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Steps in Starting Your Own Business
Launching your own business from scratch takes bravery, quick thinking and careful planning; but it can also hugely rewarding - not to mention loads of fun - if you prepare properly. So this article will walk you through the basic steps of getting your business off the ground, from writing a business plan to securing funding to filing legal paperwork to organizing your office. By the end, you'll be able to start thinking about how to adapt this general process to your own business idea. So if you're ready to end your days working for someone else and strike out on your own, read on to find out how.
If you're looking for a walkthrough on preparing for your launch, you've come to the right section. Follow each step below, and you'll be on your way to a promising start-up in no time. But first, you'll need to lay some very important groundwork. Start by mapping out where you're headed.
Step 1: Draft Your Business Plan
Before you start thinking about funding or hiring, your first step is to put together a written business plan. Even if you've already got a product to sell - or one in development - you'll still need a detailed plan in order to attract investors and employees, map out your objectives and organizational structure, and get prepared for obstacles you'll encounter during your launch and initial growth period. On one hand, a solid business plan requires quite a bit of mental focus - so you'll want to set aside a few days (at least) for the sole purpose of putting one together. But at the same time, most business plans follow a clearly structured formula, which means the writing process should go smoothly as long as you stick close to the script.
Here's the basic outline of a standard business plan:
- Executive Summary - This section consists of a few paragraphs describing what the business will be, where it'll be located (physically and/or digitally), how it'll make money and how it'll grow. You'll expand on all these topics in much more detail later in your business plan, so keep this section simple, clear and to-the-point.
- Objectives - These are your specific, measurable goals for the immediate future. They can state an amount or range of money you plan to make, a percentage of the market you plan to capture, a profit margin you plan to attain, or a group of clients you plan to secure.
- Organization - Here's where you explain who'll own the company, who'll run it, and who'll be the final decision-maker(s). Even if you only have a few employees or owners at this stage, you'll still want to draw up a basic organizational chart. A chain of command can get muddled over time as people take initiative on various tasks, so it's best to be clear from the get-go about who's responsible for what, and who reports to whom.
- Products/Services - Describe what you'll be selling, where you'll get it from (or how you'll create it) and how it's different from similar products or services already on the market. You may also want to add details about how quickly you'll produce your product, or how regularly you'll perform your service.
- Market - Who are your customers, and how will you reach them? How will your product or service help them? When, where and how often will they buy what you're selling? The answers to these questions usually take more than a single sentence to explain, so this section often includes breakdowns of all your potential customers, and how each of those groups will buy and benefit from what you sell.
- Competition - No matter what you're planning to sell, someone else is already selling something similar; or at least something that meets a similar need. So describe how you're different from the competition, how they'll pose challenges to your business, and how you plan to meet each of those challenges.
- Strategy - Every product requires marketing and advertising, even if it's just word-of-mouth. This section is the place to explain how you'll get a buzz going about your product or service, and how you'll get it into customers' hands and homes. Include details about where you'll sell it and where you'll promote it.
- Financials - Here's the section where you explain how you'll fund your launch, how soon you expect to break even, how large you expect your profit margins to be, and how you plan to reinvest those profits. If you don't yet have a clear idea of, say, what your marketing budget will be, just estimate the percentages you'll put into advertising, growth, hiring, product development and so on.
- Milestones - How will you know you've achieved a successful launch? In this section, lay out your exact goals for the first year or two: How much you aim to make, what profit margin you aim to achieve, how many stores you plan to open, how many customers you aim to have, what percentage of the market you aim to capture, and so on. Describe your best-case and worst-case scenarios, and specify your exact benchmarks for proceeding with expansion on one hand, or closing up shop on the other.
Many business plans go into much more detail than this, and include many sub-sections underneath each main one. The level of detail you choose to use - and the order in which you arrange your sections - depends on the type of business you're launching, its size and level of complexity at this stage, and who you need to impress. If you're a small store asking for a five-figure loan from the local bank, a plan of ten pages or so - accompanied by a few pages of charts of financial projections - is probably fine. But if you're planning to pitch to national investment firms or venture capitalists, you'll want to include detailed, thoroughly researched breakdowns of your market, your operations, your costs and your strategy.
