How to Start a Company: Everything You Need to Know
As you start your first business, you will encounter countless challenges. Don’t be afraid to seek counsel from a legal, marketing, or business professional.8 min read
How Do I Start a Company?
How to start a company is about bringing a certain amount of capital to a specific idea, such as a new product or service that’s being offered to various consumers or clients. Before you begin, you’ll need to set aside a certain amount of money to get your new company off the ground.
Funding Your Business
The first step towards starting a company is to come up with a budget. The amount of money you’ll need all depends on the type of business you want to create. It’s important to first come up with an estimate of how much everything will cost before you try to find the funds. Depending on the nature of your business, you may need special permits to operate.
Most businesses require a certain amount of overhead for equipment, raw materials or real estate.
If you decide to set up an office space, don’t forget to include monthly payments for things like Wi-Fi, utilities, and maintenance. You'll need to consider all the memberships and affiliations you want to subscribe and how much it will cost, such as the Better Business Bureau. You might need to set aside some funds for a few employees or independent contractors if you decide that you can't do everything on your own.
Reduce Your Needs
To reduce your costs, you can find small ways to simplify your expenses without cutting back on quality.
You can try working from home, instead of paying for office space. As an entrepreneur, don’t forget to deduct your home office space from your taxes. If you’re low on funds, you’ll want to focus on the products and/or services that are cheapest to produce. Try to find the cheapest sources of supplies, or get rid of certain products that are too costly to produce.
There are some expenses that you just can’t afford to lose, such as licensing and legal fees. If you’re thinking about getting a patent for your business, learn more about what goes into intellectual property law. Depending on the nature of your business, you don’t need a lot of money to get started. Some DIY small businesses get their start with as little as $1,500.
If you want to start with a small budget, you should try setting up a “trial period” for your business, which means that you should start only with the basics. Don’t be afraid to cut out the more complicated aspects of your business and save them for later.
When it comes to paying your employees, using a payment processing company can be a big help if you’re struggling to invoice and receive funds from your clients. Once you start establishing an income, you can invest in your business and go step by step, instead of getting everything off the ground right away.
You might have to gather capital from multiple sources, including a mix of private investors, banks, and personal acquaintances such as friends and family. You might also want to consider angel investors, a company or individual that invests in new ideas in exchange for partial ownership of the company. As precious as you might be about your new company, you might have to choose between relinquishing some ownership or not getting started at all.
Venture capitalists can also fill this role, but they usually partner with business professionals that are already in production or that have a leg up on the competition. You might also want to consider crowdfunding, which you can use to fund just about anything.
The Small Business Administration, as well as state and local government agencies, are designed to help small businesses owners like yourself by offering them loans and grants. You can always get a loan through a bank if you need a sizeable investment to get started. Most small business owners accrue some form of debt as they begin their new company.
It All Starts With an Idea
Starting a business for the sake of making some money isn’t usually a recipe for success. It all starts with having a solid idea that you’re passionate about. It always helps if you come up with a product or service that you believe can enhance the people’s lives. You'll need to test the plausibility of your idea, and figure out how you can make it become a reality. Pitching to friends a family is always a great way to test the waters.
Come Up With a Plan
An in-depth business plan will help you keep track of your goals as an entrepreneur going forward. There are several ways to make a business plan, but if you need of some financial assistance from a bank or a traditional lending firm, you must create a traditional business plan, which is generally long and contains all the need-to-information that investors will want to see when they are evaluating your idea. Be prepared to give investors a sense of how much your company will need to spend at the outset, including startup costs, licensing and legal expenses, employees, materials. Having an itemized budget on hand goes a long way.
If you don’t intend to get a loan or some kind of financial backing, a less in-depth business plan can give you and any employees that you might have guidance about what your company is all about and how you plan to get things off the ground.
Identifying Your Target Market
Having goals for your business is one thing, but reaching those goals might be entirely unrealistic unless you have a firm grasp of whom you’re selling to. You need to identify your market and target the customers that are most likely interested in your product or service, all the while assessing your competition in the market. If you manage to launch your product or service quickly, you will be able to build a community of customers who can provide valuable feedback and help you in your future steps. If you already have customers, it is advised to hold on to them by providing new products or services.
