Starting a Business

Maybe you’re motivated by the desire to be your own boss or to build something of financial and societal value. Your ambition could be to run the best restaurant on the block or operate a massive corporation. Perhaps you have a unique solution to a widespread problem, or some special and marketable skill. Whatever the reason, you’ve decided to launch your entrepreneurial journey. Congratulations! But before you go further, you’ll want to know the nuts and bolts of starting a business.

Recent articles on starting a business

What Business Should I Start? How to Figure It Out

What Business Should I Start? How to Figure It Out

September 28, 2018

What do you need, know and like? Most of the people who visit the Illinois Small Business Development Center (SBDC) at the Chicagoland Chamber of Commerce know the industry they …

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The 7 Step Guide to Opening a Salon

The 7 Step Guide to Opening a Salon

September 27, 2018

When Karen Gordon first became a hairstylist more than three decades ago, she loved everything about salons: the smell of hair products, the music that played overhead and her fellow …

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How to Successfully Open a Gym Franchise in 10 Steps

How to Successfully Open a Gym Franchise in 10 Steps

September 18, 2018

The fitness industry is on fire these days. Revenue for the health club industry totaled $87.2 billion globally in 2017. In the U.S. alone, the gym, health club and fitness …

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Starting a Business as an Immigrant: What You Need to Know

Starting a Business as an Immigrant: What You Need to Know

September 18, 2018

Small businesses are a key engine for the U.S. economy and, within that category, immigrant-owned companies play a pivotal role. Businesses founded and operated by non-American born individuals generate significant …

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How to Start an Import Export Business

How to Start an Import Export Business

September 7, 2018

Importing and exporting is big business. Last year, imports of goods and services brought in $1.2 trillion. And exports totaled $2.3 trillion. Consumer goods imports reached $602.2 billion — the …

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How to Start a Consulting Business

How to Start a Consulting Business

September 5, 2018

Starting your own business isn’t easy, especially when it comes to being a consultant and what you’re selling is you. You have to convince people that you have the best …

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How to Start Your Own Landscaping Business

How to Start Your Own Landscaping Business

August 31, 2018

Landscaping is big business. The industry generates annual revenues of $82 billion and is growing at a rate of 4.8 percent every year, according to the National Association of Landscape …

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Evaluating your business idea

Whether it’s a simple notion or a complex system, every business has an idea behind it. But not all ideas are equally viable for starting a business. Here are a few suggestions for evaluating your business idea. If you don’t have a business idea, not to worry. There are ways to come up with one:

Finding a business idea if you don’t have one yet.

You can consider what you’re good at and see how that matches marketplace needs. For example, if you have a talent for building or repair work, you may want to consider opening a handyman or construction-related business.

The most sure-fire idea for starting a business is to look for a challenge in your life that you share with others, and go about finding a solution for it.

Conducting market research on your business idea.

If you want your business to be a success, you need to know the market. You’ll want to know whether there’s an appetite for what you’ll be offering, whether the market is saturated, what your competition is doing, and whether you can reach your intended customers.

The U.S. Small Business Administration advises that you’ll also want to know the market size for your product, and what people are willing to pay for similar goods and services. All of that takes research. The SBA is a good place to start. Its SizeUp tool is a quick way to compare your intended business with similar ones in your market. The SBA also provides help through its local offices and resource network, and provides an extensive list of links to government data and information that can give you insight into the market, economy, workforce and other factors. Brad Sugars, founder of business coaching firm ActionCOACH, points out that trade associations, local chambers of commerce, and universities can provide valuable market research information and insight for starting your business.

Getting feedback on business services or products.

Sugars suggests convening informal focus groups of friends and family to help vet your ideas. There are more formal methods as well. According to the SBA, you can use surveys, questionnaires, focus groups and in-depth interviews to get feedback. There are some solid tools out there to do just these things. Google offers a free form you can use for customer feedback, as well as a pay service, Google Surveys, for a more in-depth option. Survey Monkey, which touts itself as the world’s number one online survey company, also offers a range of plans for conducting online surveys.

Writing a business plan

Before you launch into business, you’ll want a plan. A good business plan can be your guide through every stage of forming and running your business. In some cases, banks or other investors may want to see a business plan before backing you. But even if you’re initially planning to self-fund your business, you’ll want to sketch out a roadmap to your business’ destination. According to the SBA, business plans fall into two categories: Traditional and Lean. LendingTree provides step-by-step instructions for writing your business plan here. What follows is a quick look at the elements of a traditional business plan:

  • Executive summary. A brief business description, including any mission or vision statements, your product or service, and information about the leadership team, employees and location.
  • Company description. Provide detailed information about the problem your business solves, with as specific as possible information on the market you will serve and how you intend to serve it. Include individual customers if possible.
  • Market analysis. This is your breakdown of the market. What’s the size of the market? What does the competitive landscape look like? You should be able to answer those questions in this section.
  • Organization and management. Describe your company’s legal structure and who will be running the business.
  • Service or product line. Describe the service or product you will offer and share information about any unique intellectual property driving the business.
  • Marketing/sales. Here, you describe your plans for attracting potential customers and closing sales with them once you do, according to the SBA.
  • Funding request. If you’re seeking funding, detail how much funding you will need over the next five years, and what you will use the money for.
  • Financial projections. Here, provide a projected financial outlook for the next five years, backed by as much evidence as you can muster, including supporting financial statements.
  • Appendix: Supporting documents such as bank statements and management resumes go here.

