Creating your own business is a rewarding opportunity to achieve a work-life balance while pursuing your passions, but it isn’t easy. Many business owners agree that the first year is the toughest. However, if you’re diligent when starting your business, you’ll put yourself in a much better position for success.
To help, QuickBooks asked 965 seasoned small business owners if they had any advice for people who are about to start their first business. These business owners recommended three things you should definitely do before you start, in this order:
- Write a business plan
- Research the competition
- Find a mentor
Current small business owners say these three things can increase your chances of success. And yet, according to the survey, not all prospective business owners plan to follow this advice. Download the full report to find out what current business owners recommend for new business owners and what they wish they would have done differently.
1. Define your vision
A business without a vision is like a ship without a sail. Defining your business’s vision sets everything else in motion.
Drafting a mission statement should serve as the foundation for your vision. In a few paragraphs, identify your company goals and the high-level strategies you’ll use to accomplish them.
When writing your vision, be as clear and concise as possible. Make sure you include a compelling and motivational message that inspires you to work together towards your goal. Your statement should help convey your “why.” It answers, at the most basic level, why you got into business.
2. Research your market opportunity
There’s a lot to consider when starting a new business, from developing your product to accounting and legal practices. That’s why you want to make sure you have a strong business opportunity before going too far.
Select a product or service
What will your business sell, and how do you plan to be different from competitors? In other words, what is your value proposition or unique selling proposition?
Validate your product idea
Before getting too into the weeds, it’s important to validate your product idea. This is done by:
- Conducting an experiment to generate leads
- Research the market to see what’s trending around your product
- Pitch to your target market to see what response you get
Also by asking these questions:
- Is this an original idea or an improvement on an existing product?
- Is there a need for this product?
- Is the market already saturated?
These are questions that you’ll need to seriously consider as you move into defining your target market.
Define your target market
Who will your business serve? Begin to identify your target market with demographics like age, gender, income, and location. Then go deeper through personas or create a customer journey map.
Know your market size or opportunity
In the end, market research means quantifying the opportunity your product or service represents. Take time to figure out the total addressable market (TAM) of your potential customer base. Estimating the current and future value of your business idea and setting reasonable goals can help you win a piece of the pie.
3. Research your competition
Competitor analysis is one of the key ingredients to a successful business. It not only lets you see what’s out there to compare, but you can also see where your competition is lacking. This means finding the gaps, exploiting them, and reaping the benefits of your improvement on the market.
4. Write a business plan
Nearly 70% of people who already own a small business recommend writing a business plan before moving forward with your business idea, but 13%of prospective business owners say writing a business plan isn’t among their priorities.
Writing a business plan can be a daunting prospect. The good news is you’ve already done some of the work by tackling the steps above. Keep in mind that your first business plan isn’t final. Parts of it will most likely change as you learn more about your market and grow your company.
Some experts recommend starting with a business model canvas: a one-page document that covers the critical information you need to get started. This option can save you time and get you up and running faster.
Once you’ve been in business for a while or are ready to seek funding, you can build a more detailed plan. Your plan should cover:
- Your operating resources
- Your overall marketing plan
- Your cost and sales structure
- Your financial management and business growth
5. Perfect your sales pitch
If you plan on going after investors or financing for your business, you’ll want to create an elevator pitch. An elevator pitch is three to four sentences that tell an investor:
- What your business does
- Why your business is unique
- How they will benefit
- How they can help your business through their investment
On top of crafting a unique and optimized pitch, you may also want to include a pitch deck. This is a basic slideshow that gives your elevator pitch imagery and usually includes statistics and more in-depth information surrounding your business.
6. Understand your startup cost
Even if you’re self-funded and have yet to work with angel investors, you still need to understand your startup costs. Start by mapping out all of your anticipated costs for the next year. Then determine how much money you need to earn every month to stay in business (for example, your operating income and salary), and be mindful of costs like business taxes.
Additionally, consider a plan B. More than three-quarters (76%) of people who will start a business in the next 12 months said they “definitely” or “probably” have a contingency plan, according to QuickBooks’ research.
It can take time to build up your revenue, so it’s critical that you recognize costs and cash flow management trends early on.
