Starting your own business provides many opportunities,
including the chance to explore your passion; however, it also often brings
many questions regarding the process of entrepreneurship, which this ultimate
guide on how to start a business will assist you with.
Part 1
When to Start a Business of Your Own
There are many situations that provide the perfect
opportunity to start your own business. Some of the most common include:
You Always Wanted to Own Your Own Business
Some people know from the beginning that they want to start
their own business; therefore, they will take the journey into entrepreneurship
early on. In fact, there are kids
as young as five who have started their own business. However, no matter when
the bug hits you, it may be a good time to take a chance and start your own
business.
You Lost Your Job
Another great opportunity for starting your own business is
when you become laid off or fired from your job. Sometimes your 9 to 5 can get
in the way of pursuing your dream of starting your own business; however,
losing your job provides the perfect opportunity to take a leap into
entrepreneurship.
You Feel Unfulfilled
Many entrepreneurs created their own business as a result of
being unhappy or dissatisfied with their job. If your current position leaves
you feeling unfilled and loathing your job, then it might be a good time to
look into starting your own business.
Your Field Lacks Jobs
If there is a shortage of jobs in your field, instead of
taking a job with incompatible skills, you may consider starting your own
business.
You Like to Help People
If you like helping people, then it could provide the
perfect opportunity to start your own business. In fact, one of the
main characteristics of an entrepreneur is an intense desire to help
people.
Or, if you would like to help people simply by creating more
jobs, it may also provide a great opportunity to start your own business,
especially if there is a pool of talented people around you.
You Think You can Create a Better
Company
If you are unsatisfied with the way your company does things
and you feel confident that you can build a better company, then it might be a
good time to start your own business.
You Have a Nagging Concept or
Idea
If you have an idea or concept that keeps you up at night or
just simply won't go away, then it could provide the inspiration you need to
start your own business.
You Need to Express Yourself
If you are fed up with working for others, you feel you're
not growing in your job, or you're just plain tired of seeing your creative
ideas fall by the wayside, then this might provide the perfect opportunity to
branch out and start your business. Likewise, if you are a person with
professional skills as well as street smarts, starting your own business can
provide the catalyst you need to put your knowledge to work.
You Crave Job Security
When you work for someone else, the threat of maybe the
company shutting down or you being replaced looms over you, especially as you
get older, which can create job anxiety. However, starting your own business
can provide the job security you need because you are your own boss.
Furthermore, some people also want to provide job security for their family;
therefore, they may start their own business as part of their family
legacy.
Your Values Clash
Sometimes your values can clash with traditional principles,
which can make it difficult to find or hold down a job; thus, it provides the
perfect opportunity to start your own business.
You Want to Feel More
Successful
Doing something you enjoy helps increase efficiency, productivity, and job
satisfaction, which in turn makes you feel more successful.
Therefore, if want to feel more successful at your job, then you might consider
starting your own business devoted to doing something you enjoy.
You Need a More Flexible
Schedule
Perhaps you are a person who's at their peak during night
hours as opposed to during regular business hours. Rather than struggling to
find a job that fits your schedule, you
could simply start your own business, which will allow you to create a more
flexible work schedule, so you can get the job done when you're feeling your
best.
Identify Your Strengths and Weaknesses
Entrepreneurship includes its share of challenges;
therefore, it is important to know your strengths and weaknesses before you
begin in order to determine if setting up a business may be right for you.
The people closest to you, such as your parents, teachers,
friends, spouses, colleagues, classmates etc., are usually the first to notice
your strengths and weaknesses. Therefore, to learn about yourself, you might
consider asking the people who you spend the most time with to weigh in. You
could also take a personality
test to help identify your strengths and talents.
Some strengths of entrepreneurs include:
They are Risk Takers
Starting your own business involves taking risks, which can
be too much for some people to handle. However, entrepreneurs tend to have an
uncanny ability to handle risks. So, if you find that you handle risks well,
then starting your own business may be right for you. The key is to study and
understand the pros and cons of what you are pursuing before you jump in, also
known as calculated risks, to help ensure your success.
They are Resilient
Entrepreneurs often encounter many failures before finally
becoming successful; however, they have resilience in order to survive the
pitfalls of business as well as the discouraging people they come across. In
fact, many prominent entrepreneurs, such as Bill
Gates, Walt Disney, J.K. Rowling, Jay Z and more, encountered failures and
rejections before becoming who they are today.
They are Self Motivated
Entrepreneurs don't need anyone to get them moving, they
wake up each day ready to face their tasks. So if you are a self starter who
doesn't need anyone to get you motivated to do what's needed, then
entrepreneurship might be for you.
They are Passionate
Most business owners and entrepreneurs are not in it to
become rich; they're just extremely passionate about what they do and will go
the heights to turn their dream into a reality.
They Don't Mind Working Long
Hours
To be an entrepreneur requires great work ethics. In fact,
many people put in long hour days, multiple days per week, working at their
business.
They are Organized
Entrepreneurs have great organizational skills, meaning they
are great at managing their resources. In fact, as an entrepreneur, in the
beginning, you will need to depend on your self to manage your own finances,
investments, taxes, marketing and more; therefore, you will need to have good
organizational skills.
