Starting a business can feel like an overwhelming task to take on, especially in such shaky economic times. But a small budget and/or limited experience doesn’t mean it’s impossible to achieve your dream of becoming a small business owner! Here, we outline some of the steps to starting a business, which will help you make informed decisions about what is the best small business to start, where to obtain funding, and more.
Formulate a Business Idea and a Game Plan
It might seem obvious, but in order to start a business, you need a solid idea that appeals to many people. If you don’t have one yet, that’s okay. Start by thinking about the annoying problems you face every day, whether big or small, and consider what could potentially solve them. Think of Uber. Think of online dating apps. Think of insulated coffee mugs. What kinds of problems are you having that many other people are likely experiencing as well?
If you can’t think of anything new, think about industries that have stayed the same for a long time or existing products and services that could be improved upon.
Once you have your million-dollar idea in mind, it’s time to create a business plan, which should be outlined as follows, according to the Small Business Administration (SBA):1
1. Executive summary
- What your business will be about (product/service offerings)
- Why you think it will be a success
- Mission statement
- About your employees/teams
- Location
- Financial/growth plans
2. Company description
- Details about problems your business solves
- Who you plan to serve
- Your strengths and competitive advantages
3. Market analysis
- Research on competitors and their strengths
- How you’ll fit into this market and stand out
4. Organization and management
- Company structure (organizational and legal)
5. Service or product line
- What you sell and how it helps consumers
- Plans for patents/copyrights
6. Marketing strategy
- How you’ll attract and retain business
7. Funding request
- How much money you need and how you will use it
8. Financial projections
- Show how you plan to start making a profit
- Five-year financial outlook
- Tell the financial story of your business
Research and Plan for Success
Preparation is the most important part of starting a business and will be the most time-consuming step of this process; before you can open your doors to customers, you’ll need to calculate your startup costs, conduct market research, and identify your unique value proposition.
The SBA makes it easy to predict how many funds you’ll need upfront to start your business. Use this PDF to see what kinds of expenses you should be planning for and how you could clearly lay the information out so that it’s easy for potential investors to digest.2
As for market research, find out which businesses are most successful in your space, what they’re doing right, and what they could be doing better. You can then convert another company’s weakness into your value proposition and capture the market with your unique offering.
Gather Funding
Without funding, a startup is just a dream. Thankfully, there are several ways to obtain funding for a startup. The SBA recommends calculating your startup costs and using that amount to determine whether you can fund yourself or if you’ll need to turn to loans and investors.3 Here are some of the most common sources of startup funding:4
- Self-funding: If you have the resources in your savings, 401K, or loved ones, you may be able to fund your own startup, assuming that you’re willing to take the risk all upon yourself.
- Venture capital from investors: Investors will fund your startup if they can assume partial ownership and be actively involved in your operations.
- Crowdfunding: Crowdfunders don’t get a share or a return on their investment in your company, but they usually expect a gift in the form of your product, credits for your services, or special company perks.
- Small business loans: A small business loan gives you the capital you need, which you’ll pay back to the bank over time with interest.
- SBA investment programs: The SBA oversees several investment programs for which you could qualify.
As you search for funding, avoid asking for too much, as this could turn off viable investors. When you do obtain funding, use it only for the essentials and avoid overspending that could sink your startup prematurely.
Unemployment and Starting a Business
The COVID-19 pandemic and mandated shutdowns have caused much financial hardship for businesses, leading to mass layoffs and bankruptcies all over the US. If you’ve lost your job as a result and have always dreamed of starting your own business, now just may be the right time to pursue it. You might be wondering if it’s a good idea to start your own business after unemployment and whether or not you can use unemployment assistance to fund your business.
As for whether or not it’s a good idea, we say YES. Without the burden of a 9–5 role, you now have the time to focus solely on your startup. Many say they hesitate to chase their dream only for lack of funding, but in reality, nobody ever has “enough” capital to start a business. Just change your plan if you can’t work with the resources at your disposal.
If you are currently receiving unemployment benefits, you should review the rules of use for your state. Most states do not prohibit people from starting a business while on unemployment benefits. In fact, if you live in Mississippi, Oregon, New Hampshire, or New York, the Department of Labor’s Self-Employment Assistance program ensures your continued benefits while you focus on starting your own business.
Just remember that you need to meet state requirements by continuing to look for work as you do this. If your business starts becoming profitable while you’re receiving unemployment, you will need to report it to your state so they can adjust your benefits accordingly.
Take Care of Legalities
Once you’ve got funding, you need to register your business legally, which involves several steps. First, you need to decide if you’re forming an LLC or a corporation. The former protects your personal assets from lawsuits, bankruptcy, etc. while the latter makes your company legally separate from you and your co-owners. The SBA has outlined the different business structures here to help you decide which one has the most advantages for your circumstances.5
Another important step is to apply for a federal tax ID number through the IRS,6 which allows you to pay taxes, hire employees, open a company bank account, and apply for business licenses. The licenses you need will depend on your industry and company location, but the SBA has outlined a number of federal business licenses that are commonly required for all business types.7
Obtain the Right Insurance
Next, determine what kind of insurance and how much of it you might reasonably need to protect your business. Depending on the industry you’re working in, you may have very specific insurance needs.
For example, do you anticipate needing business vehicle insurance to cover company cars used for business? Will you need workers’ compensation insurance? Will you sell a product that could potentially cause liabilities in the event of a malfunction? Look into the types of business insurance offered so you can cover your company’s vulnerabilities.
Create Your Brand
Finally, you’re ready to define your brand identity with a logo, a website, and a social media presence. You can hire people to do this for you internally, or you can turn to an agency to help you with these assets. Be sure to make the right choice, as these will determine your visual appeal, your company voice, and your overall identity.
Disclaimer:
The information provided on this page is for educational purposes only and is not intended to be taken as legal advice. If you plan to act on any of the information above, please contact an attorney first so they can provide you with the appropriate legal guidance to help you start your business in a lawful and compliant manner.
Sources:
- https://www.sba.gov/business-guide/plan-your-business/write-your-business-plan
- https://www.sba.gov/sites/default/files/2020-08/Startup%20Costs%20Worksheet-508.pdf
- https://www.sba.gov/business-guide/plan-your-business/calculate-your-startup-costs
- https://www.sba.gov/business-guide/plan-your-business/fund-your-business
- https://www.sba.gov/business-guide/launch-your-business/choose-business-structure
- https://www.irs.gov/businesses/small-businesses-self-employed/apply-for-an-employer-identification-number-ein-online
- https://www.sba.gov/business-guide/launch-your-business/apply-licenses-permits