7. Plan your starting finances
About 1 in 3 people who want to start a business admit that getting funding is one of their top three financial priorities. If you don’t have startup cash, you don’t have to seek angel investments or venture capital. You can turn to other methods instead, like personal savings, crowdfunding, or loans.
One of the best ways to fund your business is using your own capital. Using your savings can seem daunting, but there are some advantages to consider:
- You own your business outright
- You don’t have to give away ownership
- You eliminate the hassle of acquiring debt
- There’s no need to bring in additional partners
You’ve likely heard of the crowdfunding platforms Kickstarter or Indiegogo. Crowdfunding is a popular route for many new business owners. You can use it to seek funds from many people, rather than one major investor.
These are small business loans, often less than $10,000, that you can use to get your business off the ground. You’ll have to research microloan options in your city, state, or country, as there are many different services to choose from.
If you have a good credit rating, you can take out a personal loan instead of a business loan. You can also borrow against credit cards or a personal line of credit. Just be aware of long-term interest and tax implications.
Depending on your country, you may be eligible for grants, either from your government or private organizations. Again, you’ll have to do some research to find out what you qualify for and how to apply.
Friends and family
Last but not least, plenty of businesses get their start through the help of friends and family. Don’t be embarrassed to reach out. But take those pitches seriously by outlining all the work you’ve done through your canvas or business plan.
8. Develop your product
Next, you should be moving into the research and development phase if you haven’t started already. Since you’ve already validated your product, now it’s time to get some prototypes out for the world to see. This is done by creating a sample of your product to conduct research with. During the development stage, don’t be afraid to try several times until you get a version (or several versions) of your product that you feel confident in.
9. Determine your business structure
If you’re not sure how to answer these questions, you’re not alone. Seasoned business owners strongly recommend getting help choosing a business structure, yet 50% of prospective business owners say they’ll be doing this on their own.
Each business structure option has its advantages, as well as associated tax reporting responsibilities and regulatory requirements. You may also want to opt for a federal tax ID number or an Employer Identification Number (EIN) instead of using your Social Security number. This is the number that the IRS uses to associate you with your business.
Sole proprietor or sole owner
This is a popular option for anyone who doesn’t have a lot of liabilities (e.g., no employees or significant investments) when they start out. As your business grows, you may wish to change legal structures. Being a sole proprietor could be an excellent option for those with a small side-hustle or day job.
If you’re going into business with a partner, then you will need to register as a business partnership or limited partnership. Expect to work with a lawyer and a tax professional to layout your partnership type, terms, and tax implications.
Some notable benefits of incorporating your business are tax breaks and liability protection. Due to upfront costs, many sole proprietors wait until they have earned enough funds and are at the right stage to incorporate.
Limited Liability Company (LLC)
An LLC is a U.S.-specific form of a private limited company. This structure safeguards business owners, managers, and the LLC itself against certain types of personal liability. If you plan to operate from a brick-and-mortar location, personal liability is an important consideration. Should someone get injured on your property, you may not be held personally liable for the damages.
If your business is an LLC, corporation, or partnership, you’ll likely need to register your business with any state where you conduct business activities.
There are several other business structures to choose from, depending on which country you live in. Speak with an accountant or bookkeeper to determine which option best suits your needs.
10. Investigate your legal requirements
Complying with legal regulations is a top priority for current and prospective business owners, according to the QuickBooks survey. Before you launch your business, consult a lawyer to ensure you’ve considered all the legal requirements. A reliable lawyer can help you solve legal and contract disputes and give advice before you sign a new contract.
Here are some essential questions to ask your lawyer:
- Should I trademark my company name or logo?
- Do I need a patent, copyright, or intellectual property protection?
- Can you create standard contracts for negotiating with other businesses and vendors?
- How do I form a sole proprietorship, partnership, or corporation?
- What’s the process for sharing equity when seeking private investors?
Different laws apply to every type of business, product, or service. Every country, including the United States and regions within, will have its own set of rules. Your local and federal government websites are an excellent place to begin your research about legal requirements.
You should also consult national consumer and privacy laws for collecting personal customer information.
