipal government where your business is headquartered may also require a local business license to operate within the city limits. If you operate in a regulated industry like alcohol, cannabis, or gambling you will likely need state and local licenses to operate your business within the confines of the law. Every business, state, county, and municipality is different, so it may help to consult with an experienced attorney to determine what licenses and permits you will need.
11) Build your tech stack.
A tech stack is a fancy way of describing the various software and applications used in the business. This includes email, project management, accounting, HR and payroll processing, cloud storage applications, and any other programs, software, and applications used in the business. With the prevalence of specialized software and applications available to business owners, building an efficient tech stack can be extremely challenging, especially for less technically adept business owners.
To build an effective tech stack, start by mapping out the individual business functions and identify software and applications that can be used to simplify or automate the various processes required for each business function. Once you’ve identified the available applications, start reviewing them for compatibility/interoperability with each other. If an e-commerce application and accounting software can’t talk to each other, they likely don’t belong in the same tech stack.
When properly built out, a good tech stack can take your business to the next level by harnessing efficiencies generated by technology. However, remember that technology is supposed to make your business simpler, not more complicated. Don’t implement technology for its own sake and don’t utilize software and applications that create more work than they eliminate.
12) Get business insurance.
An old friend of mine used to say, “it’s better to have a gun and not need it than to need it and not have it.” Whatever your thoughts on the gun rights/control debate, the same holds true for insurance. Most people don’t even thing about getting insurance for their business until they need it, in which case it’s already too late. That’s why we recommend doing your research and obtaining business insurance prior to starting operations.
Many people are surprised to learn that business insurance can actually be fairly cheap and provides a great deal of protection in most circumstances. The main two types of insurance that business owners should consider are property and general liability coverage. This will protect your business and premises against damage and liability, provided you are in compliance with the terms of your insurance policy.
13) Market your business.
Marketing is the key to business growth and, as such, should be of particular interest to business owners. You may make the absolute best boomerang outside of Australia, but if nobody knows about it, you’re never going to maximize your sales potential. A well-developed marketing plan will help you get the word out about your business, increase your sales, and reduce your customer acquisition costs.
One of the most cost-effective marketing tactics is developing a strong online and social media presence. Because so much of modern life happens online and on our phones, making sure your business is represented on the internet is critical to raising awareness about your products and services. Best of all, unless you’re purchasing ads, building your online presence this way is essentially free.
Other marketing activities may include purchasing ad space in a local newspaper, magazine, or other publication, sponsoring local charitable events, like a 5k or golf tournament, or running TV and radio ads. Because each business is unique, we recommend speaking with a marketing professional to help build out your marketing plan. Working with a professional will help you understand how and when to use each of the various marketing tactics available and give you insight on how to improve your marketing to acquire new customers and increase market share.
14) Plan for growth.
Once you’re up and running, it can be easy to get lost in the day-to-day operations of the business and lose sight of your vision for the future. That’s why it’s important to plan for growth before it becomes an issue. Having a plan in place for what to do when your business hits x dollars in monthly revenues will help you manage the growth without taking time and energy away from operations.
One of the most important things you can do to plan for growth is to build a staffing plan with tangible milestones for each additional hire. This will ensure that as the business expands you are brining on new employees to help handle the growth. Another way to manage growth is updating your tech stack to automate some of your business processes. The key concept here is to think ahead about what growth will look like and determine what resources, human, technological, or capital, you’ll need to ensure that you can adequately handle that growth.
Conclusion
If you take the time to work through these fourteen steps, you and your business will be starting from a great position. We strongly encourage business owners to seek professional legal advice when considering starting a new business, as the laws and requirements can vary widely depending on your location and business type. If you’re ready to explore starting your own business or need assistance with your business’s legal needs, don’t hesitate to contact Monitor Law. Our experienced team is here to help you navigate the process and ensure your business is set up for success.
**Disclaimer:**
The content provided on this blog is intended for educational purposes only and should not be construed as legal advice. While we strive to ensure the accuracy and reliability of the information presented, it may not always reflect the most current legal developments or regulations. Reading, accessing, or interacting with the content on this blog does not establish an attorney-client relationship between the reader and Monitor Law. The information provided should not be relied upon as a substitute for seeking professional legal advice from a qualified attorney regarding specific legal issues or situations. We strongly encourage readers to consult with a licensed attorney in their jurisdiction for personalized advice tailored to their individual circumstances. Any reliance on the information provided on this blog is at the reader’s own risk.