They are Always Thinking
Entrepreneurs are continual thinkers, meaning they never
stop thinking, and they never stop seeing the possibility in making
improvements in an effort to enhance their business as well as the lives of
others.
They are Okay With Little or No
Pay
Entrepreneurship differs from corporate jobs in that it is
measured by output, which means there is no weekly paycheck. Therefore, when
business is slow, you have to be okay with making little or no money.
How to Come up with a Business Idea
Now that you have a general idea of reasons to start your
own business as well as the strengths needed to become a successful
entrepreneur, it has most likely inspired you to conjure up a list of ideas for
your business. Now it's time to narrow down your list to a single business
idea.
Narrow Down Your List
To begin, ask yourself, of the list of ideas, what's
realistic, and what can you honestly see yourself committing to for the next 20
years or until retirement. Keep in mind, you will also need to convince
investors of your idea in your business plan.
Anything that doesn't fit your vision, simply cross it off
the list.
Talk with Family and Friends
Next, talk to your family, friends, and colleagues etc.
about what they think about your ideas. However, be warned, it is extremely
important at this stage of your project that you only share your idea and seek
advice from those whom you know will not steal your idea or envy your courage to
start a business. You should also beware that some people will try to
discourage you, and they may even have good intentions; however, if you truly
believe in your vision, then this is where your resilience will come into play.
Talk with Potential Customers
You could also talk with potential customers to see what
they think of your ideas. Ask questions like, would you buy this service or
product, and how much would you would pay for it etc. You should also become
attuned to the frustrations of your family and friends to see which of your
ideas addresses their issue.
What is a Good Business Idea?
Now that you have narrowed down your list to a single
business idea, you will need to conduct market research, which we will go into
more detail later, in order to determine if it's a good business idea. In fact,
many businesses fail due to their lack of in-depth market research and
planning.
Market research enables you to collect valuable information
from various sources, including state and federal agencies, web searches,
industry associations and more, which can then be used to determine the
potential of your business idea.
By utilizing market research, you can gauge if there is a
market for your product or service as well as who will be using your offerings,
including their location, gender, ethnicity, and more, so you can market your
product or service accordingly to help increase your chances of success.
Small Business vs. Franchise
Once you have determined there is indeed a need for your
product or service, you will next need to determine if you would like to start
an independent business or simply invest in a franchise. In order to determine
which is best for you, let's look at some key differences between the two.
The Difference in Brand
Recognition
When you open a franchise business, you have the benefit of
operating under a brand that has been proven and established, which means you
already have a loyal customer base, so you don't have to work so hard to
attract customers.
On the other hand, as an independent business, you are new
to the market; therefore, you have to build your brand and reputation in order
to gain a strong customer following.
The Difference in Ownership
A franchise means the parent company grants the owner
permission to operate a business using their name and products; however, they
retain the right to make decisions about the product and service offerings in
an effort to maintain their reputation and brand. Therefore, the franchise
owner forfeits the freedom to operate the business according to their own
personal preferences in exchange for the reliability of an established
brand.
However, as an independent business owner, you retain the
right to make all ownership decisions; therefore, you can develop services and
products however you like, but since your products and services are new, they
have not yet been proven in the marketplace; therefore, you will have to work
towards establishing your brand.
The Difference in Costs
When it comes to investment costs, independent business
owners tend to pay more to purchase
and maintain their business; however, they also have the benefit of making
their own investment decisions, including which improvements to make and the
timing; thus, they can also make delays during the project if need be.
As a franchise owner, however, when it comes to making
improvements to your business, you must abide by the restrictions set by the
parent company, meaning the parent company has the right to control the scope
as well as the timing of the project. However, franchise owners tend to enjoy
lower investment costs, but they may also be required to pay an upfront
franchise fee in addition to ongoing royalties.
The Difference in Operational
Resources
Though independent owners retain total control over their
companies, they do not have access to the support provided by a parent company,
such as marketing, supply chain management, operations, human resources and
more. Therefore, owning an independent business may be a bit challenging for
first time business owners because they have to do everything on their
own.
Franchise business owners, on the other hand, are provided
access to a wide range of corporate support and services, which makes it a bit
easier for first time business owners.
Deciding Between an Independent Business and a
Franchise
When it comes to choosing between opening an independent
business or a franchise, you should know
that there is no definite evidence that shows that either type of business
increases your chances of success. In fact, both
independent businesses and franchises fail at about the same rate.
Therefore, you will need to conduct thorough research before investing in
either type of business.
In the end, the decision to buy an independent business or a
franchise generally comes down to your nature. If you prefer the stability of
an established company, then opening your own franchise may be for you.
However, if you enjoy retaining control over operational and other activities,
then opening an independent business may be for you.
How to Manage Risk as a Business Owner
There are various risks involved with starting a new
business from financial risks, which can make or break your ability to succeed,
to market risks, which constantly threatens the popularity of your product or
service as trends change, and even management risks, which can occur as a result
of hiring managers with little or no experience, and more.