Step 2: File Your Paperwork
Registering your business name is required by law in order to operate legally in your state, to grab any benefits the government may be offering, and to file your taxes when the time comes. If you'll be the sole proprietor of your business, you probably only need to register a fictitious business name ("Doing Business As," or "DBA"), and that process shouldn't take more than a few hours from start to finish.
If you'll be working with other owners and/or employees, though - and if you want to keep your personal financial assets separate from the business's assets - you'll need to register as a Limited Liability Company (LLC), a C-Corporation (C-Corp) or an S-Corporation (S-Corp). The federal government has created special requirements and restrictions for each type of organization, so make sure you choose one for which you're eligible, and which suits your business's structure.
Once you've decided on the type of business you'll be filing as, you've got two main ways to handle the paperwork. One option is to handle the registration yourself by getting in touch with your local county clerk’s office or your state government. They keep a database of registered business names, and will need to make sure yours isn't a duplicate. Once that's cleared up, you'll probably have to stop by the office in person, fill out a packet of forms, and receive your confirmation in the mail a few weeks later.
The second option is to shell out some more cash and let a legal documents preparer - like Legalzoom or The Company Corporation - handle all the details for you. Companies like these can even offer you some over-the-phone advice about which type of filing to choose, they'll ensure that the forms are all filled out and filed exactly as required, and they'll also walk you through any snags that arise during the filing process. If you'd rather not get tangled up in red tape at this stage of your launch, it may be worth the extra few hundred bucks for you to take this route and let the experts handle the gritty details on your behalf.
Depending on the type of business you plan to operate, you may also need to file for special licenses or permits from your city and/or state. Selling food, alcohol or firearms, for example, all require certain permits. The U.S. Small Business Administration (SBA) offers a simple online tool designed to help you figure out which permits you'll need in order to operate legally. Once you've filed all the necessary paperwork to avoid any legal rouble, you're ready to move on to the next step.
Step 3: Secure Your Funding
Whether you're starting a small cleaning business or launching a software firm, you'll need some seed money to build up your initial customer base until you're generating a steady profit. Even if you're using your personal savings as the primary funding source, you'll still need some outside help if you plan to buy advertising, rent office space, hire someone to answer phones, and keep products and/or supplies in stock. The good news is that you've got a variety of options for funding your business.
The most common form of start-up financing is equity funding - collecting investments from friends, family members and other interested parties in exchange for a share of ownership in the business. This carries certain risks and responsibilities, of course - most notably, the fact that you'll be responsible to your investors from day one - but it's a highly effective way to drum up a large amount of cash, quickly, without risking your personal credit or savings. If you take this route, be sure to draw up your funding documents properly and precisely - or hire an expert to draw them up for you.
Equity funding doesn't always pan out, though - or you may prefer to avoid the complexities and obligations of that option. If that's the case, you may be able to get a small-to-medium loan just by presenting your business plan to a loan officer at your local bank. Many banks are eager to help promising local businesses, as this generates more cash flow in town and ultimately drives more money back to the bank. The SBA also provides financial assistance to a variety of businesses, and their requirements aren't too strict.
Step 4: Track Your Taxes
This step may seem like an afterthought, but the way you handle your taxes can make or break your business. Federal and state governments require businesses of all sizes to pay taxes in different ways than individuals do. Failure to meet these requirements can result in stiff financial penalties, as well as the possibility of an audit, or even the loss of your business license.
There are two main differences between business and individual tax filing: Timing and forms. Almost all businesses are required to make estimated tax payments (based on their expected profits) four times per year. If you overestimate and overpay, you can file for a refund on these taxes - but failure to pay them will land you on the bad side of the IRS. Business tax forms, meanwhile, tend to involve a lot more items than an individual 1040 form. The government will require you to document all business assets (including offices and vehicles), profits and losses, and a variety of other factors, depending on the type of organization you file as.
