Starting a new business requires knowing the legal, financial, tax, and marketing aspects.
you have a unique business idea, and you’re ready to share it with the world. Awesome! But no matter how determined you are, starting a business is a complex process that should not be completed in haste. It is important that you take your time and understand all the details.
This guide will guide you through important aspects, such as developing your product or service idea and registering with the relevant authorities.
If you need details on a specific aspect such as finance, marketing, or legal matters, let us know so we can provide further assistance.
First step:
Think Who, What, and Why
According to Nathan Furr, author of the book *Nail It Then Scale It*, 70% of startups fail because their founders invest in growth too early. They spend a lot on expensive marketing campaigns, top-notch salespeople, and product development without understanding where their product fits in the market.
Define your target customers
You need to know who will buy your product or service before you invest big money in starting a business. It’s a common mistake among new entrepreneurs to try to make everyone their customer. No small business can target the entire world, but it is possible to cater to the needs of a specific group.
These specific groups are your target audience, and you need to find out who they are. One way to do this is to create a *buyer persona*. Consider the following points to sketch out the character of your imaginary target customer:
– Age range
– Sex
– Family status
– Income level
– Educational level
– Location
– Values and personality traits
Improve your selling proposition
Every successful business has one thing in common: it provides a unique advantage or solves a problem better than the competition.
This can be called your Unique Selling Proposition or Value Proposition. This tells your potential customers and investors two important things:
– What makes your business unique?
– Why shouldn’t people buy from someone else instead of you?
When developing your unique offer, identify the end benefit for the buyer. It will usually be something personal and emotional—like looking trendy or getting healthy food for less.
Do market research
Now that you know you have a niche in the market, your next step is to determine how financially viable your idea is. This means doing two types of market research:
1. Primary Research: Talk to customers directly, such as through focus groups, surveys, etc.
2. Secondary Research: Review statistics and reports that describe current trends in your target market.
Your secondary research will provide you with three main criteria:
– Potential revenue figures for your product or service category, regionally and nationally
– Names of your most important local and national competitors
– Whether the market is growing (more room for new players) or stagnant (difficulties for existing players)
Second step:
Develop a business plan
Now that you’ve refined your business proposal, the next step is to develop a formal business plan. Your business plan is a road map for starting and running your business. It is also the document through which you will show investors and funders that you have considered every aspect.
Your business plan should formally describe the following points:
– What do you plan to sell?
– How will you earn income?
– How many employees you will have and what their roles will be
– Where will you get the start-up funds?
– How will you handle day-to-day business affairs?
The more detailed your business plan is, the more confidence you will gain from potential investors.
Third step:
Assess Your Financial Needs
After creating a business plan, you can start calculating the expected expenses to know how much money you will need to start a new business.
Fixed Costs and Variable Costs
Fixed costs are what you will pay to run your business, regardless of its size. The 5 most common fixed costs of any business are:
1. Insurance: Protection you take to protect against legal or financial risks such as property damage, employee injury, defamation, or litigation.
2. RENT: Monthly expenses for office or other facilities necessary for business.
3. Utilities: Expenses of electricity, water, gas, etc.
4. Depreciation of Assets: Depreciation of owned assets like machinery or vehicles.
5. Amortization: Spreading large purchase costs over a specified period.
Variable costs depend on your sales volume. These costs increase when sales increase and decrease when sales decrease. Examples:
– Raw materials
– Production equipment
– Shipping and delivery costs
– Sales commissions and bonuses
To determine the costs of a business that has yet to start, you will need to do research. Review insurance policies, rents in your area, and costs for essential equipment. Jot down your information, track it in a spreadsheet, and consult with an accountant who works with small businesses.
Profit and Breakeven Analysis
Once you estimate the costs, you can determine how much money your business will need to break even and make a profit.
1. Set a sample sales volume. For example, if you plan to open a hair salon, how many haircuts will you have to give each year?
2. Determine the variable costs per unit and set the selling price based on these costs. If each haircut costs you $10, you might decide to charge $20.
Now, subtract your variable costs from the sales price. Then divide your fixed costs by that difference. This will tell you how many units need to be sold to cover costs.