However, the following tips will help you manage your risks,
so you get the most out of your business and a good night's sleep.
Do Your Homework
The best way to manage financial risks associated with
starting a new business is to do your homework. This means, before you begin,
be sure there is a market for your business in order to avoid closure of your
business later, which can lead to a huge financial loss.
Only Operate in Areas You are Good
At
Another way to safeguard against financial risks is to only
operate in areas that you are good at or are passionate about.
Operating in areas that you are experienced in or are
knowledgeable about helps ensure that your customers receive superior service
or products, which in turn helps ensure your longevity. Furthermore, in the
event that you need to convince outsiders that you know your market, such as
with your business plan, you will have the confidence and knowledge that you
need in order to seal the deal.
Consider Bringing in a Business
Partner
Bringing in a business partner not only helps safeguard
against financial risks because they put up part of the proceeds too, but they
also offer a different perspective that can add to or help improve your vision,
which helps increase your chances of success. Furthermore, because it is part
of their business as well, it also provides someone to talk to who understands
your work.
Go Public
Sometimes the founders, their families, and their friends
may not provide enough financial support to get your business up and running as
you envisioned. Therefore, you may consider offering stock for sale to the
public in order to reach your financial goals.
When a company goes public, or sells stock to the public for
the first time, it is referred to as an initial
public offering,or IPO, which means shares of your business can now
be traded on the stock exchange for members of the public to invest in your
business.
Obviously, going public also means that you have to disclose
financial information about your business, and you may also be held to strict
regulations and rules set forth by the stock exchange on which you are listed;
however, being listed on the stock exchange carries credibility, which can in
turn help your company raise the capital it needs in order to expand and
grow.
Select the Proper Business Set Up
How you set up your business, which we will go into in more
detail later, can also help manage your risks by providing various levels of
asset protection, limited business debt liability, and more.
Consider Hiring a Lawyer
As your business expands and your income increases, you may
consider hiring a business lawyer to help safeguard against various operational
risks. In fact, a good business lawyer can not only advise you on your business
dealings so you avoid making costly business decisions, but they can also
defend you against lawsuits that may arise as a result of your business
operations.
Furthermore, as a business owner, you will encounter your
share of contracts from supplier contracts to signing a new lease, in which
case your lawyer can help you sift through the fine print to understand your
obligations. Also, in the event that you yourself need a contract for your
employees, your lawyer can assist with creating a contract that is thorough and
legally binding so you are protected against misunderstandings.
Also, as a business owner, if you decide that you would like
to leave your business to your family as part of your legacy, a lawyer can
incorporate your business into a trust, so it is safeguarded from your debtors
and thereby reserved as part of your legacy.
And, in the event that a larger company offers to buy your
business, also known as an acquisition, a good lawyer can assist you with the
acquisition or merger of your business and negotiate terms that are in your
best interests.
Consider Hiring a Financial
Advisor
A financial
advisor is highly knowledgeable in all areas of finance and can help
you manage your money by helping you select the best investments and other
financial decisions for you, including which types of retirement, mortgage
loans and other accounts you need, the type of insurance you need, such as long
term care and disability, estate and tax planning, and how much money you need
to save so you are still able to meet your operational costs when business is
slow, and more.
Consider Hiring a Marketing
Team
There is always a risk of changing conditions in the
marketplace for businesses, which can cause your product or service to become
obsolete. Marketers stay on top of what's happening in your industry and can
help you keep up with the changing marketplace so you can make the necessary
improvements in order to help ensure that your product or service continues to
experience growth.
Part 2
How to Perform Market Research
Market research enables you to learn more about your target
market as well as your industry, and it can be done at your local library or in
the comfort of your own home.
Your Local Library
Your local library contains a wealth of information at your
fingertips, including periodicals, books, online databases and more, for free,
that can be used to perform market research. If your library has a main branch,
it is even better because it offers the largest collection of materials, otherwise,
check to see if the library in your area can order materials from the main
branch.
When conducting your research, simply develop a research
plan that outlines your product or service, your objectives, and the subject
that you would like to research, which will help you ask the right questions.
Once you are at the library, simply consult a librarian who can help you locate
the materials you need as well as answer any questions you may have concerning
your topic. In some cases, they can even recommend the type of research which
is most appropriate for your topic.
Online Market Research
You could also conduct market research online using keyword
searches, online surveys, your
competitors websites and more to learn more about your target market.
Keyword Searches
Just like keyword searches enable customers to learn about
your business, you can also use keyword searches to find about your customers.
When you perform a real-time keyword search related to your
service or product, it will return useful information, such as customers
perspective on how they want to connect with a business like yours, new phrases
or keywords to use, innovative features or services to create and more, simply
by analyzing the search results for your keywords.
To take your keyword search a bit further, tools like
Googles's Keyword Search Tool, provide you with a more in-depth view into how
competitive the market is, so you can generate fresh ideas and advertising for
content marketing. Furthermore, you can also use your social media platform to
perform keyword searches.
