How to Start a Business
No two businesses follow the exact same path from start to launch. However, the following steps are important considerations when determining how to start a business:
- Developing a business concept
- Performing market and competitor analysis
- Securing funding for the business
- Choosing an entity structure
- Establishing bank accounts for the business
- Establishing tax and legal compliance
- Acquiring equipment and hiring employees
- Marketing the business
According to the U.S. Census Bureau, nearly 5 million new small businesses are started every year. If you are among the millions of aspiring small business owners, it may be daunting just getting the process going, but these important tips will help those who want to know how to start
1) Business Concept Development
The first step is to develop a business concept and build it out with competitor or market analysis. Chances are, you have an idea of the business you’d like to start. If not, ask yourself the following questions:
- Do I have any standout skills or experience?
- Is there something I particularly enjoy doing?
- What resources do I have to invest in the business?
- Would I rather work alone at home, or with a team at a separate location?
- Are there other people – like a partner – that will be involved?
- Is there any way to incorporate my interests or passions into the business?
These should provide a good starting point for your business idea, or help you develop it further.
2) Competitor and Market Analysis
Many future business owners rush into their business plan as soon as they have a concept, but competitor and market research can provide valuable direction for fledgling businesses.
Market research can be direct or secondary, and both are intended to develop an idea of who your customers are and where they can be found. Direct market research involves surveys, questionnaires and other tools to gain direct feedback from potential customers. Secondary market analysis involves data analysis (such as demographic and census analysis) gathered from other data-collection sources, such as the U.S. Census.
Competitor analysis gives you an idea of where your business would stack up against likely competitors. It’s wise to see what other companies in your field have already accomplished and what could be holding them back. This knowledge can be applied to your business and give it a head start from launch.
3) Business Plan Creation
The business plan is like a blueprint for your company. It describes the goals of the business, the description, the products or services provided, organizational structure, market analysis, and various forms of planning, such as financial, marketing or manufacturing plans.
Business plans can be hundreds of pages long and involve a great deal of research, outlining, document acquisition and organization. If you are unsure where to begin, a business accountant can assist with structuring your plan and generating the data you’ll need for development.
Potential investors and funding sources (such as banks) will need to see your business plan before they hand over any funding, so it is important to create a detailed, well-thought-out plan.
4) Funding the Business
If you will operate your business out of your home and don’t rely on equipment or inventory, you may require minimal funding to get started. This is often the case for new service or information-based businesses.
If your operations extend beyond a home office and require extensive manpower or equipment resources, funding will likely be necessary. There are several ways to secure this funding, including:
- Self-funding, from savings or from leveraging personal assets
- Small business loans through a bank or credit union
- Investors or venture capitalists
- Crowdfunding
- Specialized Small Business Association programs, such as SBICs or SBIRs
No matter the funding source you target, you’ll need to present a full business plan at the minimum. Potential investors may want to see future performance projections, marketing plans, and other types of information before they agree to a funding relationship.
5) Entity Structure and Business Accounts
One of the first long-range decisions you’ll make for your business is choosing its entity structure. Every business is required to designate an entity structure, as it dictates how the business is taxed and operated. Business structures include:
- Sole proprietorships
- Partnerships (including limited liability partnerships, limited partnerships and family partnerships)
- Limited liability corporations (LLCs)
- Corporations, including C-corps and S-corps
Each business structure offers its own advantages and considerations to business owners. For example, LLCs protect a business owner’s personal assets from litigation, while S-corps offer pass-through tax provisions. An experienced tax and business accountant can help new business owners make sense of entity structures and determine which is the best option for their client’s business.
6) Licenses, Permits and Tax Information
Depending on the industry your business will operate in, as well as its location, you may be required to attain certain licenses or permits before launching. This is defined at the state and local level. For example, general contractors are not required to be licensed in Texas, but contractors must attain work permits for Houston projects. If you are unsure whether licensing is required for your business, check with your state’s and city’s board of licensing.
Every taxpaying entity also requires a federal employer identification number (EIN) before it can operate. In some states, an additional state EIN is also necessary. Federal EINs can be attained through the IRS’s website, with an online tool specifically for this purpose. State EINs can typically be acquired through the state’s department of revenue.
