12 Steps to Starting a Small Business
Being your own boss can be immensely rewarding. Though the start-up process can seem overwhelming, it can be boiled down to a few key actions. Getting a company up and running requires planning, making important financial decisions, and completing legal paperwork, but you can start by following these 12 steps:
Step 1: Define your business and market demand
Before launching a business, make sure there is a market for your idea. Start by asking yourself a few key questions, including what problem is your business solving? Who is your customer? Who would be your existing main competitors, and how does your idea differ? Do some research to answer these questions and see how your business will stack up. The answers will help you develop an action plan—and possibly tweak your idea—to get your venture off to a successful start.
Step 2: Write a business plan
You don’t need an MBA to write a business plan. In fact, it can be as short and simple as one page. Think of it as a three to five year guide that will help you map out how to start your company and successfully run it. Your business plan should include what goods or services your company will offer, your target customer, how much you will charge, and how you’ll fund and market your product. Do research beforehand to make sure there is enough of a potential customer base. Take a close look at your defined audience and decide whether you’ll exist for a local, national or niche market, and whether you’ll run an e-commerce or physical operation.
Step 3: Fund your business
Capital is necessary to start every company. If you don’t have the cash, look beyond your own wallet. First, determine how much you’ll need and where the money will come from. If you plan to approach investors, perfect your business plan and your elevator pitch. Consider government backed loans, venture capital and research grants, as well as newly popular crowdfunding sites, in which your network of family and friends contribute to start-up costs. As a veteran, you’re entitled to a special U.S. Small Business Administration (SBA) loan, called Patriot Express.
Step 4: Determine your business structure
Decide which form of ownership is best for you: sole proprietorship, partnership, Limited Liability Company (LLC), corporation, S corporation, nonprofit or cooperative. Your business type determines which income tax you’ll file. Each type of business structure has its pros and cons, so it’s best to consult an accountant and a lawyer, if possible.
Step 5: Choose and register a business name
A name says a lot about your business, but there’s more to picking one than being catchy—it has to be legally available. To make sure someone else doesn’t own it, check online at the U.S. Patent and Trademark Office. However, you can still infringe on someone else’s trademark even if it’s not registered there, so also search state and local databases. When choosing a name, keep branding in mind; the title should be clear, easy to remember and spell, and something you can grow with.
In addition to selecting your business name, you may also need to register a fictitious business name, known as a DBA (Doing Business As). A DBA is needed when your company does business under a different name, and if the company name is different from your own name.
Finally, make sure your business name is available as a web domain (omitting hyphens, if possible), then register it immediately. If the dot.com suffix is taken, try dot.net or another suffix. Avoid dot.org, unless you’re filing as a non-profit. Once your business name and domain are finalized, make business cards. They should include your name, address, email address, website, phone number, and social media links, like your Facebook page or Twitter handle. Some also include a short phrase describing their company.
Step 6: Create a marketing plan
Thanks to social media, marketing has gotten a lot easier. Build your brand’s name by expanding your company’s online presence. Create a website, a Facebook page and Twitter account, and depending on the nature of your company, considering using Instagram, Tumblr, and Pinterest as well. By interacting directly with your market, customers will feel more engaged. Update your website and social media accounts frequently, and read up on SEO (search engine optimization) to maximize your web presence. Another effective tactic is email marketing: Build a list of potential customers, business associates and colleagues (you can have them sign up on your website), and send them regular updates.
Step 7: Get a Tax Identification Number
To mark your business as a separate legal entity, you’ll need to obtain a Federal Tax Identification Number, also referred to as an Employer Identification Number (EIN). Similar to a social security number, a tax ID lets the Internal Revenue Service (IRS) track business transactions. Though they aren’t mandatory for sole proprietors, they’re recommended so that you don’t have to use your social security number for business practices. The application process is free, quick and simple; apply online at the IRS website.
Step 8: Open a business bank account
Never mix your personal and business bank accounts, which could lead to a run-in with the IRS and affect your mortgage and loan payments, as well as other personal finances. Instead, use a business bank account for all of your company’s transactions. Open one in the name of your business and EIN. Additionally, you may want to open a business credit card to avoid using a personal one for company matters.
Step 9: Figure out your taxes
Your business structure will determine the types of taxes you’ll have to pay. All businesses, except for partnerships, are required to file an annual income tax return. Depending on whether or not you have employees, you may also have to pay employment taxes (which include social security and Medicare taxes) and a self-employment tax. Additionally, decide if you’ll pay taxes according to the calendar year or the fiscal year (you can determine that schedule).
Step 10: Get the necessary licenses and permits
While every locality has different requirements, all demand business licenses—even if yours only exists online. Make a list of federal, state and local licenses and permits required for your business. (Find more information here.) If you have a physical storefront, familiarize yourself with zoning laws from the county clerk’s office. Use your company’s EIN instead of your Social Security number when filing paperwork.
Step 11: Learn relevant laws and regulations
If you’re starting an online business, contact the Federal Trade Commission to learn about e-commerce regulations.
If you’re hiring employees, spend time with an employment law professional to learn and understand the legal steps you need to take. Familiarize yourself with federal and state payroll and withholding taxes, unemployment insurance, anti-discrimination laws, workers’ compensation rules, Occupational Safety and Health Administration (OSHA) regulations, and wage and hour requirements.
Step 12: Set up your accounting system
Bookkeeping can be simple, at least when you first start your business. Begin with an Excel spreadsheet that lets you track money you spend and receive; include columns for revenues and expenses, and add more as you go. When you’re ready for a more formal system, invest in business accounting software like QuickBooks.