A Beginner’s Guide to Starting A Business
May 4, 2017 : Bridget OBrien
When you’re starting a business, the growing list of tasks on your to-do list can seem like a daunting challenge at best, and overwhelming at worst. From setting up bank accounts and securing financing, to calculating the cost and tax implications of every business decision, there’s a lot to consider. Luckily, there are a few steps you can take that will make a big impact in getting a business off to a great start. Here are five tips to set up a business for success (for beginners):
1. Get feedback on your business idea.
Before your business can get off the ground, the first thing you need to do is validate your idea. Will people want what you’re selling? Research the competitive landscape to learn more about the market and how to differentiate and price your product or service. Seek out prospective customers and ask them about their purchasing habits and preferences, or better yet, have them test out your product or service.
Then, ask for their feedback to see if they’re satisfied or if you should adjust accordingly. You can also consult a mentor or expert in the industry to gain valuable insights about the business landscape and collect tips on how to overcome certain obstacles.
2. Obtain financing for your business.
According to 2016 data from the Small Business Administration (SBA), 73% of small businesses in the U.S. have used financing in the last 12 months. When you’re getting started, it’s particularly important to have enough money put away to account for potential downturns, especially if you don’t already have income flowing in.
Despite this, most new business owners report getting started with less than $5,000 in financing, which isn’t much, especially if you have recently left a job to start a company. Spend the time to project all your upcoming expenses for the first six months of your business, and evaluate whether you’ll need to go beyond self-financing.
Other ways to finance your business include small business grants, loan programs offered by the SBA or online funding platforms like Kickstarter. You can consider borrowing from friends and family, but just keep in mind that this sometimes complicates matters.
3. Choose the right business entity.
Based on the future you envision for your company, you’ll want to choose the business structure that provides you with the best legal protection and least amount of tax responsibilities for your business type. Most small businesses start as a sole proprietorship or limited liability company (LLC).
The simplest option and most popular among freelancers and contractors is a sole proprietorship, which is owned entirely by you with no distinction between yourself and the business, so you’re taxed at the personal level. That makes you responsible for all debts and liabilities of the company.
A limited liability company (LLC) gives owners the legal protection that comes with a corporation, while also offering the attractive tax regulations of a partnership. The real benefit is that LLCs are not taxed as a separate entity—all profits and losses are attributed to each owner-member of the company, and you’ll report all income on your personal tax return.
If you’re planning to build a high- or quick-growth company, take on investor funding or hire multiple employees, a corporation may be best. It’s more complex with greater reporting and tax implications; however, it operates as an independent entity owned by shareholders, which gives you the greatest amount of personal protection for debts, liabilities and actions of the business.
Similar to a corporation, an S corporation (S corp) offers you all of the same liability protection, but you’ll only be taxed on personal income you elect to take out of the business.
4. Set up a business bank account.
Separating your business and personal finances—regardless of which corporate structure you choose—is a must. It’ll make your accounting, quarterly and end-of-year tax filings easier if there is a clear divide between your business and personal funds.
Before deciding to open a business bank account, you should evaluate your options to identify banks that specialize in helping new and small businesses. You’ll also want to consider account minimums, servicing fees, available interest rates on credit lines and current new account promotions.
5. Develop your pitch and spread the word.
Learn how to tell your unique story by understanding what makes you stand out. What is different about your personal brand and why do people like working with you? Start out strong by building awareness with friends, family and your community. This is not the time to be shy—get out there and show people your capabilities and the many great reasons they should be doing business you.
There are many things to consider when you start a business, but following these five steps will provide you with a strong foundation to tackle any challenges that come up along the way. Remember, an “overnight success” might not actually happen overnight: Instead, it may take a year of planning.
Need more information on starting a business? Head here for more small business tips!