The National Federation of Independent Businesses (NFIB) conducted a study that showed that over 50% of small business owners fail within their first year.
While there are many reasons for this, the report cited poor financial planning and lack of proper funding as two significant problems.
We tried to create a high-level overview with help available for a successful entrepreneur if he would like to start his own business. The following article will talk about what one needs to do to create a successful business.
How to start your business
1. Conduct market research
Decide what type of business you want to establish. After you’ve done this, it’s time to conduct thorough market research and find out if the field that you’re in is profitable enough for your enterprise.
If many companies provide the same service or product that you wish to sell, then perhaps your business idea isn’t as great as you’d initially hoped.
If there aren’t too many competitors in the industry, then proceed with looking for your potential customers, creating your customer base, target market, and target audience.
Ways of research:
- Use the Internet: This is one of the best places to find information about your given industry. Almost all companies have their websites and a web developer these days, making it easier for you to track them down. Don’t forget to read reviews about each company that you come across or look up what other companies are saying about them!
- Make use of social media: Social media sites like Twitter and Facebook can be used to contact current business owners in your area. Inquire about their prices and how they operate their businesses. Sometimes seeing an advertisement on Tv does not give you enough information when choosing a product or service, so speaking with someone directly is probably your best bet in making an educated decision.
- Personal relationship: People you know may be able to provide you with information about the field you’re looking to get involved in. They may have a business but haven’t officially launched it yet, or they might even run a company and see if they could use some help from time to time!
- Holding focus groups: Before launching your business, try to speak with people in your target market about the service or product you plan to sell. This will not only help you verify if anyone wants what you’ve got to offer, but it will also provide you with some insight on where the industry is headed so that your business isn’t left behind, which can ultimately lead to failure.
- Ask for advice from an expert or professional that works in this area: You can find professionals in any industry by simply googling it. Look up the top companies and email them, asking for a consultation or if their employees would be willing to do a phone chat with you!
2. Creating business plans
Write up all of your goals for the company using all your entrepreneurial spirit. How much funding do you require? What are the start-up costs? Where will you get your employees? It would help if you also decided how long you expect the business venture to run.
You should consider your income, expenses, taxes, legal fees, and anything else that may occur.
After you have all the information compiled, it would be wise to have a business plan consultant review it to make sure you haven’t made any mistakes.
Tips on creating a good business plan:
- Don’t try to put too much information in
- Make sure that the plan is very detailed
- Outline your goals and expectations
- Have a timeline for when you expect things to happen
3. Fund your business
It’s a good idea to have at least three months’ worth of your business expenses saved up. If you don’t have the capital, it would be wise to get a loan or try and reduce your monthly bills so that when your business starts making money, you’ll have the necessary savings to pay for it.
1) Personal funding:
You can ask for money from your friends or family. If you have a decent credit score, you will be able to get a loan from a bank.
2) Angel investors:
These people are ready and willing to invest their own money into a business venture that they believe has the potential to thrive in the future.
3) Venture capital:
This type of funding is usually provided by companies that want to promote new products or services every so often and support the economy as a whole.
It’s typically given as an equity investment. If your company succeeds, those who made the original contributions will make p returns on their initial investments once everything is said and done.
They will also require your business to meet specific criteria such as staying open for a certain number of years and making a minimum amount in profits.
4) Government funding:
These agencies look for ideas that might provide the state with more revenue in the form of taxes.
If your business fits within their parameters, you will usually get a grant or loan (at low rates and no interest), and your business may also receive all kinds of tax breaks!
5) Personal bank loans:
You can take out a loan by using your own house as collateral.
6) SBA Loan:
This is part of the Small Business Administration and basically helps fund small business owners who cannot get help from other sources.
7) Lines of credit /factoring:
If you already have an established business, you may be able to borrow money by giving away future sales or accounts receivables as security instead of pledging assets that are fixed.
8) Receivables financing:
This type of funding allows businesses to access funds based on their accounts receivable balances. It’s backed up with invoices that have been issued within 90 days for services or products that have already been provided.
You will also need to show documentation proving that new customers are expected to pay.
9) Business Credit Cards:
A great way of financing is using these cards, especially if you already have one. They can usually be opened with just $1, and the credit limits are often based on your business’s revenue numbers or receivables.
You also won’t incur interest charges as long as you pay off the balance every month.
4. Pick your business location
When you set up your business in an area, make sure to research the local economy. If it’s a slow period, perhaps this is not the best time to open a shop.
You should also be aware of zoning laws in your location and any applicable tax incentives that might be available in the town or city where you plan on starting up.