Online Surveys
One of the most effective ways of collecting customer
insight is by creating online surveys and providing customers with various
incentives for completing the survey. As a business owner, you can then use
these surveys to gain answers to questions that require extensive thought,
gather opinions on existing and new offerings, discover and update demographic
information, gauge overall customer satisfaction, and more. Online surveys can
even be used in popular social networking platforms.
To perform a keyword search, simply go to the search engine
of your choice and enter keywords related to the subject you are researching.
For social networking applications, simply go to the search field on your
chosen social media site and enter phrases related to your subject and then
review the search results.
Your Competitors Websites
Though your competitors websites do not provide direct
consumer research data, it does provide a great way to understand what's
important to your target market. Simply look for common threads found in the
content across your competitors sites, which will give you a general idea of
what your customers care about.
Market Research Tools
Market research tools enable you to collect various
information about your market, including U.S Census data, demographic and
lifestyle habits, social media usage, and more.
Some free online market research tools and resources
include:
Hire a Market Research Company
If conducting long hours of research and sorting through
large amounts of data just isn't
for you, then if you have the finances, consider hiring a market research firm to do it for you. Furthermore, they have access to the
people who will be qualified to answer your questionnaire, they know how to ask
the right questions, and they have the
proper tools and resources to properly analyze the results, and more.
Determining the Type of Research
Needed
The type of research you will be conducting will depend on
the kind of service or product you would like to provide as well as your
objectives. For instance, you can research a potential market, test the
usefulness of your particular service or product, or even check up on the
competition, and more.
When conducting market research, it doesn't matter which
research method you use; either way, you will walk away with a greater
understanding and confidence in your idea as well as what customers your
business will serve. However, for greater results it is recommended that you
use a combination of research methods in order to gain a more thorough idea of
your target market.
How to Define Your Target Market
Defining your target market enables you to understand who is
most likely to buy your product or service, so you can market your offerings
accordingly for maximum results.
There are various ways to define your target market,
including:
Check out Your Competition
If your business provides a product or service similar to
other businesses already in service, simply research what demographic groups
are buying their services or products. You should also observe when they buy
them and which line of products are the most popular etc.
Or, for a simpler approach, simply go spend a day at a
business similar to yours, and take
notes of what products they purchased or what orders they placed. Also note,
their age, their gender, their ethnicity, what products are most popular, and
what time of day they are most busiest and so on, until you begin to gain a
general idea of the type of customers in the market for your product or
service.
In doing so, you may also discover a specialty they haven't
found.
Understand the Problems that You
Solve
Ask yourself, who will gain the most from your product or
service as well as who will have the most to lose if you don't address these
issues. By asking yourself these questions, you have not only helped define
your target market, but you have also made a great case for the need for your
product or service. Just be sure there are enough people who fit your
criteria.
Analyze Your Service or Product
Make a list of the specific benefits of your product or
service, then next to each feature, list the benefits it provides. Once you
have your benefits listed, make a list of people who have a need for those
benefits.
Are You Uniquely Placed to Solve the
Problem?
Ask yourself if you are uniquely positioned to solve a
problem in certain sectors or geographical locations. If the answer is yes,
then this will help define your target market.
Look at Your Own Family
The next time you are with your family and friends, casually
observe what type of products and services they buy, what products or services
they are into, and if they would be most likely to buy your product or service.
Or, you could simply just ask them if they would be likely to purchase your
product or service, or know anyone who would, to help identify your target
market.
In the end, your ability to continually identify your target
market will help you achieve success and in turn increase your return on your
investment.
How to Define Your Ideal Customer
You can't be all things to all people; therefore, you need
to define your ideal customer in order to effectively market, advertise, and
sell your product or service.
There are various ways to help define your ideal customers,
including:
Clarify Your Niche
To define your ideal customer, you should first know your
niche. Your niche is your area of expertise or specialization and should
naturally arise from your interests and experiences.
To find your niche, make a list of skills and things that
you are good at, including your achievements. Next, identify the most important
lessons you've learned in life, and then look for patterns that reveal your
style or approach to solving problems.
Paint a Picture of Your Ideal
Customer
Make a list of customers who suffer from the problems you
solve, which will help you gain a clearer picture of your ideal customer. Ask
yourself, what is your prospective customer's financial situation, age,
education, occupation, marital status, family status, and life like etc.
Describe the Customers World
View
When you look at the world from your prospective customers
point of view, you can identify their needs and wants. Ask yourself question
like, what problem your product solves for the customer, what needs of your
customer does your product satisfy, and how does your product help improve your
customer's work or life etc. You could also talk to your ideal customers to
help identify their main concerns.
Make a Wish List
Ask yourself with whom you would like to do business. For
instance, do you want to work with particular types of people, such as high net
worth individuals, such as professional athletes etc., in certain market
sectors, such as doctors, accountants, manufacturers etc., or in certain
geographical locations, such as the Midwest, etc.
You must recognize that you cannot do business with
everybody, otherwise, you may confuse your customers, not to mention, wear
yourself out, so be as specific as possible when defining your ideal customer
in order to provide the most benefits.
Part 3
Choose a Name for Your Business
The name that you choose for your business needs to express
your business's values as well as your distinguishing characteristics. It also
needs to be long lasting. In fact, the better you are at naming your business,
the more it speaks for itself, which means the less you have to take time out
to explain it.
