The Basics of Starting Your Own Business: A Guide
Starting your own business can feel daunting. I know — I started my own accounting firm nearly two years ago.
Starting a business involves vast amounts of planning and preparation, and there are seemingly a million and one details to take care of…and that’s all before you even open your doors! It can feel like you’re trying to run a marathon through a maze.
To help you navigate that maze, I’ve compiled a brief list of some of the basic steps you’ll need to take. If you’re thinking of starting your own business, grab a cup of coffee and read on.
Do Some Market Research
Start by doing some market research to determine if your idea is a viable one. You need to understand the demand for the product or service you’re offering as well as the economic environment and trends that could affect your customer base.
You’ll also want to do a SWOT analysis — an analysis of the strengths, weaknesses, opportunities, and threats relevant to your business idea. Understanding these elements will help you determine the best path forward.
And if your product or service is one that’s already offered in the marketplace, you’ll need to determine how you will differentiate yourself from your competitors. Take some time to analyze your competitors’ strengths and weaknesses to understand them better and refine your competitive strategy.
All of the information you compile doing market research and completing a SWOT analysis and competitor analysis will come in handy when you write your business plan.
Create Your Business Plan
Your business plan serves as a roadmap to guide the development of your business. It’s also something you’ll share with potential investors and financial institutions as you work to raise the capital needed to start your business.
A business plan includes your SWOT analysis as well as your mission, goals, background, organizational structure, marketing plan, and financial plan. In it you should describe your business, highlight your goals, and share your plan to reach them. You should also include data, articles, and research studies on trends that could affect your business.
You’ll also want to include information about the type of business organization you will have, the risk management strategies you are planning to use, and the people who will staff your management team.
And, last but not least, your business plan should include your proposed budget, projected financial statements (at least five years’ worth), and your funding request.
It’s important for your business plan to look as professional as possible. Luckily, there are plenty of templates available, as well as guidance from the U.S. Small Business Association.
Determine the Structure of Your Business
As part of developing your business plan, you’ll need to determine the legal structure of your business. There are several types of business structures. Some of the most common are:
- Sole Proprietorship. A very small business, with one owner, where the business and owner are, legally speaking, considered one and the same. The business owner assumes all liability for the business with this structure.
- Partnership. A small business with two or more owners. There are two types of partnerships: Limited Partnerships (LP) and Limited Liability Partnerships (LLP), which vary in the amount of liability assigned to each owner.
- Limited Liability Company (LLC). This structure protects you as the owner from personal liability in most cases — meaning your personal assets won’t be at risk if your business fails or faces lawsuits.
- Corporation. In a corporation, the company is a legal entity separate from its owners. There are multiple types of corporations (including, C Corp, S Corp, B Corp, and Nonprofit), all of which vary somewhat in their tax structure.
The type of business structure you choose will reflect the interests of your company, yourself, and any other owners. You want to choose the one that will give you the best balance of legal protections and benefits for your business.
Take Care of the Legal Details
In addition to choosing the type of business structure your company will have, there are a few more legal details you’ll need to take care of to get your business up and running. These include:
- Register your business name. Choose a business name that is memorable and register your name with the state.
- Apply for an Employer Identification Number (EIN). You can either submit an application to the IRS (which takes a few weeks) or fill out an application online to receive your EIN faster.
- Apply for licenses or permits. Most businesses need a variety of licenses from the state or federal government to operate. The ones your business needs will depend on your industry and location. Check with your local government for details.
- Open a business bank account. As your friendly local CPA, I advise you to keep your business and personal finances separate. Open a business checking account to use for all of your business expenses.
- Apply for business insurance. You’ll want to make sure your business is covered by the appropriate insurance, including general liability, product liability, worker’s compensation, and commercial property insurance (if applicable).
Secure Funding for Your Business
Unless you already have the cash needed to start your business, you’ll need to obtain some kind of capital. You can choose to go with internal financing — using your own funds, credit cards, or loans from family and friends — but in most cases you’ll need some external financing.