11. Apply for permits and business licenses
Visit your government services or the Small Business Administration (SBA) to determine whether your business requires any national or local licenses or permits.
While you’re at it, check to see if you qualify for any tax deductions and credits. Many local governments design special credits to help small businesses grow faster.
You will also need an EIN if you plan to hire employees or open a business bank account. This will also serve as your tax ID so that you can pay federal, state, and local taxes.
Your accountant or bookkeeper can advise you on any other tax-related applications you may need to complete. Again, this process depends on where you live and the type of business you’re operating.
12. Create and register a business name
After you’ve had a conversation with your accountant and lawyer, it’s time to register your “doing business as” name. The process may differ by country and region.
Seasoned business owners recommend consulting an expert to help you choose your business name, create your logo, and register your business. But 76% of prospective business owners say they’ll be choosing their own name, and 53% will attempt to design their own logo.
You can change your name and logo down the road, but try to start with a name and brand that you can stick with. Before you register your business name, you may run a few options past an expert.
Here are a few things to keep in mind before finalizing your choice of business name:
- Web-friendly naming: Keep your URL less than three words if possible.
- Consistency: Use the same name across the board.
- Unique but not hard to spell or pronounce: You don’t want customers guessing what your name says.
Once you’ve landed on a name you feel good about, make sure it’s available. The quickest way to find out is through an online search. Enter your desired name into Google and check social media platforms like Facebook, Instagram, LinkedIn, and Twitter. Then reference your local secretary of state’s office to ensure another company isn’t using the name. If you plan to conduct business in multiple countries, check for the name’s availability in those countries as well.
You should register the name and ensure it’s valid before creating business cards, logos, websites, and other materials. Again, registration sites differ by region and country.
Finally, if you decide to register your name as a trademark, you’ll need to do so at this point. Your lawyer can guide you through this process. Keep in mind that there are additional costs associated with every registration.
13. Open a small business bank account
A business bank account can help you track business expenses and take advantage of tax deductions and credits available to small business owners. You might consider opening a business bank account as soon as you start making business transactions. If you’re an LLC or corporation, you must have a separate bank account for company finances.
Arrange a meeting with a business banking specialist to determine which type of account is right for your business. Cross-reference the bank’s advice with your accountant to determine which savings bundles or special accounts will benefit you.
You may be planning an international business strategy and expecting to generate a high sales volume in those overseas markets. In this case, opening a bank account in the local market makes even more sense. You’ll save money on bank transfer and currency exchange rate fees.
Plus, establishing a financial presence by country will make it easier for your bookkeeper and accountant during tax season, as they’ll be able to see separate statements for country-specific revenue.
There are other benefits to opening a business bank account including:
- Opens the possibility of lines of credit
- Credit card availability
- Access to in-house loans
- Customer payments can go straight to your account
14. Set up accounting and payment systems
Current business owners say setting up financial systems is the first thing you should get help with when starting a new business. If your accounting system is set up correctly from the start, with future growth in mind, you’ll save yourself time and money in the long run.
Many small business owners outsource their accounting to a bookkeeper or chartered accountant. While that can save you a lot of time, you still need access to tools to help you review your finances month to month.
The top three financial processes current business owners say they wish they’d invested in sooner are expense tracking, inventory tracking, and invoicing. Since cash flow is critical in starting a business, don’t launch without a cash flow spreadsheet and a balance sheet. You might also consider accounting software that automates this process and can help you visualize the money coming in and going out.
Regardless of your choice, maintain a complete record of all of your finances in one place. Every level of business has legal and record-keeping tax obligations. Nailing down your bookkeeping from day one frees you up to work on growing your business.
15. Keep your finances current
For small business owners, tax time is all the time. Ultimately, small business owners claim tax breaks on their tax returns, but year-round tax planning is important to maximize tax benefits. In order to make the most of this tax season, keeping your finances current is imperative.
No matter how you file taxes, small business owners need to keep an accurate record of financial activities throughout the year. If you’re not quite sure where to start, consider working with a tax professional. If you’d prefer to do your taxes on your own, you might invest in tax preparation classes to help you get it right.