There are various ways to select a name for your business,
including:
Use Real Words
Using real words to name your business helps makes your name
more relate-able and easy to understand as opposed to using a string of
fabricated words, numbers, or initials, which can make it more difficult to
understand, relate to, and remember your name.
Be Creative
The odds of the business name you want already being trademarked
or in use is fairly high;
therefore you need to be creative as possible when creating your business name.
However, don't be so creative that your business name is
complicated, which not only makes it hard to remember, but also gives the perception
that your business, service, or product is also complicated. Instead, simply
try using new spellings or forms of general words to come up with a name that
is less common but unique.
Some other things to keep in mind when choosing a business name
include:
customers to respond to your business on an emotional
level.
Once you have compiled a list of names, narrow down your list to about four or five names that are expressive and memorable. Next, you will need to conduct a trademark search to be sure you are not infringing on anyone else's trade name. You may also consider having your name trademarked to be sure no one else's infringes on your trade name as well.
How to Register Your Business Name
Once you are sure that your chosen name is safe from
trademark infringement, you will next to register your name to make your
business legitimate.
There are three main ways to register your business name,
which include:
Get a Trademark
To apply for a trademark that protects your name throughout
the U.S., you will need to apply for a trademark with the U.S. Patent and Trademark
Office. Though you are not required to trademark your business, it
does provide strong protection against someone else using your name.
File a Fictitious Business Name
The easiest way to register your business is to file a Doing
Business As, or DBA, with your state. It is also known as a Fictitious Business
Name. A Fictitious Business Name enables a business to create a public record
of the business without creating a formal entity, such as an LLC.
Create an Official Business
Stucture
When you form a formal entity, such as a corporation, which
we will go into more detail about
later, it instantly registers your business name with the state.
When you file as a formal entity, as an added precaution,
the state will first make sure that no one else in the state is using the same
name or a similar name. Hence, once your application has been approved, no one
else will be able to use your business name in the state.
Ultimately, which type of business registration you choose,
typically depends on the level of protection you want.
How to Register a Domain Name That Matches Your Business Name
Having a matching business domain name helps make it easier
for people to visit your business online as well as makes it easier to identify
your location. Therefore, when registering your business name, you should also
register the same domain name as well.
However, if the domain name that want already exists, then
simply consider registering a similar domain name, such as
yourcompanynameinc.com, yourcompanynamecorp.com, or
yourcompanynamecorporation.com etc.
For added protection, you may even consider registering all
domain names similar to yours in order to ensure that your company will be
found no matter which combination of your business name the customer keys in.
You can also purchase a free URL forwarding feature that will redirect your
ancillary names to your primary domain name.
How to Create a Logo for Your Brand
Your logo, which serves as the basis for all your
promotional materials, reflects the overall image you want your business to
express. In other words, it should give people a feel for what your company is
all about.
There are three basic forms of logos: logotypes, or the
stylized rendition of your company's name, abstract symbols, like the Nike
swoosh, or a combination of both, which links your logo to your name and makes
it easier to remember.
Select a Logo That Conveys Your Message
To create your logo, first decide the message you want your
it to express. To get a feel for effective logos in action, simply refer to the
logos of other businesses in your industry.
Select a Logo That is Unique
Next, determine what makes your business's message unique as
compared to other businesses in your industry and if you want your message to
be serious of lighthearted.
Select a Logo That's Distinctive, Memorable,
and Easy to Read
Additionally, your logo should display well on the side of a
van as well as on a brochure. In other words, a good logo is distinctive,
memorable, can still be readable even if it is reduced or enlarged, and it can
be reproduced effectively in black and white color, so it can be faxed, photocopied,
and used in black and white ads.
Select a Logo That Illustrates Your Key
Benefits
Lastly, your logo should illustrate your business's key
benefits. A good logo makes an immediate statement using an illustration or
picture. However, steer clear of photographs, which can become distorted when
resized.
You can design your own logo on your computer using
Photoshop or a similar program, or if you have the finances, simply hire a
professional design firm. There are a number of freelance and independent
designers who charge affordable prices. Just be sure to hire a designer who is
experienced with your field as well as your competitors. Furthermore, a
professional designer will know if a logo design will transfer easily into other
configurations or not.
Decide on Your “Brand Message”
Your brand message creates the advantage you want to remain
in the mind of your customers. To create a good brand message, it should be
relative to 3 essential views: the marketplace view, the customer view, and the
internal view.
The Marketplace View
Your advantage needs to be distinct in the marketplace.
Therefore, you need to consider how your competitors position themselves.
Observe their details, such as their "about us" page as well as their
tag lines to be sure your advantage is unique.
The Customer View
Think about what your customers appreciate most. Pay
attention to them on social media, interview them, and survey them etc. to
learn firsthand what is most important to them. By doing so, it will help you
create a brand promise that is meaningful.
The Internal View
In order for your brand promise to be effective, it must be
true. Therefore, ask yourself, where do you create value, what is it about your
service or product that makes it unique, and what is your vision etc., which
will help you create a brand promise that is built on honesty.