7) Equipment and Employees
With your company’s essentials in place, there is one more investment to make before your business is launch-ready, which is the people and equipment your organization requires to run its operations. By the time you get to this point, you will likely have an idea of what your equipment and employee needs will be. Still, this represents the most concrete investment into your business thus far, so it’s a major milestone for most small business owners.
8) Marketing the Business
With the previous steps completed, it is time to market the business and reach your target audience. This can be done through local newspaper and radio listings, by sharing on social media outlets, by having a ribbon cutting ceremony, or a number of other ways. Be sure to visit neighboring businesses and let them know you’re happy to be part of the community.
Work with a Reputable CPA to Keep Your Books Current and Accurate
Prior to and following launch, it’s imperative for business owners to stay current on all parts of their business, including operations, accounting, legal and more. With nearly 5 million businesses being started every year, there is a lot of potential competition. To keep your new business strong, it’s important to work with a reputable CPA or forensic accountant to make sure your books and financials are in order, and nothing is being overlooked.
Funding Your New Business
One of the most challenging parts of launching a new company is funding your new business. Fortunately, there are many options available to new business owners, including:
- Bootstrapping (self-funding)
- Funding through family and friends
- Bank and credit union loans
- SBA-guaranteed loans
- Government grants and programs
- Crowdfunding
- Purchase order or supplier financing
- Venture capital
The above funding tools can help businesses at every stage of their life cycle, including established businesses that have been in operation for years. Let’s take a closer look at each funding tool, along with their advantages and limitations.
Bootstrapping or Funding Through Family and Friends
Bootstrapping a small business means to fund it through personal savings alone. Advantages include:
- No need to take on debt
- No need to give up equity in the business
- No need to adhere to any funding terms
Bootstrapping gives new business owners the most control over how to fund their business. Business owners also maintain full interest in their company and stand to maximize profits if the company is successful. Unsurprisingly, bootstrapping is the most popular funding approach among new business owners. However, bootstrapping owners are limited by their personal finances and may drain them quickly if additional capital is needed.
If personal finances aren’t enough to cover startup costs, new business owners may turn to friends and family to make up the funding gap. The advantages to this approach include:
- Easier to attain funding
- Flexible repayment terms
- Access to additional sources
Of course, funding through friends and family comes with its own challenges. Your relationships with family or friends may be strained once money concerns are introduced. A handshake or informal agreement between family members may also lead to tension if the terms aren’t carefully defined.
Bank or Credit Union Loans
Financial institutions, including banks and credit unions, have funded new businesses for decades. Although lending standards have tightened in recent years, there are still significant advantages to bank or credit union loans, including:
- Access to a larger amount of funding
- No need to give up equity in the business
Funding your new business through a financial institution remains a proven approach, but there are some important considerations. For example:
- These are loans, so they must be paid back with interest
- You’ll need, at a minimum, a complete and thorough business plan
- Collateral or a personal guarantee may be required
- The approval process can take a while
If your new business has major funding needs – inventory, real estate, equipment, etc. – then it may require a large loan to cover those needs. Before applying for a bank or credit union loan, you will need to be prepared to make a strong pitch, with supporting documentation.
SBA-Guaranteed Loans
Compared to just five years ago, it’s noticeably harder to secure a small business loan through a bank. For those who don’t qualify for one, a loan guaranteed through the small business administration (SBA) may provide an alternative. SBA-backed loans are provided by traditional lending organizations and offer the following advantages:
- Higher chance of securing a loan
- Lower interest rates, on average
SBA-guaranteed loans are flexible in that small business owners can access everything from microloans (under $50,000 – even down to $500) to millions in startup funding. The approval process can be lengthy, and repayment is required, even if interest rates are lower.
Government Grants and Programs
There are a handful of government programs that can be used to unlock additional funding for small business owners. They include government grants that provide funding for research and development, environmental, or economic development purposes. They also include community development financial institutions (CDFIs), which are mission-driven organizations that provide small loans and guidance to new entrepreneurs.