For example:
Annual $20,000 (fixed costs) ÷ ($20 (cost of sales) – $10 (variable costs)) = 2,000 haircuts
In this example, you would need to give 2,000 haircuts a year to break even. Every haircut after that will be a profit.
Funding Options
You will need cash to cover your fixed and variable expenses, even if there are no sales yet. Initial capital is necessary for this.
1. Conventional Loans:
Borrowing from a financial institution is a common way for a business to obtain funds. You will need to present your business plan and financial projections to the bank or a lender.
2. SBA Guaranteed Loans:
In the US, the *Small Business Administration* works with some lenders to make funding accessible to those who qualify.
3. Business Grants:
Government agencies, private organizations, and nonprofit organizations sometimes award grants to eligible businesses. Usually these grants are given for specific industries or goals. Grants do not have to be repaid but reports are sometimes required.
4. Investors Capital:
Investors provide initial funding, known as venture capital, and in return participate in the business. For this you have to give your business plan and success arguments.
5. Crowdfunding:
Instead of relying on one big investor, small amounts can be raised from many backers. There are different crowdfunding models, such as donations, offering shares, or loans.
Fourth step:
Choose your legal structure
As an entrepreneur, this may not be the most exciting decision for you, but choosing the legal structure of your business will affect your daily life for years to come.
Civil Proprietorship
A sole proprietorship is an unincorporated business owned and managed by an individual. It is not a separate legal entity, which means that your personal assets and liabilities are not separate from the company’s assets and liabilities. If the company incurs any debts or liabilities, they will also apply to you.
Obtaining funding in a civil proprietorship can be more difficult than in a separate business entity, but it is also more flexible. If your business does not require a lot of capital or you want to test an idea before fully adopting it, then sole proprietorship may be a suitable choice.
Partnerships
A partnership is the easiest way for 2 or more people to own a business together. It has 3 types:
1. General Partnership:
A general partnership is similar to a civil proprietorship but involves multiple individuals. All partners are fully legally and financially responsible for the business.
2. Limited Partnership:
A general partner has full legal responsibility and greater influence in company decisions, while other partners have limited liability, meaning they are not liable for losses greater than their investment.
3. Limited Liability Partnership (LLP):
Each partner’s liability is limited, protecting each partner from the debts of the company.
Like a civil proprietorship, a partnership does not constitute a separate business entity. Business income and loans are transferred to your personal accounts.
Limited Liability Companies (LLCs)
A limited liability company (LLC) is a business structure that has some of the characteristics of a corporation but is not as distinct. If you are sued or face bankruptcy, you or your fellow members will not be personally liable. However, company profits and losses are included directly in your personal income.
LLC members are self-employed and subject to self-employment taxes, Medicare, and Social Security. It’s also worth noting that if your LLC documents don’t include the transfer of ownership clauses, you may have to dissolve the company when new members join or existing members leave.
Corporations
A corporation, sometimes called a C corporation, is a legal entity that is separate from its owners. It provides strong protection from legal and financial liability. Unlike LLCs and partnerships, it has the freedom to sell its stock, which can be helpful in obtaining funding or recruiting shareholders and employees.
The disadvantage of separate legal status is that corporations have more paperwork and operational responsibilities than other business structures. Their profits are taxed and dividends paid to shareholders are also taxed.
Fifth step:
Register with the Government and the IRS
The business structure you choose will determine where and how you register your business.
Obtaining Federal and State Tax ID Numbers
Your business will need a Federal Tax ID Number (EIN), also known as an “Employer Identification Number,” if one of the following conditions is met:
– Your business has or will have employees.
– Your business is set up as a corporation or partnership.
– Your LLC has multiple members or has elected to be taxed as a corporation.
– Your business is incorporated with certain entities or files certain tax returns.
– You plan to set up a Keogh Retirement Plan as self-employed.
Obtaining an EIN may still be beneficial if these conditions do not apply
– You can give it to clients or anyone else you need to pay instead of your social security number.
– This may be necessary to open a business bank account or apply for a specific permit.
If your business is subject to state taxes, you may need a state tax ID in addition to an EIN. The process and requirements vary by state, so check with your state government.
