A little less than two-thirds of Americans want to start their own business. Perhaps surprisingly, this is true among both younger and older workers. Like the drive to write a book ( 81% of Americans) or work as a full time freelancer (soon to be half of all workers), starting your own business is a widely shared dream.
For good reason. People who work for themselves tend to love it. Although it comes with the complexity of having to manage every piece of an operation, as well as the stress of knowing that success rides completely on your own shoulders, there’s nothing quite like being your own boss.
It’s also very possible. Here’s how.
1. Research Your Market
This guide will assume that you already know what your business will do. If not, we have an excellent guide to coming up with your small business idea here.
Once you have your idea set, you need to do your research.
Starting your business will inevitably be a learning experience, but you want to get as much information as you can beforehand. So take some time to study your planned market. Ask questions like:
• What kind of competition will you face?
• Who is your target consumer?
• Where will you locate your business?
• What are the logistical and practical concerns about that location?
• What do consumers like and dislike about the existing market for your product?
• What do consumers say they want right now?
• What kind of spending power does your target consumer have?
Your market will be different depending on the nature of your business venture. A corner store has entirely different demographics and challenges than a web-based service vendor. In both cases, though, it pays to know your audience. Literally.
2. Write a Business Plan
The business plan is the blueprint for your company. It’s where you’ll apply your research and planning into one document that describes in detail the who, what, when, where, how and why of your new business. In it you will address issues such as:
• Who you will market to;
• What you plan to sell;
• When you anticipate hitting certain benchmarks, your timeline for development;
• Where you will locate this business, whether online or brick and mortar;
• How you will operate this business day-to-day;
• Why this business, what opportunity did you see in the market.
Your business plan should also address critical issues such as:
• Monetization and cash flow. How do you anticipate making your money and turning a profit?
• How much will it cost to run this business? Don’t miss the details.
• When do you expect to become profitable?
• Specific challenges you anticipate and how you will overcome them.
• What will it take, step by step, to operate this business and create this product?
The business plan article linked above goes into more detail, and the Small Business Association has a template here. Both are worth reading in further detail, because starting a business without a business plan is like setting off on a road trip without a map or GPS.
And, of course, don’t forget to pick a terrific name.
3. Get Feedback
Writing your business plan should be exhausting. This should be a detail-oriented document that takes a hard look at your planned venture and how, precisely, it will work. If you’ve done it right, by now you should be ready to tear into the building phase of your new business.
Instead, take a step back and solicit feedback. Call friends, family and colleagues who might have some knowledge of the industry you’d like to enter. Seek out mentors or professional guidance if possible. Get their opinion of your business plan. They might have questions you didn’t think of or notice something that slipped by you.
Hopefully this business will be around for years to come. You can afford a small delay while you get a few more eyes on your proposal.
4. Find the Money
Cards on the table, this is the hardest part for most entrepreneurs.
Not every business needs a lot of startup capital, but you will almost certainly need some. How much will depend a lot on what you want to do. A web-based services firm might require very little in the way of funding, while a retail store can require a substantial amount of cash to pay for rent, inventory and staff.
Regardless of how much, now is when you need to find this money.
This is something every entrepreneur faces, and small business owners turn to a variety of sources for startup capital. No matter where you get funding, expect to invest at least some of your own money. Lenders and investors will want to see that you have “skin in the game,” to use industry speak. Beyond your personal accounts, called self-funding, small business owners also rely on:
Many businesses start with a small business loan from local banks.
You will need to have all of your paperwork in order to pursue a loan. Expect the institution to ask for details from your business plan, including monetization strategy and financial projections. If you have trouble securing a loan, you can turn to the Small Business Association which runs a loan guarantee program to help make this type of financing more accessible.
While not an option for every entrepreneur, many people do rely on loans from family and friends.
If possible this is typically better than securing a loan through the bank. You’ll likely pay little interest and will have more generous terms in case of default. However, it also depends on knowing people who have that kind of cash lying around.
While not lavishly funded, programs such as Grants.gov operate small business grants for entrepreneurs.
Professional investors typically look for potentially large-growth business opportunities. Depending on the nature of your intended company, this could be a good fit for you.
A venture capital firm is unlikely to sink money into a small legal practice or restaurant. These tend to be low-growth relative to the returns that they seek. However, someone looking to launch a new product or web-enabled service, something with high potential scalability, might be a good fit for the private investment model.
Local angel investors, such as those found through AngelList, are more likely to invest in a regionally focused business. While beyond the scope of this article, you can learn more about finding private investors here.
Crowdfunding has become an increasingly common source of startup capital for small businesses. This model tends to reward retail style projects (someone looking to create a specific thing that catches the public’s eye). It can also be an excellent way to hone your sales pitch to a general audience.
For more information on financing, the SBA has a comprehensive information sheet on common sources of funding here.