Research, environmental and economic grants do not require repayment, but they can take a while to secure. CDFIs lend to a larger range of small business owners, including those in low-income areas, but specific criteria must be met, and loan amounts tend to be lower.
Crowdfunding
For some new small businesses, the products or services they offer generate enough consumer interest that people are willing to contribute funds before the business is launched. Kickstarter is one example of an online crowdfunding platform that has helped launched thousands of businesses. The advantages of crowdfunding include:
- Crowdfunding campaigns double as a marketing angle
- Validates the product or service model of the business
- No need to give up equity
- No need to take on debt
A properly executed crowdfunding campaign can provide extensive funding without exposing the owner to any risk. However, just like marketing campaigns, crowdfunding can be hit-or-miss in terms of success. Crowdfunding campaigns also require significant time to organize.
Venture Capital
Venture capital firms are willing to fund businesses that may be considered too risky for banks or credit unions. They often serve the funding needs of high-ceiling startups, such as those in the technology industry, but major expectations may be attached to that funding. Advantages include:
- Access to a larger amount of funding
- Access to successful business advisors
- Access to networking opportunities
Small businesses can attain all the funding they need through a venture capital firm, but only by handing over some of the company’s equity and control. There may also be some growth-related expectations, which must be carefully considered.
A Business Accountant May Have Ideas on Other Funding Options
Depending on the nature of your new business, it may be quite expensive to launch. If you’ll need to invest in space, equipment, technology or people, personal savings may not cover startup costs. Fortunately, there are many funding options for new business owners, each with their own considerations. If you’re working with a business accountant, they can review your funding opportunities and determine which will fit best into your launch plans.
Compliance and Legal Issues
New businesses face a variety of compliance and legal issues as they prepare for launch, regardless of the industry. Some of the most common legal and tax-related compliance issues include:
- Designating a business structure
- Registering a name for your business
- Acquiring the necessary permits and licenses
- Attaining a federal and state employer identification number (EIN)
- Observing various employment regulations, such as the Fair Labor Standards Act
- Establishing intellectual property protections
- Setting up bank accounts for the business
These requirements and responsibilities can be a challenge for new business owners to manage, which is why many turn to accounting and legal experts to ensure these matters are handled appropriately. There are several fundamental compliance and legal issues facing new businesses, and it is important that each is addressed appropriately.
1) Business Structure and Name Registration
One of the first decisions you’ll make for your new business is designating a business structure – sometimes referred to as the business’s tax structure or entity structure. They include:
- Sole proprietorship
- Partnership and limited liability partnership
- Limited liability corporation
- C-corporation
- S-corporation
There are others, but they all fit into one of the above buckets. Your company’s structure will dictate several important elements of your company, including how your company will pay taxes, the taxes it will owe, whether the owner is personally liable for the business, operational standards for the business, and its fundraising options.
Once the structure of the business is decided on, it will also need a name. This must be registered with federal and state agencies, and every state has its own requirements for name registration. In most states, a new business must register their company’s name with the state’s Secretary of State office.
2) Business Licensing and Permits
Businesses that operate in a federally regulated industry must attain a license to start. This includes businesses in the following industries:
- Agriculture
- Alcohol sales
- Aviation
- Firearms
- Fishing and wildlife
- Naval transportation
- Mining
- Nuclear energy
- Radio and TV
If your business is associated with one of the above industries, contact the relevant federal agency to get the licensing process started.
In addition to federal licensing, every state has its own licensing requirements. A handful require a general business license for any new company, but most (including Texas) do not. Instead, licensing is only required for certain industries. In Texas, for example, accountants, lawyers, medical professionals, insurance agents and engineers, among others, must be licensed.
3) Federal and State Taxpayer EINs
New businesses are taxpaying entities and therefore must have an Employer Identification Number (EIN) to operate. This includes a federal and state EIN, both of which must be secured.
Federal EINs can be attained through the IRS’s website, which has an online tool designed to facilitate the process. State EINs can be attained through the state’s department of revenue.
EINs are only the tip of the tax compliance iceberg. In addition to EINs, you’ll need tight compliance measures for proper tax withholding, reporting and preparation. A reputable tax accountant can help address these often-confusing compliance requirements.