In the end, simply observe where your three separate
insights overlap and how. This overlapping of insights is where your brand
message lies.
Choosing Your Business Structure
Your business structure refers to the legal structure of
your company, which ultimately dictates the personal liability you face, the
amount of taxes you pay, your ability to raise money, and of course, the amount
of paperwork your business is required to do. Therefore, when selecting a
business structure, you want to choose a structure that highly relates to your
business's needs.
The most common business structures include:
B Corps
B Corps, which are verified by the nonprofit organization
B Lab, are
businesses that use their power to affect environmental and social change.
Certain businesses choose to become B Corporations because
they want to use their operations beyond just simply increasing shareholder
earnings. For instance, some leaders priority is on the reorganization of the
planet and the people as opposed to long-term income.
However, the main goal of businesses choosing to identify
with a B Corp tends to be to display their values to customers.
Corporations and LLCs
Corporations and LLCs are the same in various aspects;
however, a corporation is its own tax and legal entity, meaning it pays it own
taxes on any revenues that it keeps, and the owners only pay income taxes on
money they withdraw from the corporation in the form of bonuses, dividends, and
salaries.
On the other hand, an LLC is not its own individual tax
entity; therefore, the owners of the LLC must pay income taxes on the part of
the revenue that the LLC keeps during the year.
However, just like a Corporation, an LLC provides limited
liability to the owners of the LLC for the business's judgments, debts, and
other liabilities. Therefore, structuring your business as an LLC or
corporation is usually a good idea if you have large amounts of debt, or your
business is engaged in risky activities that increases its chances of being
sued, because it protects the owners from personal liabilities.
These two structures also shield owners with high amounts of
personal assets in the business from possible liability associated with the
business.
S Corps
S corps have appealing tax incentives yet provide business
owners with the liability protection of a corporation, which makes them more
attractive to small business owners.
With an S Corp, shareholders incur deficiencies and
earnings, which are included on their individual tax return; hence, there's
just one level of federal tax to pay. However, similar to corporations, S Corps
are subject to many of the same rules and increased tax and legal service
charges. In addition, S Corps are also required to allow shareholders to vote
on major corporate decisions, file articles of incorporation, and hold
shareholder and director meetings.
The legal and accounting fees to set up an S Corp are also
similar to a corporation. However, owners of S Corps who do not own inventory
can use the cash method of accounting. Under the cash method, earnings are
taxable when received and expenses are deductible when paid.
Sole Proprietorships and
Partnerships
A sole proprietorship means that you are the single owner of
your business, and all you have to do is simply start business and you have
created a sole proprietorship.
It is the easiest of all the types of business structures
because it involves no fees and no papers to file to set up a sole proprietorship.
As a sole proprietorship, you are required to pay taxes on any profit from your
business as income on your personal taxes. Additionally, if your business has
any liabilities, like overdue debt etc., then you are held personally
responsible for them.
A partnership, which is simply a business owned by one or
two people, is similar to a sole proprietorship in that it does not require any
papers to be filed or fees to be paid to set up a partnership. Also, just like
a sole proprietorship, each partner must
report their share of the profit from business on their personal taxes
as income.
Furthermore, each partner is also personally responsible for
any claims, debt, and other liabilities that the business is accountable for.
Limited Partnerships
A limited partnership differs from a general partnership in
that you have to pay in order to set it up. It it also a bit more complex than
a general partnership.
Limited partnerships are normally organized by general
partners that are responsible for getting others to become members of the
partnership as limited partners. The general partners manage the daily
operations of the limited partnership and are responsible for any judgments,
debt, and other liabilities that the partnership has, except in the event that
the general partner is an LLC or a corporation.
On the other hand, the limited partners are not included in
many of the daily operations of the limited partnership, nor are they held
personally responsible for any of the liabilities of the limited
partnership.
The general partners in a limited partnership also share in
the earnings from the business and report this income as personal income
taxes.
How to Obtain Your Federal Business Tax ID Number
A Federal Business Tax ID Number, also known as an Employer
Identification Number (EIN), is used to identify your business entity.
To apply
for a Federal Business Tax ID Number, you will need to complete the
Form SS-4 and then mail or fax the completed form to the appropriate office.
You can also apply for a Federal Business Tax ID Number online.
Part 4
How to Open a Business Bank Account
Opening a business bank account for your business serves
various purposes, including makes you a legitimate business, makes it easier to
keep track of your expenses and income, separates your personal income from
your business, enables you to deposit and receive payment, and enables you to
manage employee pay, and more.
Opening a business bank account is fairly simple and can be
done in the following steps:
Decide What Accounts You Need
Depending on the complexity of your business, you may
require separate accounts for separate finances. For instance, having a
separate bank account for activities, such as income and taxes and a separate
account for payroll etc. makes it easier to manage your finances.
Select a Bank
There are many banks out there that offer great account
servicing options that relate to your business, and they provide valuable
expertise in the event that you need cash management, a line of credit, a
balance transfer credit card, and more, so don't be afraid to visit different
banks and compare bank offerings until you find the best fit for your industry
and that offers costs that you can afford.