If your business isn't too large or complex, you may be able to handle this additional tax paperwork with the business edition of a piece of tax software like TurboTax or TaxACT. This software will walk you through every area of the form, double-check for mistakes, submit the forms electronically, and even set up email reminders about future estimated payments. But if you're launching a business with a lot of moving parts, it may be worth your while to hire a freelance accountant, at least for an initial consultation and to help out around tax time.
The guide in the previous section walked you through the basic steps, but plenty of other online resources can guide you through the details and answer many of your questions. Some of these websites host libraries of information on every aspect of launching a business, some include step-by-step examples of business plans and other company documents, and still others offer networking and support connections. No matter what stage of your start-up you've reached, some of these resources should be able to address your concerns in detail.
BPlans.com offers a collection of information and samples for the small to medium size businesses, all of which you can download or view online for free. BusinessPlans.org provides a varied collection of free business plan samples, software and strategies. SBA.gov includes step-by-step tutorial on business plan evaluation, market research and starting up - along with an extensive library of answers on every business topic from advertising to taxes. Entrepreneur.com hosts a list of business start-up kits, each one offering detailed info on a particular industry, market and operational structure.
In terms of support as you lunch and run your business, the Better Business Bureau (BBB.org) provides a variety of services and programs to assist consumers and businesses. The National Business Incubation Association (NBIA.org) offers hands-on management assistance, access to financing and orchestrated exposure to critical business or technical support services. And the National Association for the Self-Employed (NASE.org) helps small business owners obtain better prices for the goods and services they need.
Although the first section of this article included an overview on various sources of business funding, this section offers some suggestions for additional resources that can help you make more informed decisions about where and how to obtain your start-up funds. And as long as you're on this topic, you may also want to check out our Information & Discussion Areas for Entrepreneurs, many of which have additional information on funding.
The MoneyTree Survey reports on U.S. venture capital equity investments each quarter. This can give you a clearer idea about who's investing in what kinds of businesses, and how these trends compare to those of previous quarters. The National Venture Capital Association (NVCA.org), meanwhile, is a major trade association representing the venture capital industry - and its website hosts lists of venture capital organizations (including regional groups), sample corporate governance documents, and more.
As the first section explained, proper handling of taxes and legal documents can make all the difference between your business's success and failure - so spend some time reading up on the basics, and clear up any questions you have early-on, rather than just making a best guess and hoping for good results. Reviewing the regulations can be incredibly dull sometimes - there's no doubt about that - but keep in mind that once you understand how to avoid trouble, you'll save yourself a potentially huge source of stress over the long term.
The Internal Revenue Service (IRS.gov) provides a large library of tax info for businesses - and, after all, who better to give you accurate tax advice? They give you plans to follow on retirement benefits for your employees, information on "exempt" organizations, information on starting your own business from their point of view, and a nice list of links to the most requested tax publications for businesses. The official site of the U.S. Department of Labor, DOL.gov, is also worth checking out. It's got lots of info on regulations governing employees and employers in the U.S.
After everything you've worked through up to this point, actually getting your office set up is the fun and easy part. As tempting as it might be to splurge on impressive desks and chairs, the start-up period is a time to scrounge as much furniture as you can from yard sales, friends and family, and the Craigslist "free" section - provided it's all clean and professional-looking, of course. But some supplies just have to be ordered (and re-ordered), which is where the resources in this section come in.
No large office supply store near you? No problem. OfficeDepot.com, Staples.com and OfficeMax.com all offer online shopping and quick nationwide delivery of all types of supplies, from chairs and desks to staples and pens. They can even set you up with a corporate account, which may qualify you for discounts and other special promotions, especially if you regularly buy in bulk. And when you're done with old computers and other electronics, don't just toss them in the trash - use ECyclingCentral.com to find a recycler near you, if at all possible.
BPlans.com -- Excellent collection of sample plans for a variety of businesses.
SBA.gov Resources on Starting a Business -- Huge library of detailed answers on many aspects of launching and running a new business.
IRS Tax Info for Businesses -- Answers to lots of business-related tax questions, straight from the source.