Becoming an official business

You’ll want to consider your business structure carefully before choosing, since it can affect everything from your personal liability to the taxes you pay. Among the most popular structures are: Sole proprietorship, which is easy to set up and gives you complete control, but leaves you personally liable should something go wrong; Limited Partnerships and Limited Liability Partnerships, which protect some or all partners from personal liability; and a Limited Liability Company. LendingTree has a rundown of business structures here.

Requirements for registering your business vary by location and type of business. According to the SBA small business formation guide, if you’re doing business under your legal name, you won’t need to register your business; you do, however, risk missing out on personal liability protection and tax benefits.  Most businesses don’t need to register with the federal government, other than to obtain a tax ID, but if you may want to trademark your brand or product. For LLCs, corporations, partnerships, or nonprofit corporations, you’ll probably need to register within the state where you do business; requirements will vary by state and you can look up the state agency that handles your area here. For LLCs, corporations, partnerships, and nonprofit corporations doing business in multiple states, you may need to form your business in one state and file for foreign qualification in others where you operate. Registration fees will vary by state but are typically less than $300, according to the SBA.

Many businesses will need a federal Employer Identification Number. You will need an EIN if your business pays employees; operates as a corporation or partnership; files tax returns for employment, excise, alcohol, tobacco and firearms; uses a tax-deferred pension plan called a Keogh Plan; or works with banks or trusts or some other organizations. To get a federal EIN, use the IRS EIN Assistant. Depending upon the state taxes your business must pay, you may need a state tax ID number. You can use the state office finder on this page to look up your potential state obligations.

Depending upon your location and what your business does, you will need to obtain permits or licenses to operate. Federal licenses or permits are required for some agricultural activities, handling or making alcoholic beverages, aviation, firearms manufacturing or dealing, wildlife activities, commercial fishing, ocean transportation, mining and drilling, nuclear energy, and radio and television broadcasting. State and local permits and licenses cover a broader array of activities and vary by location. Auctions, construction, dry cleaning, farming, and restaurants are among the businesses commonly regulated at the state level. To see what is required in your state, check your state’s website.

If your business depends upon an invention, a unique brand, or other intellectual property, you will want to obtain a trademark, patent or copyright. There are three types of patents you can apply for: Utility patents for processes and machines; design patents; and plant patents. Copyright applies to creative work such as a novel or song and exists as soon as you create that work; however, you may want to register your copyright in case of a lawsuit or to create a public record. Trademarks cover such items as branding for your business.

Once you have a business, you’ll want a business bank account, separate from your personal bank account. Getting a business bank account makes sense because it offers some liability protection by keeping your business and personal finances separate. It’s also a sign of professionalism, allowing customers to pay your business for goods or services, rather than to you personally. You’ll also want to get business insurance to protect yourself and your business. Business insurance products range from general liability to business owner’s insurance. To choose the right plan, think about the kind of risks you and your business face, find a reputable licensed agent and shop around for the right plan. Remember that your needs may change over time, so reassess your insurance every year.

Financing your new business

Before you decide how to fund your business, it’s wise to have a sense of how much money you will need. You can start by calculating your costs. List every possible expense, from insurance to website hosting to office space and employees. Be as thorough as you can be. Once you have listed your expenses, you can go about estimating how much each will cost, and adding up those costs. After that, you can decide on the type of funding you will pursue. Here are some options for financing your business:

1

Self-funding.

Also known as bootstrapping, this can be a great option. Self-funding allows the business owner complete control over their company. But the business owner bears all the risk under this scenario. So before going it completely alone, be sure you can take the losses that occur.

2

Friends and family.

Another common source of funding is from friends and family, through a loan, equity sale or gift. While this route can be easier than raising money from strangers. There are pitfalls. If things don’t go well, you risk strained or broken relationships with those closest to you. The best way to avoid those strains is to treat your friends and family as you would any other investor—with complete transparency about the business. That way, you can avoid misunderstandings and hurt feelings down the line.

3

Crowdfunding.

Initially, a business engaged in a creative project or something similar could raise money from donors on a site like Kickstarter, usually in return for a gift or early version of the product. That model, which is one that the SBA singles out, led to some notable fundraising successes as the Pebble Watch (though that company ultimately ceased operations and was sold to FitBit). Since those early days and after passage of the Jumpstart Our Business Startups (JOBS) Act, some websites are offering equity crowdfunding, in which businesses can sell equity online through sites such as MicroVentures and SeedInvest.

4

Angel investors.

Wealthy individuals, often veteran entrepreneurs, will sometimes invest in startup companies in return for a stake in the business. Such investors usually focus on companies with very high growth potential and expect a say in how the business is run.

5

Venture capital.

Venture capital firms make a number of investments in private companies that have a high growth potential. For the most part, those companies are in such fields as tech and biotech, and are often at later stages in their development. In fact, as TechCrunch reported, early stage VC investment has fallen off in the past couple years. If a VC firm or firms invest in a business, they will buy a stake in the company and will often expect a seat on the board and substantial say over the business’ direction.

6

Small business loan.

It can make sense to consider a small business loan if you don’t have funds to start on your own, according to the SBA. Here’s one place where your business plan will come in handy. One thing to be aware of, though, is that many banks only loan to companies that have been in business for a year or more.

Bottom Line

A strong idea can help you get your business off the ground. But it’s not enough. Putting your business idea to the test can help, as can going through such steps as writing a business plan and doing market research. Even then, though, your work is just beginning as you work out the structure of your business, get the proper licenses, and put your financial structures in place. Once you’ve done all that, it’s time to work through where you’ll get the funding you need to help turn your business into reality.

It’s plenty of work. But for many, becoming a business owner is worth it.