16. Outsource essential functions early
When starting a business, you might be tempted to do everything yourself to save money. But spending time on tasks that aren’t in your skill set can cost you even more time and money.
Delegate or outsource tasks that aren’t your area of expertise, like accounting, administrative work, or public relations. If you have the funds and legalities worked out, you can hire a few employees to share the workload.
In fact, new business owners plan to hire 10 employees and seven contractors on average within the next 12 months, according to the QuickBooks survey.
It might be tough at first to trust other people with your business. But if you hire great employees, you’ll question why you didn’t hire them sooner.
If money is tight but you still need help, you can enlist contractors or freelancers. Managing your sanity is just as important as managing your time.
17. Learn how to hire and pay employees
If you decide to hire someone instead of outsourcing to a contractor, you’ll need to familiarize yourself with:
- Creating job postings
- Creating legal documents (NDAs, noncompetes, etc.)
- Where to post your job opportunities
- Business taxes
Digital payroll services offer both self-service and full-service options. Using payroll software can help you:
- Set up and track employee health insurance, retirement plans, deductions, and garnishments.
- Monitor employee payroll data and annual changes, like bonuses and salary bumps.
- Establish a digital process to deposit your taxes automatically.
- Add new employees to your payroll system automatically.
- Enable automatic online direct deposits, which transfer funds into your employees’ accounts worldwide.
18. Find a business location
Nearly 1 in 4 small businesses starting soon will have a 100% remote workforce. The majority of small businesses will still operate from a business location to some extent.
If you’re preparing to open a brick-and-mortar food or retail business, picking the right location is extremely important. As you scout locations, there are a few things you need to keep in mind:
- Online only: Many small business owners have gone totally virtual. If your business is online, you need to consider where you will host your site as well as the design and speed to handle web traffic.
- Demographics: Consider who your customers are and how they’ll interact with your location. Does your target demographic frequent this potential location? Make sure your location reflects the image you’re trying to project.
- Foot traffic: Before you sign a lease, monitor the foot traffic outside a potential location throughout the day. Is it tucked away, or does it see plenty of passersby? Does the location have suitable parking for your future customers? Is it accessible?
- Competition: Having competitors nearby isn’t always a bad thing. Either way, you’ll want to be aware of them before you decide on a location.
- Business community: Are their other businesses nearby? You may benefit from their foot traffic. Are there restaurants nearby? Your customers (and your employees) might enjoy a bite to eat after shopping at your store. Look for a location where you can benefit from other businesses, and they can benefit from you.
- History: Research the history of the location. If other businesses have tried and failed in a space, you might want to know why.
No matter what type of business you plan to start, make sure your location can meet your present and future needs. Look for adequate electrical wiring and utilities, space for your employees or any special equipment, and even zoning ordinances.
Finally, keep the cost in mind. Rent is a major monthly expense for many small businesses, and there may be other location-related expenses like insurance, cleaning services, and parking fees.
19. Market your business and launch a website
New small business owners say building a business website is their top marketing priority. In an increasingly digital world, it’s a smart move. In fact, 28% of small businesses say they are selling more products and services online than last year. The majority of them are doing so as a direct result of the COVID-19 pandemic. And experts predict that this shift to e-commerce is here to stay.
Whether you run an online business or a brick-and-mortar location, you must include a website as part of your marketing strategy. Fortunately, you don’t have to spend a ton of money to set up your business for online sales. There are lots of easy-to-build, affordable website options. A few things to think about are:
- Creating your website layout/theme
- Picking your color scheme
- Hosting for your website
- Marketing for traffic
When you have the time and resources, you can begin creating social media profiles to boost your social media presence and bring in new customers. From there, consider investing in digital marketing tactics like paid ads, reviews, and search engine optimization. As your business grows, you can budget for a stronger, more impactful digital marketing strategy.
20. Explore business partnerships
We discussed reasons to enter a business partnership, but we should also address partnering with other companies for collective growth. There are several ways to form partnerships, like using referrals or joint ventures.
Referrals and revenue share
Some work with partners to help them sell services in exchange for a commission or revenue share wherein one business gives a percentage of a sale. