Starting a Company: Everything You Need to Know
Starting a company requires a business plan, financing, a market niche and the ability to offer a product or service. 10 min read
Starting a Company
Starting a company requires a business plan, financing, a market niche and the ability to offer a product or service. With that, you do not need a large amount of money to start a business, and you can bootstrap your business if necessary. Bootstrapping is starting a business with no outside financial assistance.
Why a Business Needs Money
Starting a business does not require much personal or financial investment. You have the option of starting a business with no costs whatsoever, but various businesses have different requirements.
If you need business financing, determine what you may need to pay:
- Paperwork: Research the necessary paperwork or registration fees in your state.
- Materials: This can come in the form of computers, software or raw materials.
- Utilities: You need to include janitorial services, energy costs, Internet, etc.
- Management: Management covers such departments as invoicing or payroll.
- Marketing: Subscribe to publications that match your field, and find niche areas in your chosen marketplace.
- Fees: You must worry about legal and license fees before operating your business.
The Small Business Administration (SBA) notes that start-up costs for home businesses are around $1,000 and $3,000 for microbusinesses.
Starting a business may seem costly, but you have two primary options when trying to save money:
- Change Business Structure: Adjust your business model to lower startup costs. For instance, starting out as a sole employee instead of hiring workers from the start is a huge money saver.
- Cut Costs: Create a home office instead of financing or renting office space. Further, you can eliminate expensive supplies and product lines if you’re working with a small budget.
The Warm-Up Period
Your business should enter the “warm-up” stage, beginning with basic necessities. For example, you can create a simple blog as your website or focus on a small niche in a market place. Additionally, you can qualify for large tax savings by working as a self-employed individual. During the start-up phase, you can also hire payment processing companies to help with invoices and overall organization. From there, you can gradually expand the business according to your vision.
You can raise capital through the following methods:
- Friends and/or Family Members: You could slowly amass the capital needed through small loans and financing from those closest to you.
- Angel Investors: Individual investors who tend to invest in early start-ups. These investors may also ask for an ownership stake. You can also secure funding by adding partners to your company.
- Venture Capitalists: Larger investors usually invest in established businesses, but some big-time investors are willing to invest in startups. Venture capitalists can also be in form of large investment houses. You could obtain millions depending on the specs of your company.
- Crowdfunding: Getting small investments from the public can help you raise capital faster. You can also crowdfund equity.
- Government Loans and Grants: The SBA, including a number of government programs and agencies at the state and local levels, are designed to help entrepreneurs.
- Bank Financing: You can obtain a bank loan or line of credit if you have good credit. You can also look for commercial loan companies.
Small Business: Start Your Own and the Risks
There are more than 28 million small businesses in the United States, making up a whopping 99.7 percent of all U.S. businesses, according to the Small Business Administration. When you consider some of the most popular reasons to start a business, including having a unique business idea, designing a career that has the flexibility to grow with you, working toward financial independence, and investing in yourself -- it's no wonder that small businesses are everywhere.
But not every small business is positioned for success. In fact, only about two-thirds of businesses with employees survive at least two years, and about half survive five years. So you may be in for a real challenge when you decide to take the plunge, ditch your day job, and become a business owner. The stage is often set in the beginning, so making sure you follow all of the necessary steps when starting your business can set the foundation for success.
Do Your Research
Most likely you have already identified a business idea, so now it's time to balance it with a little reality. Does your idea have the potential to succeed? You will need to run your business idea through a validation process before you go any further. In order for a small business to be successful, it must solve a problem, fulfill a need or offer something the market wants. There are a number of ways you can identify this need, including research, focus groups, and even trial and error.
Make a Plan
You need a plan in order to make your business idea a reality. A business plan is a blueprint that will guide your business from the start-up phase through establishment and eventually business growth, and it is a must-have for all new businesses. The good news is that there are different types of business plans for different types of businesses.
If you intend to seek financial support from an investor or financial institution, a traditional business plan is a must. This type of business plan is generally long and thorough and has a common set of sections that investors and banks look for when they are validating your idea.
If you don't anticipate seeking financial support, a simple one-page business plan can give you clarity about what you hope to achieve and how you plan to do it. In fact, you can even create a working business plan on the back of a napkin, and improve it over time. Some kind of plan in writing is always better than nothing.
Choose a Business Structure
Your small business can be a sole proprietorship, a partnership, a limited liability company (LLC) or a corporation. The business entity you choose will impact many factors from your business name, to your liability, to how you file your taxes. You may choose an initial business structure, and then reevaluate and change your structure as your business grows and needs change. Depending on the complexity of your business, it may be worth investing in a consultation from an attorney or CPA to ensure you are making the right structure choice for your business.
Pick and Register Your Business Name
Your business name plays a role in almost every aspect of your business, so you want it to be a good one. Make sure you think through all of the potential implications as you explore your options and choose your business name.
Once you have chosen a name for your business, you will need to check if it's trademarked or currently in use. A sole proprietor must register their business name with either their state or county clerk. Corporations, LLCs, or limited partnerships typically register their business name when the formation paperwork is filed. Don't forget to register your domain name once you have selected your business name.
Get Licenses and Permits
Paperwork is a part of the process when you start your own business. There are a variety of small business licenses and permits that may apply to your situation, depending on the type of business you are starting and where you are located. You will need to research what licenses and permits apply to your business during the startup process.
Your locality requires a business license to operate in a certain area. The form you are given is easy to complete, and use your EIN to identify your company. You may also be asked other questions such as estimates for gross annual receipts. If this happens, try to give a best estimate.
Ask Your Locality about Other Permits
Each locality has different standards for business owners. Further, ask authorities if you need other permits for your business. For example, you may need a seller’s permit, allowing you to collect sales taxes on sold products. No sales tax is levied for services. You sell products, go to your Secretary of State website to apply online, or you can complete forms at their office.
Choose Your Accounting System
Small businesses run most effectively when there are systems in place. One of the most important systems for a small business is an accounting system. Your accounting system is necessary in order to create and manage your budget, set your rates and prices, conduct business with others, and file your taxes. You can set up your accounting system yourself, or hire an accountant to take away some of the guesswork. If you decide to get started on your own, make sure you consider these questions that are vital when choosing accounting software.
Set up Your Business Location
Setting up your place of business is important for the operation of your business, whether you will have a home office, a shared or private office space, or 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. You will also need to consider if it makes more sense to buy or lease your commercial space.
Get Your Team Ready
If you will be hiring employees, now is the time to start the process. Make sure you take the time to outline the positions you need to fill, and the job responsibilities that are part of each position. The Small Business Administration has an excellent guide to hiring your first employee that is useful for new small business owners.
If you are not hiring employees, but instead outsourcing work to independent contractors, now is the time to work with an attorney to get your independent contractor agreement in place and start your search. Lastly, if you are a true solopreneur hitting the small business road alone, you may not need employees or contractors, but you will still need your own support team. This team can be comprised of a mentor, small business coach, or even your family, and serves as your go-to resource for advice, motivation and reassurance when the road gets bumpy.
Promote Your Small Business
Once your business is up and running, you need to start attracting clients and customers. You'll want to start with the basics by writing a unique selling proposition (USP) and creating a marketing plan. Then, explore as many small business marketing ideas as possible so you can decide how to promote your business most effectively.
Once you have completed these business start-up activities, you will have all of the most important bases covered. Keep in mind that success doesn't happen overnight. But use the plan you've created to consistently work on your business, and you will increase your chances of success.
When brainstorming, think of something that ignites your passions, or you can find an unfulfilled problem in a certain marketplace. Narrow your ideas to down to a few, and conduct a search on established companies in the same industry. Find out what the most successful business are doing in niche, and look for a way to surpass competitors. A franchise already creates the business model for you, so you only need a good locale and funding sources for the operation.
Build a Business Plan
Upon crafting a business plan, remember the following questions:
- What is the nature of your business?
- Who are your customers?
- What are your goals?
- How will you deal with startup expenses?
A business plan is useful in determining the direction of your new business and how to deal with potential obstacles.
Assess Your Finances
You need to determine how you’re going to address costs in order to get your business off the ground. Ask yourself if you have the funds or need to secure financing from outside parties. If you plan to operate a full-time business, be sure you have the necessary start-up capital before you generate revenue.
Use Services to Generate Cash Flow and Fund Product-based Business
A service-based business requires less capital and provides a service in exchange for a fee. However, product-centered businesses usually need more start-up financing to start and maintain operation. If you are a product-based business, use the service model to get the necessary cash-flow so you can finance the products you need.
Get Over the Company Name Thing
Do not obsess over perfectly naming your company. Set branding or finding the perfect URL aside for the present. Choose a name so you can move on to other important tasks. You can always change your name in the future, and you can change your name under your doing business as form.
Get Your EIN Identification Number
An EIN is a federal tax ID that identifies your business. You don't need an EIN unless you will have employees or plan to form a partnership, LLC, or corporation. However, an EIN is not necessary if you don’t have a partnership, corporation or LLC. In addition, an EIN is a waste of time if you have no employees. With that, you should get an EIN regardless.
It is a free process that takes only minutes. Moreover, your SSN will remain private and keeps you from using it to identify your organization. However, do not use online legal services to obtain an LLC or Corp. and use it to get an EIN. IRS online services will give you an EIN in a matter of minutes.
Get a Business Personal Property Tax Form
Business face the same taxation as personal property. If you need to file such a form, you do not need to list items you own in the form of tools or computers. Instead, you will list items you purchased during the first year of your business on next year’s taxes.
Get a Business Bank Account
Open a business account to avoid mixing your personal and business expenses and to avoid IRS troubles. Use your EIN and business name to open a strictly business account. You can open an account through a bank or credit union. Research your local credit union to see if they provide better offers than local banks.
Set Up an Accounting Spreadsheet
Create a spreadsheet in which you can record money spent and received. Create expensive and revenue columns, and add more lines as you record business activity. Record what you can at the moment, and do not worry about expensive software to keep track of your finances for the time being. Instead, focus on generating a consistent revenue base.
To learn more about starting a company, you can post your job on UpCounsel’s website. UpCounsel has top legal experts from across the country. UpCounsel attorneys have over a decade of experience, and the organization has worked with such reputable companies as Airbnb, Google and Menlo Ventures.