Starting a new business is fun and exciting but it can be full of obsticals and mistakes if you are not carefull. That's why we put together our top 10 steps you should take when starting your new business.
There's a difference between wanting to start your own business and being ready to start your own business. The Small Business Association offers a free 40-point questionnaire for potential entrepreneurs. In a nutshell, you should know the business you're looking to enter, be prepared to risk some money and a lot of time, and have some idea of how to manage your financial resources and basic business challenges. The survey also asks a few questions about your emotional state, which may be just as important for you to understand before you begin.
A study conducted at Southern Methodist University's business school identified a dozen personal and emotional characteristics associated with successful entrepreneurs. Some are obvious – self confidence, an attraction to challenges, and a need to control and direct. Some traits are less obvious – good health helps, because entrepreneurship can benefit from energy. Also, entrepreneurs often have a low need for status, at least as measured by stuff you own. The challenge matters more than the wealth for many successful entrepreneurs. And, while entrepreneurs can be work hard-play hard folks, they tend to be very serious about business with a realistic, disciplined and objective outlook about how their company does and how their people perform.
You probably need to have friends and family on board with your entrepreneurial vision as well. You will be working hard – maybe harder than you've ever worked before – and you're probably going to have to make some personal sacrifices in time and money to be successful. You need to be ready for the reactions of the people close to you.
And, you need to know what you really want out of your business. Some people start their own business to find freedom from corporate life. Some want a chance at fame and fortune. Some people are looking for respect and recognition. Some people just want to be able to stay close to their kids. There's no wrong answer, but you need to know why you're doing this, so you can align your company's goals with your own.
You need a business plan. You do not need to be a slave to your business plan.
Business planning makes you sit down and think deeply about what you're going to need to do to make your business work. Banks and investors and even some potential employees will generally want to see one before you can get their attention. Both the and – a business mentoring group of retired executives – have tools and guides to help you write a business plan, and some of our business partners can also help.
At a minimum, a business plan will explain to investors what goods or services you're planning to produce, who you're selling to and who is competing with you. It describes how your business will be organized – who is in charge, how are you incorporated and where you're operating. It will also have a balance sheet with your assets and liabilities, as well as your projections for income and cash flow.
All business plans ask three essential questions – what need does my product serve, how can I serve that need better than the next guy, and how much profit will I need to break even?
You're going to have some anxiety as you start filling in the blanks. Market data about consumer demand can be tough to find. You can get estimates for some expenses like office space, insurance, Internet service. But you're going to have to guess at some answers until you see how things really work. That's OK. If you can answer these questions, you're in better shape to figure out how your company should be incorporated, how much money you're going to need to borrow, and how to market your products.
And remember – things change. The most finely crafted plan may not survive first contact with the real world. Flexibility is a virtue.
Your finely-crafted plan may also wither in the face of regulation. We have a series of articles here describing the most commonly asked legal questions we could think of about starting a company and running a small business. Before you borrow money, rent office space, hire staff or start signing contracts, you need some idea of what will get you audited, arrested and sued. So know what taxes you'll be liable for, and which activities can land you in court. I don't care how the saying goes, there is such a thing as bad publicity.
(Warning: Legal boilerplate ahead – These articles are intended for informational purposes only and do not constitute legal advice. You should not rely or act upon any information contained in these articles without seeking the advice of qualified legal counsel.)
Sure, you can do business without incorporating. For a while, that might just work. But you run a tremendous legal risk if someone decides to sue you for making a mistake or to collect on a bill, and it's harder to raise money unless you have especially rich and generous relatives. Incorporation is a legal shield separating your personal assets from those of your business, and it's often the first formal steps a business owner takes to organize a company. We have more information about incorporation.
Once you've incorporated, you're going to want to file for the appropriate business licenses in your state and city. We can help with that, too.
You need an Employer Identification Number (EIN), also known as a Federal Tax Identification Number. If you don't have one, get one from the IRS. They're free. If you try to start doing real busness without one, your bank, state government and the IRS will frown. And by "frown," we generally mean "cost you time and money."
Every state doesn't tax businesses, but most do. Depending on the state, some businesses must also register for one or more tax-specific identifcation numbers, licenses or permits, including income tax withholding, sales and use taxes, and unemployment insurance taxes. Check for details
It's hard to run a business out of your personal checking account without drawing fire from the IRS. Mixing your personal and business funds is also a good way to break the liability shield of your legal incorporation. You need to establish a business bank account.
To accept credit cards, you'll also need a merchant business account.
If you've worked through a business plan, you have some idea of how much money you'll need to get started. And if you've incorporated, filed for tax ID numbers and established business accounts, you've gone a long way toward looking credible when you walk into the bank – or somewhere else – looking for a business loan.
We have a series of articles here describing the most commonly asked financial questions we could find about funding a company.
You're probably going to need phones, a computer and office space. We can help with that. You'll probably need an Internet connection. We can help with that, too. You might need manufacturing space, or a retail storefront, or a business vehicle. If you've planned properly and found the funding you need to get started, this will probably be the easiest problem you have to solve, in terms of getting stuff done. Understanding how to make it all work together might take a little longer, but … yes … we can help with that.
You may also have to hire some folks. Hiring someone you won't want to strangle in six months takes a little effort. But we have a whole section about that.
You need insurance. Not want. Need. If you have employees, you need workman's compensation and unemployment insurance. If you're in any kind of professional line of work, you need liability coverage. And if you own stuff, you need property coverage, for starters. Here's what you need to know.
Sounds easy, doesn't it? But you're going to need a marketing plan, sales leads, and probably some advertising and branding to do it right. We have a section covering the most commonly asked questions about how startups can market themselves.