Before you begin your search, simply make a list of all your
business needs, and make sure the bank you select can meet your needs both now
and in the future as your business grows.
Some business accounts may offer incentives, such as waiving
monthly fees for maintaining your balance, so be sure to inquire about what
incentives the bank offers for business owners. Some banks may even allow you
to open an account online, so if you are interested in opening an account
online, simply inquire about their online services as well.
Have Your Paperwork Ready
Different accounts have different requirements, depending on
your business structure; therefore, prior to setting up an account, find out
the bank's requirements, so that you can supply the proper paperwork.
In most cases, you will also need your Tax ID number when
opening your business bank account in addition to a business name filing record
or your business license with the name of the business owner on it.
Set up a Merchant Account
Now that you have successfully opened your business bank
account, you can set up a merchant account to enable your business to accept
credit card payments.
If your business plans to accept e-commerce transactions,
simply seek an online payment system or a point-of-sale application for
in-store purchases.
How to Estimate Your Basic Expenses
As a start up, understanding your expenses will help you
attract investors and request funding, which in turn will help ensure that your
launch is successful. It will also help you estimate your profits and save
money with tax deductions, and more.
To estimate your start up expenses, simply determine your
business type, such as a service provider, a brick-and-mortar business, or an
online business.
Some common start up costs for most businesses typically
include:
When making your expense list, simply add any other expenses
that pertain to your business.
Estimate The Cost of Each
Expense
Once you have listed your expenses, simply estimate the
actual cost of each.
When calculating your expenses, you may find that some costs
are a bit harder to estimate, while others are more defined. To get a more
accurate number for less certain costs, simply talk to others or research
online to learn what similar businesses pay for expenses.
Total Your Expenses
Add up all of your costs, then categorize them by monthly
costs, such as rent and utilities, one-time costs, such as paying for licenses
and permits and hiring a professional logo designer, and other costs associated
with starting the business.
To get a good idea of how much capital you will need and
when, you should estimate at least one to five years of one-time and monthly
expenses. Furthermore, for tax purposes, you can usually deduct one-time
expenses, which can save you on the amount of taxes you owe. Simply talk to
your account when it's time to file your taxes.
You can use your start up cost calculations to obtain start
up funding. Simply, create
a formal report of your estimated start up costs. Investors and
lenders will contrast your expected costs to projected revenue to determine the
potential for your business profit.
How to get Financing
Finding financing for your start up can be challenging
because as a new business, you are often considered a high risk, which means
you may have a hard time qualifying for traditional loans. However, there are
other places to look for start up funds, including:
Ask Your Friends and
Family
The simplest way to finance your start up is to ask friends
and family to help fund your business. However, just like you would approach a
bank or other formal entity, you should approach your loved ones with a
business plan to show your seriousness.
Be sure your plan includes evidence based assessments of
financial projections as well as when they will receive a return on their
investment. You should also discuss the structure of your agreement, such as if
it will be a loan or if you will be offering equity etc. in order to avoid
misunderstandings later. Also, be honest about the risks involved, so they
understand their undertaking.
Get an SBA Loan
Though the U.S. Small Business
Administration does not provide loans directly, it does guarantee
loans to any small business provided they meet the following guidelines:
Seek an Angel Investor
An angel
investor invests in startups. When pitching an angel investor, know
your stuff, have a solid marketing and sales plan, avoid jargon, add
experience, and have an exit strategy to increase your chances of winning them
over.
Pricing Your Products or Services
Setting a price for your service or product is one of the
most crucial business decisions you will make because if it is priced too low,
it can hinder your cash flow, and if it is priced too high, it could affect
your sales. Therefore, you must carefully consider your pricing strategy before
you begin.
The following tips will help you with pricing your products
or services so your business can make a profit.
Calculate the True Cost of Your
Product
Begin by making a list of all the costs that went into
producing your product or service, including labor, materials, and overhead
costs, such as transportation, marketing, rent, taxes, insurance and any other
cost associated with the product or service. You also need to factor in hidden
costs, such as return on investment capital, borrowing money, replacement of
fixed assets, and your salary etc.
Analyze Your Competitors
Analyze your competitors, and think about how you want to
position yourself. Do you want to go low end? High end? View their strategies,
and use this information to help determine how you see yourself.
Conduct Market Research on Potential
Customers
Conduct market research, using surveys or questionnaires, on
potential customers to try to find out how they would pay for your products as
compared to your competitors. You could also just simply ask potential
customers specific questions like, would you pay $10 for this, and so on.
Furthermore, you should also determine what advantages your
customers gain from using your product or service as well as the criteria they
use to make their purchasing decisions, such as convenience or low price etc.,
which will enable you to select a price based on value as well as cost.
Consider Using Pricing Tiers
To meet the needs of different customers and to increase
your market share, consider breaking your pricing up into different levels, or
tiers. For instance, you could offer premium options for those who can afford
it and basic options for those on a budget.
Use Different Pricing Tactics
Different pricing tactics can also help you attract more
customers, which in turn can help increase your profits.
