Opening a Business: Everything You Need to Know
To determine if your idea for opening a business is possible, do your research, be realistic, and go through a validation process. 8 min read
Opening a business requires research, planning, attention to detail, vision and commitment. Most of all, it takes money to make money, especially when it comes to the upfront costs in opening a business.
Do Realistic Research
To determine if your idea for opening a business is possible, do your research, be realistic, and go through a validation process. These are just a few of the questions you need to ask:
- Does your business solve a problem, fulfill a need or offer something the market wants? Who would be your competitors? How would you improve on what they do?
- Instead of opening a business, could your idea be incorporated into an existing company as a franchise?
- Do you have enough money to get started? According to the Small Business Administration (SBA), a “microbusiness” can hit the ground running on less than $3,000 in start-up costs while some home-based franchises can be started for as little as $1,000. Have you budgeted for this? How much will opening a business cost you?
- Will you need office space? How will you secure supplies? Do you need to purchase equipment? Will you need to hire employees, 1099 contractors/freelancers?
- Will you need city, county, and state licenses and permits? How much do they cost? Can you afford all the memberships and affiliations you want to subscribe and how much it will cost?
- Can you secure financing and loans? Can you take on debt to open your business? The SBA, as well as state and local government agencies, have programs to assist small start-ups get aloft. Banks offer small businesses lines of credit. Have you explored these opportunities?
- Have you solicited potential investors? An “angel investor” will invest in start-ups in exchange for an ownership stake. Could crowdfunding help you in opening a business?
- Instead of opening a business, could your idea be incorporated into an existing company as a franchise?
The 12-Month Survival Guide
It is critical to determine how long you can stay in business before turning a profit. To do this, estimate the costs for opening your business, including all the start-up costs related to legal fees, equipment, licenses/permits, insurance and operating expenses such as rent, utilities, marketing/promotion, supplies and salaries.
Incorporate those anticipated expenses on a cash-in cash-out spreadsheet that includes projected revenues. Ideally, you want to be at least breaking even within 90 days, but realistically it is best to have at least a 12-month reserve set aside to stay afloat.
Choose A Business Structure
Opening a business requires decisions regarding the legal structure of the venture. Your small business can be a sole proprietorship, a partnership, a limited liability company (LLC) or a corporation. The business entity you choose will influence many factors from your business name, to your liability, to how you file your taxes.
Opening a business as a sole proprietorship creates less bureaucracy and reduces start-up costs. It also comes with greater personal risk, so speak with a business attorney or tax accountant to determine which works best for you. Keep in mind that whatever initial business structure you adopt can be changed as your business grows and needs change.
Develop A Business Plan
You need a business plan to make your idea a reality and to give guidance to your business from the start-up phase through business growth. If you don’t need financial support, a simple one-page business plan can provide guidance and clarity about what you hope to achieve and how you plan to do it. If you need a start-up loan, investors and banks require a traditional business plan before they will consider your venture worth their time and money. A good business plan should:
- Clearly state your vision for your business.
- Define your mission; essentially explain the reason why your company exists.
- Outline your objectives and your goals, and how achieving them will lead to the accomplishment of your mission and your vision.
- Diagram your basic strategies and explain how executing your plan will lead to attaining your objectives.
- Structure a simple action plan with timelines and benchmarks.
Set Up Your Business Location
Setting up your place of business is, of course, pivotal for the operation of your business, whether you will have a home office, a shared or private office space, or, particularly, a retail location.
You will need to think about your location, equipment, and overall setup, and make sure your business location works for the type of business you will be doing.
Choose Your Accounting System
Opening a business requires a great deal of accounting, invoicing and tax preparation. It can be even more complex if you have employees, clients and vendors to pay or bill. Therefore, choosing an accounting system to do this as simply as possible is an important decision because you don’t want to spend more time dealing with the business of your business than you do delivering the services that will make your business a success.
There are many available software programs that can make accounting relatively easy for a do-it-yourself business owner. Otherwise, hiring an accountant is money well-spent.
Find the Right Name
Opening a business requires finding just the right name for your venture. There is a range of strategies owners deploy when picking a name that is distinctive, memorable and easily found amid competitors. It can be one of the more enjoyable aspects of opening a business.
But make sure you do it right. There are rules. Ensure your prospective business name is not already trademarked or in use by doing a name search on your state’s secretary of state’s website.
