1. Conduct Market Research: Consumers & Competitors
To reduce your risk, it is important to understand your market from the outset. Conducting market research by blending consumer behavior and economic trends can confirm your business assumptions and ideas. In particular, you should consider market demand, market size, market saturation, pricing, and the economic indicators and location of your customer base. You may also find it helpful to pay attention to the latest small business trends.
One way of conducting market research is to use existing sources. They can be informative on general and quantifiable questions like industry trends, demographics, and household incomes. The US Small Business Administration (SBA) has a list of market research resources. Another way is to do direct research by asking consumers yourself. Although this method can be more time consuming and expensive, you can get more specific answers to questions you have about your particular business. A few ways to conduct direct research are surveys, questionnaires, focus groups, and in-depth interviews.
As importantly, research your competitors so you have a better idea of what your defining competitive edge may be. The competitive analysis you conduct should identify your competition by product line or service and market segment, and can include the following characteristics of your competition: market share, strengths and weaknesses, your window of opportunity to enter the market, the importance of your target market to your competitors, any barriers that may hinder you as you enter the market, and indirect or secondary competitors who may impact your success. The SBA provides the SizeUp tool to help small business owners discover how their business stacks up against competitors by city and industry.
2. Write Business Plan
The purpose of a business plan is two-fold. First, your business plan is a roadmap that will guide you through each stage of your business development: how to structure, run, and grow your new business. Second, it is a tool you can use to convince potential investors, partners, and employees to work with you.
It is important to write a business plan that meets your meets. A traditional business plans uses a standard structure and encourages you to go into detail in each section. A lean startup plan may still use a traditional structure but focus on summarizing only the most important points of the key elements of your plan. There’s no right or wrong way to write a business plan. What’s important is that your plan meets your needs. The SBA’s Business Plan Tool provides you with a step-by-step guide to create your business plan. You can save your plan online and update it any time, or download it as a PDF file.
3. Fund Your Business
How you choose to fund your business could affect how you structure and run your business. Every business has different needs, and no financial solution is one size fits all. Before looking for funding, determine how much funding you'll need.
You can choose to fund your business yourself. This can come in the form of turning to your family and friends for capital, using your savings accounts, or even tapping into your 401k. With self-funding, you retain complete control over the business but you also take on all the risk yourself.
You can choose to get venture capital from investors. Venture capital is normally offered in exchange for an ownership share and active role in the company and typically focus on high-growth companies, invest in return for equity rather than debt, take higher risks in exchange for potential higher returns, and has a longer investment horizon than traditional financing.
You can choose to use crowdfunding to fund your business, which raises funds for a business from a large number of people, called crowdfunders. Crowdfunders aren’t technically investors, because they don’t receive a share of ownership in the business and don’t expect a financial return on their money. Instead, crowdfunders expect to get a “gift” from your company as thanks for their contribution. Often, that gift is the product you plan to sell or other special perks, like meeting the business owner or getting their name in the credits. Crowdfunding is very low risk for business owners.
You can choose to get a small business loan. To increase your chances of securing a loan, you should have a business plan, expense sheet, and financial projections for the next five years. These tools will give you an idea of how much you'll need to ask for, and will help the bank know they’re making a smart choice by giving you a loan. Once you have your materials ready, contact banks and credit unions to request a loan. Compare offers to get the best possible terms for your loan.
4. Pick Your Business Location
Because your business location determines the taxes, licenses and permits, zoning laws, and minimum wage laws, property values, rental rates, business insurance rates, and utilities your business will be subject to, you’ll need to make a strategic decision about which state, city, and neighborhood you choose to start your business in. Don’t forget to also base your research on your business objectives: your target market and business partners.
5. Choose a Business Structure
With creativity and market research, you can find the right business name. Once you’ve chosen your name, protect it by registering it with the right agencies. There are four different ways to register your business name. Each way of registering your name serves a different purpose, and some may be legally required depending on your business structure and location:
- Entity name protects you at state level
- Trademark protects you at a federal level
- Doing Business As (DBA) doesn’t give legal protection, but might be legally required
- Domain name protects your business website address
Each of these name registrations are legally independent. Most small businesses try to use the same name for each kind of registration, but you’re not normally required to.
6. Register Your Business
Register your business to make it a distinct legal entity. How and where you need to register depends on your business structure and business location. For most small businesses, registering your business is as simple as registering your business name with state and local governments. In some cases, you don’t need to register at all. But while you may not need to register If you conduct business as yourself using your legal name, you could miss out on personal liability protection, legal benefits, and tax benefits.
Most businesses don't need to register with the federal government to become a legal entity, other than simply filing to get a federal tax ID. Small businesses sometimes register with the federal government for trademark protection or tax exempt status.
If your business is an LLC, corporation, partnership, or nonprofit corporation, you'll probably need to register with any state where you conduct business activities. You’ll also need a registered agent in your state before you file. A registered agent receives official papers and legal documents on behalf of your company, and many business owners prefer to use a registered agent service rather than do this role themselves. Some states allow you to register online, and some states make you file paper documents in person or through the mail. Most states require you to register with the Secretary of State’s office, a Business Bureau, or a Business Agency.
If your business is an LLC, corporation, partnership, or nonprofit corporation, you might need to file for licenses and permits from the county or city. Some counties and cities also require you to register your DBA, a trade name or a fictitious name, if you use one. Local governments determine registration, licensing, and permitting requirements, so visit local government websites to find out what you need to do.
7. Get Federal and State Tax IDs
An employer identification number is like a social security number for your business. You’ll need it for important steps to start and grow your business, like opening a bank account and paying taxes. Some, but not all, states require you to get a tax ID as well.
8. Apply for licenses and permits
The licenses and permits you need for your business will vary by industry, state, location, and other factors. Keep your business running smoothly by staying legally compliant. Read our guide on licenses and permits you may need at both state and federal levels.
9. Open a business bank account
Open a business account when you're ready to start accepting or spending money as your business. You can open a business bank account once you've gotten your federal EIN. A business bank account helps you stay legally compliant and protected, and benefits your customers and employees. Common business accounts include a checking account, savings account, credit card account, and a merchant services account. Merchant services accounts allow you to accept credit and debit card transactions from your customers.
Find an account with low fees and good benefits. Rates, fees, and options vary from bank to bank, so you should shop around to make sure you find the lowest fees and the best benefits. When shopping around, consider introductory offers, interest rates for both savings and checking accounts, interest rates for lines of credit, transaction fees, early termination fees, and minimum account balance fees. When choosing a merchant services account, take into consideration the discount rate, transaction fees, Address Verification Service (AVS) fees, ACH daily batch fees, and monthly minimum fees.
Payment processing companies are an increasingly popular alternative to traditional merchant services accounts, and sometimes provide extra functionality, like accessories that let you use your phone to accept credit card payments.
10. Set Up Accounting System
Once you have your bank account set up, choose an accounting program to make sure your books are organized.