Real estate research
Figure out which businesses are already in your industry, what type of estate is being rented or purchased for said industries, and what the property’s market value is before you buy. If renting, determine if the possible location will fit your needs because moving every 1-2 years could cut into your profits!
Your office space should be designed to develop your desired image. The best impression that you can leave on potential clients is success and affluence, which will increase their confidence in the services or products you’re offering!
5. Choose a business structure
It’s time to decide on the structure of your separate entity. There are four main business structures: sole proprietorship, partnership, corporation, and limited liability company (LLC).
You may wish to consider the following before you choose which is suitable for you:
- Personal liability
- Type of taxation
- How much money do I need to raise?
- Availability of banking services
This type of ownership means that there are no legal documents or registration required to start a business. Taxes are filed through your income tax return.
Sole proprietors can have one or more employees, but it must be by word only as there is no legal requirement.
The biggest downside would be that the owner is personally liable and responsible for all actions and debts of the business.
When two or more people decide to start a company together, they should establish legal documents outlining each partner’s percentage in the business. This type of ownership means no tax filings associated with it so long as income is divided equally among partners.
However, when one person takes money out of the company, this is considered taxable income and must be reported to the Internal Revenue Service (IRS) accordingly.
This type of legal structure does not protect against personal liability, so if your company gets sued, you could lose everything you’ve worked for
This option presents less risk than a sole proprietorship or partnership because it’s considered a separate business entity from the owner.
There are many corporations to choose from, and each has its individual tax return requirements.
It’s not uncommon for a corporation to have employees, but the only forms that need to be filed are payroll, sales tax, and unemployment. A corporation must register with the state as well as federal agencies before it can start earning income.
Limited Liability Company (LLC)
Similar to a corporation, this structure provides limited liability protection from lawsuits against the company. In this case, though, there are two types of LLCs: those paying taxes as sole proprietorships and those that file as corporations.
Before you can open up shop, your LLC needs to be registered with the state where it will operate along with any other states in which you plan on doing business.
6. Choose your business name
First, make sure the name is available by searching on http://www.uspto.gov/trademarks/.
If it’s not there, you can search the Internet for other sources but be aware that this might require filing an additional trademark application with your state or county.
- The name should be distinctly yours or your company’s to avoid confusion
- The name may not use language that is obscene, deceptive, scandalous, and defamatory
- It cannot include the term “bank” unless it’s a bank or credit union
- Names that imply an affiliation with the federal government (i.e., USA Credit) are prohibited, but you can still use terms like Federal Deposit Insurance Corporation (FDIC) if it has been approved before filing for incorporation
7. Register your business
Registering your business name will protect you from having someone else steal your good idea.
Not only that, it’s the first step in opening up a bank account and securing licensing or permits for your new venture.
8. Get federal and state tax IDs
This is important because it will allow you to have employees and start operating your business.
You can apply for a federal EIN online at www.irs.gov/businesses/small/article/0,,id=102782,00.html or apply using form SS-4, which you can obtain from the IRS by calling 1-800-TAX FORM (1 800 829 3676).
You will also need to register your EIN with the South Carolina Department of Revenue online at https://apps.sctax.org/.
Do not complete this step until after you have chosen your business structure, as it appears on all forms and applications following registration. If you choose to be taxed as a corporation, this is required before applying for any licenses or permitting whatsoever, so plan!
Tax Requirements to Start a Business
- It’s vital that you get all of these things in order before launching your business. Failure to do so could result in fines and penalties!
- You need to get a federal employer identification number (EIN), apply for an S-corporation election, notify the IRS of your new home state, register with the Department of Health and Environmental Control(DHEC), use for sales tax registration with DHEC, apply for any required licenses or permits associated with your industry, file change-of-name forms if changing your name during formation. These complete local registration applications vary depending on where you live.
- If you plan to hire employees, you must complete federal and state employer identification number applications. If filing as a corporation, it is recommended that you apply for an EIN regardless of your hiring status
- When filling out forms for the IRS and South Carolina Department of Revenue, be sure to use the exact legal name of your business without abbreviations or nicknames. This includes all words in the company name so choose wisely!
9. Keep good records
The type of documents you’ll want to keep track of include:
- Financial statements;
- Loan documents;
- Tax returns, etc.
10. Apply for licenses and permits
This is important because your business serves not until you do! Licenses and permits are required before you can open up shop so this step should be done as soon as possible.
The type of business license or permit that’s appropriate for your business will vary depending on the industry you’re in, but if unsure contact your local Chamber of Commerce.
Types of licenses and permits:
- Business licenses: Municipalities require these to start a business. Every state has different licensing legal requirements so be sure to check your local municipality for specific information.