4) Employment Regulations (FLSA, OSHA, EEO)
Not every new business needs to hire employees, but if yours does, it must adhere to equal employment laws and regulations. The most important, from compliance and legal standpoints, are the following:
- Fair Labor Standards Act (FLSA) – The FLSA is nearly a century old and is mostly concerned with how employees are paid and classified. Under the FLSA, employers are required to pay a minimum wage, classify employees properly (salaried vs. hourly), provide sufficient breaks, pay overtime and record working hours fairly.
- Equal Employment Opportunity (EEO) – The EEO is a 1972 act that requires employers to eliminate discrimination in hiring or in the workplace due to race, religion, sex, age, national origin or disability. Employers are also required to maintain a workplace that’s free from harassment and to provide employees with reporting and review options should they file an EEO complaint.
5) Intellectual Properties
Intellectual property (IP) is just as important as tangible assets for many businesses. If your company has valuable IPs worth protecting, you’ll need to take steps to ensure they can be legally defended. Those steps include registering any trademarks and patents, as well as using copyright notices to prevent others from infringing on your intellectual properties.
To register a patent or trademark, you will need to work through the United States Patent and Trademark Office (USPTO). You may be required to complete a course before you can file a patent, and the process typically takes a few years to complete (along with thousands of dollars).
However, registering your IP provides legal defenses in the event of infringement. It also places your registration in a public database that other business owners can review before registering their own IPs. This can prevent any inadvertent IP infringement.
6) Business Bank Accounts
It’s imperative that your new business have its own dedicated bank accounts that are not intermingled with your personal accounts. Intermingling personal and business funds is one of the most common and most damaging mistakes a new business owner can make. If your company sustains major losses or is hit with a legal judgment, your personal assets will be spared if your business offers liability protection.
If your personal assets are ever mixed with your company’s assets – even for a short time – this can “pierce the corporate veil.” In other words, your personal assets will be exposed, potentially exposing your personal finances to liability.
This is an extremely important step to get right, so many new business owners rely on a business accountant to establish a separate accounting chain.
An Accountant Can Assist with Compliance Issues
Legal and tax compliance are challenging aspects of launching a business. They aren’t intuitive to most new business owners and any mistakes can be expensive (or worse). To ensure their businesses are protected, many new business owners partner with specialized experts to oversee them, and a reputable accountant can help with compliance issues.
Marketing Your New Business
Before, during and after launch, you’ll need to prioritize marketing your new business. It’s impossible for new businesses to overtake established competitors without raising awareness of the new company. There are many ways to approach business marketing, and the ideal mix of marketing tactics will depend on the business and the industry it operates in.
Four Ways to Market Your New Business
There is an array of marketing techniques available to business owners, new or experienced. It would be impossible to put together a full list, but there are several marketing channels that every new business owner should consider, including:
- Content and SEO marketing – Every business needs a website. There’s no avoiding that fact, and if your business doesn’t have a website, it’s likely missing out on a large portion of its potential business.
Once you have a website, it will need quality SEO and content marketing to climb up in the search engine rankings. SEO consists of proper keyword usage, optimized content production and optimized technical factors – such as site structure, URL structure and proper use of navigation elements. - E-mail marketing – E-mail marketing is a powerful tool once you’ve built up a robust subscriber list, as it can be used to directly communicate with people who have already shown interest in your business or product. Marketing e-mails are meant to provide recipients with value, whether that’s a useful piece of information, a discount, an advanced reveal of a new product, or something else. E-mail marketing synergizes well with crowdfunding, as most funders will provide an e-mail address for the business to use.
- Networking events – In-person networking remains an effective marketing tool for certain businesses – specifically, those that rely on trade shows and industry conferences to build leads. These events are excellent opportunities to introduce new products and interact directly with potential customers.
- Public relations (PR) – PR uses media connections – a newspaper, a local TV station, etc. – to publish press releases and articles that support the company’s goals. For example, a new business might put together a press release announcing its grand opening or a ribbon cutting ceremony.
Although the above marketing strategies are only a start, they will set a strong foundation for your company’s future marketing efforts and steadily build up customer traffic over time.
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