Some different pricing tactics include:
Also, there will be times when you may have to raise your
prices; however, before you do, be sure to analyze how this change will affect
your profitability. Furthermore, price increases should be done gradually, such
as after some years, in order to avoid startling your customers.
How to get Loyal Customers/Build Your Brand
Building your brand is the process of developing a symbol
around your name that expresses your skills, values, and personality, which
helps draw people to your products and makes them loyal customers.
Some ways to help build your brand as well as customer
loyalty include:
Craft Your Brand Persona
When creating your brand, you should identify your
business's emotional appeal. In other words, ask yourself why you think people
are attracted to your brand and why they enjoy working with you. You should
also identify your specialty, or what it is that you do for customers and what
customers want you to do for them.
By creating your brand persona, you can use it on all of
your materials to fortify your brand.
Communicate with Your Customers
Regular communication with your customers not only helps you
relay messages to your customers, which helps build your brand, but it also
helps keep you fresh in their minds, which helps build customer loyalty.
Social media is a great way to communicate with your customers
on a regular basis. However, be sure to use messages that are useful, and try
to limit your advertisements so that it is thoughtful.
You could also set up a database with your customers contact
information, such as their email, then you can use it to send friendly
newsletters and holiday greetings, etc.
Share Your Knowledge
When you appear on guest blog posts and other authoritative
articles as well as when you conduct interviews and appear at speaking
engagements, it provides a reliable way to show that you know what you are
talking about, which helps establish your credibility and builds a connection
with your brand.
Provide Extra Incentives for Your Loyal
Customers
Whether its immediate seating or getting to meet the chef
etc., customers enjoy getting a little something special.
Therefore, one of the best ways to reward customer loyalty
is to give them something extra. Additionally, by setting up a reward program
for your loyal customers, not only do you inspire them to remain loyal, but you
also motivate other customers to become loyal too.
Provide Great Customer Service
Customers remember when they were treated well as well as
when they weren't, which studies show has even prompted some customers to cease
doing business with a company.
However, whether a customer is treated well or badly, they
will still most likely share their experiences with their family and friends,
which can affect your brand. Meaning, if the experience was positive, it can
lead to more customers for your business and vice versa.
Part 5
How to Choose a Business Location
The success of your business often depends on your location;
therefore, you need to choose your location wisely. There are many factors to
consider when selecting the proper location for your building.
Some main factors include:
Foot Traffic vs. Automobile
Traffic
Different types of businesses attract customers in different
ways. For instance, some businesses attract more customers based on foot
traffic, such a local ice cream shop, while other businesses, such as a tire
shop, depends more on automobile traffic. Therefore, you should consider how
customers will access your business when selecting your locale.
Being positioned near other businesses that are similar to
yours, will also help play a role in attracting your ideal customer.
In the end, simply understand the routines and practices of
the customers you want to attract and then select a location accordingly.
Is the Proposed Location Appropriate for Your
Business?
When choosing a location for your business, you need to be
sure the building amenities are right for your type of business. The more
suitable the space is, the less it will cost you to renovate it. Therefore, if
a space lacks important amenities that are crucial to your business, then you
should probably look elsewhere.
If a large number of customers will access your business by
car, then you should also consider a
space with adequate parking.
Furthermore, the space that you choose also needs to be
zoned for what you plan to do, so be sure you are permitted to operate your
business in that space in order to avoid problems later.
How Much Rent Can You Afford?
One of the most important factors when looking for a
building to lease is finding an affordable space. Your business plan should
include an estimate of how much rent your business would be able to afford to
pay monthly. Simply refer to this number when shopping for a lease.
How to Hire Your Team
It takes a great team to build a successful startup;
therefore, you need to select your team wisely.
Begin by considering your own strengths and shortcomings,
and select members of your team who are skilled where you fall short. This way
you'll be able to accomplish all things essential to the growth of your
business.
From there, to build a successful startup team, simply
incorporate the following four steps:
Know Your Exit Strategy
Just as you planned how to fund your startup, you also need
to have an exit strategy for how you will get funds back out, and it should be
clarified early on in order to help ensure you get what you want out of the
deal.
There are various exit strategies, the three the most common
include:
Continue to Own the Business
Instead of selecting an exit strategy, you could simply
choose to continue to own the business, also known as a "No Exit
Strategy". Many people choose to retain their business as part of their
exit strategy in order to ensure they have something to pass onto their
kids.
Acquisition
An acquisition
is when another company wants to buy yours.
In an acquisition, there's no perceived limit on the worth
of your business; therefore, you can negotiate any price you want. However, the
key to a successful acquisition is to look for a strategic fit, or an acquirer
who can purchase your business to expand into a new market, because it provides
them with a greater value, which can net you a greater price.
Therefore, if you are selecting acquisition as part of your
exit strategy, you want to make your business is appealing to acquisition
applicants.
IPO
If your business is funded by professional investors who are
experienced in taking businesses public, you might consider an IPO as part of
your exit strategy, especially if you are a founding owner who has managed your
equity well, then you can make an impressive amount of money; your investors as
well. However, IPOs can be a bit a bit complex, so you may want to consider it
as just one of your exit strategies.