Taking Advantage of Available Resources
There are dozens of resources out there that you can use to your advantage as you step into your new role as an entrepreneur. You should enjoy and take advantage of free resources, as there are numerous free resources can offer advice, training, and assistance. Set up a great support system as you’re going to be investing a lot of energy into your new business.
Choosing a Structure for Your Business
It is important to determine the right legal structure for your business, based on what you want to achieve. The legal structure of your business will impact nearly every aspect of your business from its name, to the ways in which you earn revenue. You can always reevaluate the state of things at a later date, and possibly adjust the structure of your business as things progress.
In the United States, you can find four types of business tax structures: income-based, self-employed, employee taxes and excise taxes. Before you can start filing your taxes, make sure that you have completed the following:
- You'll need a federal employment identification number (EIN).
- Get a tax registration certificate from your local government.
- Make sure that you arrange an appropriate insurance for your business, depending on your type of business.
Plan Your Finances
It’s also important that you put together a list of all your startup costs for your business, such as materials, retail space, employees, license fees and patent applications, as well as what you anticipate you will need to keep your business running for the first year, including rent, workloads, advertising, etc. All those numbers will represent the initial investment you will need. You can create a spreadsheet on which you can enter money you spend and money you receive, like a cash-in cash-out spreadsheet.
Choose Your Accounting System
It is important that you invest in some kind of an accounting system, which you will use to track your finances as your business gets off the ground. You can manage the payroll, pay your taxes, log and manage expenses. There are dozens of free and specialized accounting systems that you can use to manage your business’s finances. You can also just open a Microsoft Excel sheet for free.
Get Your Team Ready
The Small Business Administration can be a useful tool when it comes to finding employees. Creating copy is an extremely important part of communicating what your business is all about to the public. Unless you’re an excellent writer, hire a copywriter to compose emails, call to actions, banners and even website copy that’s written specifically for your targeted customers.
If you don’t need to hire employees and would rather outsource the bulk of your work to independent freelancers, you need to work with a legal professional to get an independent contractor agreement.
If you are a solopreneur and you don't need employees or contractors, you will still need to come up with some kind of a safety net. This could be a close ally, a previous colleague, or a family member. This person or group will serve as your source of encouragement when things get rough.
Promote Your Small Business
Once you set up your business, you will need to start reaching out to clients and customers. This usually involves coming up with what’s known as a unique selling proposition (USP). This is what consumers will see when they first learn about your business. Your USP should clearly outline what your business is all about, what you’re selling, and why it will have a positive impact on the customer’s life.
When you’re starting out, you need to come up with as many different marketing plans as possible so you can experiment with what kind of marketing approach best suits your business.
You can invest in often costly advertisements online or in physical locations, such as billboards or posters. You host special events in the community to raise awareness about your company. You should also let friends, family members, and influencers spread the word about your product or service, as word of mouth is always one of the best marketing tools around. People will always be more inclined to buy something if someone that they know and trust recommended it in the first place.
Get Your Employer Identification Number (EIN)
An EIN is the federal tax number used to identify your business. You don't need an EIN unless you will have employees or plan to form a partnership, LLC, or corporation.
If you don't plan on hiring employees, register for an EIN anyway: It's free, it only takes a few minutes. If you’re worried about privacy, you can keep your Social Security number private and reduce the chance of identity theft. Going without an EIN can be a risky choice. If you decide not to register for an EIN, your SSN identifies your business for tax purposes.
Once you have an idea of what your business is going to look like, you can look for existing companies in your chosen industry and discover what current brand leaders are doing, and think about what you can do differently. If you truly want to stand out, you need to offer consumers something that they don’t already have access to. Or if you want to join an existing company, you can always consider joining a franchise, which means that the brand and business model are already in place and you just need a good location and some funds.
As you start your first business, you are bound to encounter countless challenges. If you need some help along the way, don’t be afraid to seek counsel from a legal, marketing, or business professional.
If you need help with starting a business, you can post your job on UpCounsel’s marketplace. Upcounsel accepts only the top 5 percent of lawyers to its site. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law and average 14 years of legal experience, including work with or on behalf of companies like Google, Stripe, and Twilio.