How to Start a New Business: Everything You Need to Know
People wondering how to start a new business need to know some basics about how it works in the United States. 3 min read
How to Start a New Business
People wondering how to start a new business need to know some basics about how it works in the United States. First, the bad news. Roughly half of all new small businesses last five years. Each year in the United States, more businesses fail than start. The Small Business Administration keeps statistics that may frighten you away from even attempting to start your own small business.
However, there is hope. With strategic and tactical planning, the right professional help, and an eye toward cost controls, you can beat the statistics and be successful.
Questions to Ask Yourself
Planning for your new business starts with asking yourself some questions about your idea.
- What is the need?
- Who needs it?
- Is there competition already doing this?
- How will your business fit into the marketplace?
The answers to these questions will give you an idea of whether your new business can be successful. If your new business can either deliver something new or deliver something other companies deliver but faster (and/or cheaper), then you are already ahead of most people.
Developing a Business Plan
The next step is to write a business plan. This is basically a map that will guide a new business through the launch phase and help establish it as a profitable business. It is essential that any new business starts with a business plan. Here is an article on creating your own business plan.
It is highly recommended that you get professional help in writing your business plan because someone with experience can help you avoid costly pitfalls. The plan itself doesn’t have to be incredibly detailed; it needs only to convey to investors that you have thought about how to make the business successful. Here are the basic requirements for a business plan:
- Descriptive name of firm - This tells people what you are called AND what you do.
- Owner or owners of the firm - Are you a sole proprietor or do you have investors and partners?
- Business Information - This describes the products or services provided by the business.
- Market Analysis - This describes who the customers and competitors are and what challenges the new business might face on the way to success.
- Market Strategy - This describes how the business will generate sales and what sorts of media will be engaged to promote it.
- Management Plan - This describes the way the business will both serve its customers, and manage the other functions within the business.
- Financials - This describes how the new business will make money. For example, XYZ company will produce the widget for $.43 and will sell it for $8.56.
Financial Aspects of Starting a Business
The next thing to do when starting a new business is to secure money. You will need to have enough money to cover expenses until the business begins to turn a profit. There are several different ways you can finance your new business.
- Finance it yourself
- Commercial Bank Loan
- Small Business grants
- Crowd-funding such as Gofundme
You should expect that you can cover your “burn rate” for a year. “Burn rate” is the rate at which you cover expenses each month. Put together a spreadsheet with all of the expenses the company will incur during start-up (i.e., equipment, legal fees, grand opening events), as well as all of the anticipated expenses to keep the business running (i.e., salaries, rent, utilities, marketing, production, etc…) for a year.
This spreadsheet will then have captured how much initial investment will be needed. In addition to being able to cover these expenses, you should tack an additional 20-30 percent on for incidentals. That is how much you will need to start your new business.
Once you have your financials secured, you will need to structure your company. An attorney can help you determine which structure is best for your new business. Read this article on deciding between a limited liability corporation (LLC) and a sole proprietorship. Other ways to structure your organization have to do with how much risk you are willing to take with tax consequences. Your attorney should guide you when you make any decisions regarding the structure of your new business.
If you need help with starting your new business, you can post your legal need 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 working with, or on behalf of companies like Google, Menlo Ventures, and Airbnb.