You want to become self-employed and have a great idea, but don't know how to start a business. It can be a daunting prospect, and while it comes with many challenges, becoming a business owner might be the most rewarding step you ever take in your professional career. Before you dive in, make sure you know what's involved in starting a business, what's required of you to make it successful and how you're going to fund the venture.
How to Start a Small Business
The first thing to do for your business is to determine whether your idea is as great as you think it is. In other words, will it make you money? This involves market research, which can be done in a variety of ways depending on your particular business. Figure out who your potential customers are, what their buying habits are in relation to your product or service and why they might choose to buy from you rather than your competition. Approach potential customers directly, read published reports on customer's buying habits in your industry and check out what similar businesses are doing, either in your local region or online.
The next step is to write a business plan. Don't rush this part, as a solid business plan is crucial if you plan on applying for funding. The format and content of business plans vary greatly, but in general it should cover the first three to five years of your business and detail how you intend to make money. Your plan should specify the legal structure of your business (i.e. whether your concept is a sole proprietor, a limited partnership or a C corporation). This is an important decision, because the structure you choose affects your legal obligations, taxes and personal liability. Your business location also affects your legal obligations and taxes. The nature of your business determines whether it is online only or requires a brick-and-mortar storefront.
What are the Requirements to Start a Business?
When you have chosen your business name and decided on its legal structure, it's time to register your business. This involves registering your business name or trade name. If your business name is not the same as your own, you need to register with the federal government and perhaps your state government as well. Registering your business as a legal entity, such as a Limited Liability Corporation (LLC), with the right tax authorities and registering for the appropriate licenses and permits. The licenses and permits you need for your business depend on a range of criteria including your industry, state and location. If you need help with licenses and permits, contact your local Small Business Development Center.
If you have employees, business partnerships or are a corporation or organization, you'll need to apply for an Employer Identification Number (EIN). If you don't need an EIN, you can simply use your Social Security Number to administer your business finances. Some states issue a separate tax ID which is used to open a bank account and pay your business taxes. Make sure you stay up to date with the relevant federal, state and local tax laws for your business.
How Much Money to Raise for Your Business
How much money you need to start your business depends on the type of business, where it is located, whether you will hire employees, how much stock and/or equipment you need and many other factors. Upfront costs might include web development, computers and software, signage, heavy machinery and vehicles, office furniture and security deposits on rentals and other services. Ongoing monthly costs might include rent, loan repayments, insurance, employees' wages, utilities (such as internet, phone and electric), taxes, sales and marketing campaigns, supplies and inventory. Upfront costs aside, some experts recommend that you have enough cash to cover at least six months’ worth of ongoing expenses from your first day of trading.
According to Census data, more than 40 percent of all small businesses started up for under $5,000. However, the more money you have the easier the early days of your business venture will be. If you don't have the money you need, you'll have to either borrow it (from friends, family or a bank) or raise it by crowdfunding online. Crowdfunding sites like Kickstarter, GoFundMe and Indiegogo have raised billions of dollars for individuals and businesses.