Registering Your Business Name
If you do business under a name other than your legal name, you must take the following steps:
Protect Your Organization Name
“Entity Name” works at the state level. This prevents other businesses from using the same name and allows the state to accurately identify your business. Different states have different laws about which businesses need an entity name and what that name can be.
Trademark your brand, business, or product
A trademark works at the federal level and protects the name of your business or products. You can call it U.S. Can be registered through the Patent and Trademark Office (USPTO).
Trademarks are legally protected, so make sure the name you choose isn’t already being used. The USPTO has a federal database that is regularly updated.
Register “Doing Business As” (DBA) Name
The “DBA” name is the name under which you do business, and is separate from your personal legal name. Most states require DBA registration, and you may also need to register at the county or city level.
A DBA does not protect your business name from being used by others, but it allows you to legally conduct business under that name. With a DBA and EIN, you can open a business bank account in your company name, which is especially beneficial for sole proprietors who want to use a memorable name for their company.
State Level Registration
If your business is other than a sole proprietorship, you generally must register in the states where you:
– Have a physical presence or meet with clients.
– Have employees.
– generate a significant portion of their income.
To register, you must provide the following:
– Your business name and location.
– Registered Agent Information.
– Shares information if you have a corporation.
– Your business structure documents (such as LLC, partnership, etc.).
Obtaining Local Permits
Depending on your industry and business activity, you may need to obtain certain licenses and permits in your city or county. This generally applies to LLCs, corporations, and partnerships, but sole proprietors with DBAs may also need to obtain similar paperwork.
Check your local government websites to find out what rules apply to your business.
For Corporations: Creating Articles of Incorporation
If you form a corporation, you must adhere to additional rules and regulations, including the Articles of Incorporation. These articles are filed in your state and they legally establish your company as a valid business entity.
These articles describe the following in detail:
– Name and main location of the business.
– Names of individual enumerators.
– Director (if nominated).
– Registered Agent.
– Business activities.
– Stock information, including the number and value of shares available.
You can choose to prepare the Articles of Incorporation yourself or hire the help of a business attorney. If you want to prepare your own, visit your state’s **Secretary of State** website; Most states provide useful articles of incorporation templates.
Sixth step:
Market Your Business
Business structure and finances are important, but without revenue your business cannot succeed. This means you have to market your small business effectively and efficiently to get the best possible return on your investment.
Build Your Brand
People get to know companies the same way they get to know other people—by interacting with them and learning about their personalities and values. All these things fall under the purview of your brand.
Research shows that a consistent brand increases a company’s revenue by 33%. Create this kind of consistency early on, choosing a specific color scheme, logo, design style, and voice. Sometimes, it’s helpful to imagine your brand as a person. How will they talk? How will they decorate their space?
Create Website
Your website’s style and functionality should reflect your branding. If you’ve never built a website before, don’t worry—platforms like Mailchimp simplify the process of creating and publishing websites with free tools.
To create a website you will need a **domain name** and an **extension**. For example, “mailchimp.com” has “mailchimp” as the domain name, and “.com” as the extension. Ideally, your domain name will be your business name. But if that’s not available—or your business name is long or difficult—choose a domain that people remember.
When you’re ready to choose an extension, .com is always a safe option, but there are over 1,500 other options available, such as .biz, .info, and country codes. Mailchimp’s domain registration tool can guide you through the entire process so you don’t miss a step.
Promote your business on social media
Social media is a popular way to advertise your business, but you don’t have to go overboard. Choose social media platforms that appeal to your target audience; For example, TikTok and Snapchat are often used by young people, while Facebook users are slightly older.
Once you have established a social media presence, use these platforms to drive people to your website. You can drive more potential customers to your website by publishing and promoting other content—such as a blog.
Ready, set, launch:
Now that you have an outline for starting a business, you can begin the initial research. Your first step is to make sure you have a good **product-market fit**, as this will have the greatest impact on your success for years to come.
Remember that it is important to be flexible; None of your decisions are written in stone. If you feel that a different business model or structure would work better for you, don’t be afraid to make changes. There is no substitute for a strong foundation, and this is the time when you can build it.