Starting a business begins with an idea, naturally, but actually launching a company involves much more than that. Researching the market and a location, writing a business plan, securing financing, and obtaining licenses and other legal requirements can take months or even years. Here are five steps to beginning the process of pursuing your dream of owning your own business.
- Conduct market research
Once you have an idea for a business, research the local market to determine how viable the company will be. Be sure to drive around the area to see what competitors are already in the local market. See what their offerings are and figure out whether your concept distinguishes your company from others in the community. Talk to potential customers and suppliers, who can provide valuable third-party insights.Choosing the location of a business – especially if it is a retail establishment – will be among the top decisions. Where the business operates will have a huge impact on revenues and expenses. If you open in an upscale neighborhood, the rents will likely be higher than in another section of town. Examine aspects such as traffic flow, parking, foot traffic, and other related issues. Also, take into account how many competitors are nearby. You don’t want to open a barber shop in a town that already has five of them within a half-mile drive.
- Create a professional business plan
A professionally written business plan outlines what the company will do, its location, the management team, marketing plan, financing, and the way that it will reach profitability. If you need to obtain a small business loan to get the venture off the ground, having a strong business plan will make a stronger case for a potential lender to make the decision approve funding. Currently, big banks are approving 25 percent of loan applications, while smaller banks approve almost half of the submissions, according to the latest Biz2Credit Small business Lending Index (October 2017 figures).The business plan must have an Executive Summary that includes:
- the name of the company,
- what the business does,
- local competitors,
- differentiator that will set the business apart,
- management team and experience,
- marketing plan, and
- financial projections.
- Obtain financing
Develop a budget that reflects all the startup costs that you anticipate and then borrow one and a half or two times that amount. Why? Inevitably, there will be surprises and slowdowns that will cost money and delay the opening of a business. Be sure to borrow enough cash up front so that you don’t have to go back to lending institutions later on to ask for more. Small business financing was better in 2017 than it has been since before the Great Recession. Banks large and small and institutional lenders are more willing to lend now than during years past, and the strong economy will help that trend to continue in 2018.For most aspiring entrepreneurs, a traditional bank loan or SBA loan will be the best types of funding. Naturally, if you have a good credit rating – 700 or above – funders will be more willing to lend than if your score is 650 or less. Be sure to have documents including tax returns from the past two or three years to include in your loan package. Include the business plan that will help convince a potential lender that your venture is likely to be a profitable one.
- Choose a business structure
Incorporating a business provides another proof point to a lender that you are serious about your venture. The business format that you choose will have a direct bearing on the amount you pay in taxes. Separating personal and business assets also is important to protect your home and possessions from potential creditors. Speak with an accountant and an attorney to determine whether you should form an LLC, C-Corp, or S-Corp. There are also service providers, such as Incorporate.com that can help.
- Obtain required documents from the federal, state and local government
Establish a federal employer identification number (EIN) in order to be able to open bank accounts or credit cards. It’s also necessary for paying taxes to the government. Obtain all necessary licenses, certifications and permits required to operate in your area. For instance, a barber shop will have to set up an EIN and get a barber’s license from the New Jersey State Board of Cosmetology and Hairstyling.
After the process outlined above has been completed, you are ready to open. Establish business bank accounts for operational expenses and for payroll, as well as credit card processing. Contact the local chamber of commerce to help organize a ribbon-cutting event with local officials. Chambers of commerce also provide opportunities to network and reach new customers. Be sure to put enough effort into getting the word out so that people will come to your establishment on opening day.
By providing a positive experience, you will set the tone for having them come back and become repeat customers. If and when you know people are happy, encourage them to review your business on social media, such as Twitter, Facebook, Yelp and Instagram. You don’t have to do an expensive ad campaign, although some traditional advertising should be part of the mix. Today, digital marketing goes a long way. However, always remember, no matter how good your marketing and promotion is, you still have to live up to your promise of delivering a quality product or service.
Launching a business can be invigorating, but there are times when an entrepreneur needs assistance to overcome challenges. Fortunately, SCORE, which has served as America’s premier source of free business mentoring and education for over 50 years, has plenty of resources available. The organization matches budding entrepreneurs with business veterans who serve as mentors. Additionally, SCORE also offers training via courses provided at its local offices, as well as webinars and online courses. SCORE is supported by SBA and, thanks to its network of 10,000 volunteers, the organization is able to provide services free or at reduced rates.