5. Choose a Location
Where you locate may determine some of your legal obligations and paperwork, so it’s best to get that done at this step.
As much as possible you should try and do this with specificity. While you’re not ready to sign a lease just yet, the closer you can come to a specific address the better. Meanwhile, if you’ll be starting this company online, now’s the time to pick up your domain if you haven’t already.
Pay attention to local laws! We cannot overemphasize this. The best location can be killed off by a zoning ordinance that makes your business illegal on that particular street corner. Municipal laws can be petty and confusing, so make absolutely sure your business is street legal.
6. Establish Legal and Tax Structures
If at all possible, at this step you should retain the services of a lawyer and/or accountant. You will absolutely want professional advice. Otherwise, you run the risk of missing details that come back to bite you down the road. We also must note that nothing here constitutes legal advice. This is just a general primer on what you need to know.
Now is when you’ll actually begin forming your business and filling out the necessary paperwork with federal, state and local governments. This can involve (but is not limited to):
Choosing Your Corporate Structure
There are many types of businesses you can form, including LLCs, S-Corporations, partnerships, sole proprietorships and more. Those listed here are the most common corporate forms for a small business. The right one for you will depend on issues like cash flow, number of participants and how you want to structure potential liability. You can read more about this issue here and here.
Register Your Business
How you have to register, and with who, will depend on your specific corporate form. However, if you have formed a corporation of some sort you will have to file articles of incorporation to create this legal structure. For more information on registering your business, see this resource.
Register With State and Federal Tax Agencies
You will need a tax number and may need an employer ID number. The SBA has a guide to finding and filling out your appropriate tax forms here.
Determine Any Licenses and Permits That You Need
Depending on the nature of your business, you may need a license to operate. The SBA has a database of federal and state licensing requirements here.
Be certain to also look up zoning and location-based regulations. You may need additional permits based on where you’ve chosen to operate your business. These are typically a city-level concern.
7. Open Bank Accounts and Sign Leases
Once your business has been properly formed you can begin to act in its name. Now is when you can start actually executing on many of the opportunities you’ve already lined up.
Open bank accounts in your new business’ name. Take out a corporate credit card and, if your bank offers it, work to pre-establish a line of credit. You will find this easier to do now that your company exists and has established funding, although it may not become an option until you have operated for some time.
Go out and actually get the funding you secured earlier, because now you have someplace to put it. You should have already gotten the “yes” by now from someone, but you don’t want to deposit corporate seed money into your personal checking account. This may technically constitute a felony that rhymes with “schmembezzlement,” and is poor form either way.
With the money in hand and a functional checkbook, now is when you sign the necessary leases on real estate.
8. Take Care of Little Details
Once again step back and take stock, because the best ideas can be broken by the smallest details.
Make sure your business has comprehensive insurance for issues ranging from fire to property damage and legal liability. Many business owners overlook that last issue, and it can be a career killer if someone slips and falls or even just decides they don’t like you.
If you will hire employees put a documented process in place for hiring and firing. Have your workers compensation and unemployment insurance paperwork filed and in order.
If you haven’t already, talk to both a lawyer and an accountant. This is especially critical if you will employ people. Even if you don’t formally retain an attorney, buy a few hours of an employment lawyer’s time to make sure you have your bases covered. Figure out how your business will do its accounting and have that system set up and operational, whether you’ll do it yourself or have hired a professional.
9. Start Making Things
Now, at long, exhaustive last, we get to the fun part. It’s time to start actually making things.
You have the money, you have the location. You have all of your paperwork filed and are legally bulletproof. Now begin making your product.
How you do this will, obviously, depend entirely on what you specifically do. A manufacturing company will need to source suppliers for raw materials and the necessary machinery. (Because you took our advice and checked out all the local laws you won’t need to worry about any noise complaints from the neighbors.) A retailer will source vendors and set up an inviting, fun storefront. A consultant will finish making her office look tasteful and professional.
A restaurateur should stock the kitchen, buy appliances and write out a menu.
The details of getting to work depend entirely on your industry and profession. Fortunately, you’ve got a well written business plan for figuring out what those details are. Whatever you do, though, now’s the time to start actually doing it.
10. Scale and Hire
Your business is operational. Now’s the time to think about how to keep the lights on.
Some businesses will require employees from the very beginning. A cafe, for example, is almost impossible to run alone. Those employees are part of your startup costs and will be with you from the very beginning. As your business grows you may have the luxury of hiring more people to take some of the work off your plate.
Now is also the time to begin marketing.
To be fair, this is something you should be considering all along. You should always think about how to get your business’ name out into the community. Don’t let up once the doors open. Look to social media, advertising, foot traffic and local networking to get people in. Talk with other businesses in the area about collaboration efforts.
This is where you get to be creative. This is the fun part of being an entrepreneur. If you’re at step 10 you’ve earned it. So enjoy, because this is your business.