- Occupational licenses: Depending on the type of occupation, you may need an occupational license or permit including barbers, accountants, electricians, etc.
- Commercial driver’s license: Required if you plan to transport goods in your own vehicle.
- Zoning: Zoning laws and building codes will affect where you can start your business.
- Health department: You need to make sure you comply with all health department standards before starting any business, including restaurants and salons.
- Department of Transportation(DOT): Standard transportation rules apply for various industries such as taxis, moving services, delivery services, etc.
- Fire Department: Depending on the type of enterprise that’s being started certain permits may be required which vary depending on each municipality. Contact your Fire Chief for more information.
11. Open a business bank account
This is important to do early in the process because many new businesses require it before they will transact business with you.
Contact your bank for information on how to open up a new account and what kind of documentation you’ll need based on the type of business structure you’ve selected.
Some banks may ask for proof that your EIN has been filed with the IRS so be sure to review this in advance!
Get a credit card
You will need this to accept credit cards as payment. There are many companies that can help you set up a merchant account and some of them even offer free trial periods so it’s wise to take advantage if they do!
Be sure to request information from various suppliers so you have the chance to compare rates, fees, etc.
Pricing varies by card type, industry, and volume among other things so be sure you find the best deal before signing with any company.
Most businesses are required to carry insurance under state law. The amount of coverage you need for business depends on your location and the type of business you start.
Covers your employees’ medical expenses in case of personal injury while on the job.
Business vehicle insurance:
Again, this type of coverage varies depending on the industry your business is in and where you live.
Commercial general liability(CGL) insurance:
This covers you for injuries to patrons, clients, etc. It’s also important to carry an umbrella policy that generally provides additional coverage amounts above what standard policies do.
This is extremely important if you own a retail location or provide services that could result in significant harm to others e.g., healthcare providers!
Hiring Business Employees and Independent Contractors
This is another step that should be done early on because you can’t conduct business without employees or independent contractors!
When hiring employees it’s important to consider what type of business structure you’ll use, how many employees are needed, etc.
Keep in mind that if your new business will require one or more employees an EIN will need to be obtained before any money changes hands or the employee starts working.
Workers who work for your company but are not considered ’employees’. They must sign contracts stating they agree to be classified as an independent contractor.
This is advisable because there are significant labor implications when dealing with this classification including no withholding of taxes by the employer which means that the independent contractor is responsible to pay taxes that may be due.
As always, check with your local municipality and/or tax authority if you’re uncertain about the correct classification for a worker.
All companies must comply with certain workplace safety standards and these vary depending on the type and size of business and where it’s located.
You can find more information by checking with your state or local government agency.
The last step of course is to start selling what you’ve been preparing to make, right? At this point, we assume you have a product ready so now it’s time to put it up for sale for existing customers and gain brand awareness!
Consider using social media sites such as Facebook page, Twitter, Pinterest, etc. to promote your new enterprise and to get the word out about the product/service you’re offering, providing the relevant content. Don’t forget that many social media accounts allow you to run promotions which can help drive traffic and create demand!
Consumer Protection Law
Different states have different rules and regulations in terms of protecting consumers from being taken advantage of by sellers. There are certain codes that all small businesses should be familiar with.
- If you accept a deposit on an order or product e.g., custom home building, order a service, etc. the consumer is entitled to a refund if they cancel their order up until a specified period after the date of sale due to circumstances out of your control which delay delivery for more than 30 days i.e., material not delivered, illness, etc.
- A conditional sales contract prohibits consumers from canceling within a certain period after purchase(usually 3 days) if the contract specifically states this condition exists then it cannot be canceled without significant penalties such as forfeiture of deposited monies.
- The seller must provide correct written information about the product or service agreed upon to be provided e.g., not providing the correct business model of the vehicle agreed upon at the time of sale, etc.
- Sellers can’t make false, misleading, deceptive statements about goods or services e.g., “We guarantee your satisfaction” cannot be true if you don’t stand behind your product/service!
How can I start my own business with no money?
The good news is that it’s not necessary to have a lot of start-up capital if you’re using the online store because the majority of e-commerce businesses have a home office leading to minimal overhead costs.
Of course, other types of business may require more investment but you’ll typically need less than $5,000 to open your doors for business.
Hopefully, this article gave you a good idea about what you need to do before starting a business. As always, if there is anything unclear or you’re not sure about how to proceed look for additional resources on the web and in libraries/bookstores where applicable, as this is only the beginning, and you have a lot to do.
Always remember, when in doubt seek out professional advice immediately so that no mistakes are made while your business grows to attract more customers!
Editor’s note: If you are a business owner, please feel free to add your comments about what kind of information would have been helpful when you were getting started.