If it is available, you must register your business’s name with the state or county clerk. Corporations, LLCs, or limited partnerships will need to register their names when filing official formation documents.
This is also a good time to register your Domain Internet Name (DIN) if you plan to have a website.
File Your ‘Articles of Incorporation’
Corporations will need to register with the government and IRS by filling an "Articles of Incorporation" document, which includes your business name, business purpose, corporate structure, stock details and other information about your company.
When filing your paperwork, make sure you receive an Employer Identification Number (EIN). You are required by the IRS to have one even if you are your business’s only employee.
A sole proprietorship will just need to register its business name, which can be its owner’s legal name or a DBA, which is a fictitious “Do Business As” name. In some cases, in some places, it may be advantageous to actually trademark a business name to legally ensure its distinctive integrity.
Secure A ‘Certificate of Resale’
If you are going to sell products retail, even online, you will need a Certificate of Resale. This certificate, also known as a “seller's permit,” can be obtained when register your business with the state’s tax department. The certificate can often be completed online.
Ensure You Are Insured
Opening a business means making decisions about a wide range of insurance coverage, including general liability (GL), business owners’ policies, and depending on the size and location of the business, medical insurance. If you provide professional services, a professional liability insurance policy is a worthwhile investment.
If you are a sole proprietor, purchasing insurance can be relatively inexpensive, as little as several hundred dollars annually for most of the types of coverage necessary. If you have employees, however, you will need to purchase workers' compensation and unemployment insurance.
Open Business Banking Accounts
Opening a business allows owners to establish accounts at local banks and credit unions. This is critical in keeping your business expenses, and liabilities, separate from your personal finances and assets. Only use these accounts for deposits, withdrawals, and transactions related to your business.
To open a business account, which is usually free, you will need your official business name, registration documents, license and EIN. It becomes active when you make that initial deposit.
Determine from the beginning if you will need to hire employees or if you will be the sole operator of the business. If you need occasional help, consider hiring third-party contractors or freelancers as 1099 workers. You will only be responsible for paying these temporary helpers for specific tasks at a specific wage. An attorney can help draft independent contractor agreements to ensure legal issues do not arise and that your business is properly shielded from any liabilities that could occur while an independent contractor is working for you.
And even if you don't need to hire employees or contractors, consider enlisting a support team, composed of friends and family members, a small business coach, or perhaps a mentor who you wish to emulate in your business.
Opening a business often means operating on a tight budget. “Soft openings” and “warm-up periods” are cost-effective ways to get started with just the basics while gauging the true costs of doing business and the potential for profitability.
Among the ways to shave expenses is to work from home, find the least expensive suppliers, determine if you need a payment processing company to handle invoices and payments.
Find Symbiotic B2B Relationships
Opening a business often means joining a community, whether it is as a member of the local chamber of commerce or in a regional professional association, or as part of a state B2B network advocating on the similar issues.
Find out of there are any local resources for small business owners available, such as seminars where you can share your information and learn from others’ experiences. If you are selling a product, find venues such as swap meets, farmers’ markets or other events to introduce the public to what you are offering and to speak with other business owners and vendors to get their insight.
This is a good opportunity to become familiar with the leading businesses and individuals in your industry or profession, or establish working B2B relationships with well-known businesses in your community. A great way to curry name recognition is to partner with charity organizations, sponsor activities, and volunteer time or products for local events.
Fine-Tune Your Unique Selling Proposition (USP)
When the formalities of legally establishing your business and all other foundation-related issues are resolved, it is time to fine-tune your unique selling proposition (USP) and create a marketing plan.
There is no one-size-fits-all way to do this. That is why you need to invest time and energy in becoming active in the community at large as well as within a local network of small business owners who can share ideas and experiences with you.
Create A Website
This has not been a luxury for a generation and is absolutely essential now. To get a website for your registered domain name, you’ll need to get your own URL which is, essentially, your business’s unique address on the world-wide web.
There are a range of inexpensive services that will allow you to secure a URL that, such as Go Daddy. Through do-it-yourself drag-and-drop website builders, such as Weebly, you can build your own website for a minimal fee.
In addition to the exposure a website offers, it can provide conveniences such as links to online payment processors and shopping carts that make it easy for people to purchase your products or pay for services.
Facebook and other social media venues also give you the opportunity to promote products and engage with potential customers directly for free.
If you need help opening a business, you can post your legal needs 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.