External financing can come from:
- Small business loans or grants
- Angel investors: wealthy individuals who invest a portion of their portfolio in new businesses
- Venture capitalists: individuals who fund high-growth, high-potential startups
- Crowdfunding through sources like Kickstarter or Patreon
Many businesses end up using a combination of funding sources to secure enough funds.
One of the biggest mistakes you can make in starting your own business is to underestimate how much capital you’ll need. Remember the proposed budget and projected financials we talked about back in the business plan section? This is why it’s so important to be as accurate as possible when looking at your business’ projected income and expenses.
This is a good time to remind you to set up an accounting and bookkeeping system for your business. Keeping accurate records will be crucial to ensuring your success. If this part of running your business is something you dread, don’t be afraid to outsource to a small business accountant or CPA.
Prepare to Hire Employees
Even if you won’t need to hire employees right away, there are a few things you can do now so you will be ready to hire when the time comes.
- Apply for your Employer Identification Number
- Write job descriptions for each position you know you’ll need (including salary ranges)
- Create a comprehensive employee application (or download one — many generic application forms are available online)
- Draw up a basic employment offer letter
- Write confidentiality and disclosure agreements
- Gather the appropriate IRS forms
For that last one, to determine which forms you’ll need, you will first need to consider whether your hires will be employees or independent contractors. This classification will determine whether or not you need to withhold income tax and pay Social Security, Medicare, and unemployment tax.
You can learn more about the difference between employees and independent contractors here, but in general, a worker will be considered an independent contractor if you have the right to direct only the result of their work, not what they do and how they do it. If you plan to exercise more control over a worker’s day-to-day activities, they’ll need to be considered an employee.
Market Your Business
Marketing your business will be crucial to its success, especially in the early days. And the best (and least expensive) way to do that is to build your online presence.
- Website and Search Engine Optimization (SEO). If you do nothing else, make sure you have a quality, easy-to-navigate website for your business that is optimized for SEO. Prospective customers are highly likely to seek out your business online before contacting you, so make sure your website clearly communicates the value of your product or service.
- Content marketing. Offering quality digital content (blogs, customer testimonials, eBooks, videos, and so on) can drive customers to your business.
- Email marketing. Start building your email list now! Email marketing will allow you to communicate regularly with both customers and prospects. Offering valuable content or special offers via email will keep you top of mind and help encourage your contacts to do business with you.
- Social media. Another way to stay top of mind with customers and prospects is through social media. Your social media presence can drive traffic to your website and boost your sales. The platforms you choose to use will depend on your industry and your target market, but at the very least you should have a presence on Facebook (and/or LinkedIn, if you are a B2B business).
Another word about marketing:
While marketing yourself or your business can feel uncomfortable at first, it’s absolutely vital. In order to attract prospects and turn them into customers, people need to know your business exists. Don’t be shy about telling everyone you know about your business.
Advice From One Small Business Owner to Another…
When you run your own business, you’ll work harder than you ever have. As someone who recently started their own business, here are a few words of advice:
- Make sure you have a strong support system. Friends, family, networking groups…find support wherever you can. You’ll need it.
- Don’t hesitate to outsource the parts of the business you aren’t great at or don’t have the time to learn how to do. It can be costly, but if it frees you up to work on the parts of the business you do best, it will be well worth it.
- Stick with it. Running a business can be incredibly challenging. But look at those challenges as opportunities for growth, and keep going.
I have found owning my own business to be incredibly rewarding. I get to do work I love with people I enjoy while helping others navigate things they don’t know how to handle on their own. It doesn’t get much better than that.
As a CPA, I’m here to help you with small business accounting services, bookkeeping, business advising, and tax preparation services. And if you need referrals for insurance, banking, legal, marketing, or other professional services, I can help with that too. I have great contacts in all of those areas that I would be happy to connect you with.
Contact me today to discuss the many ways I can help your business!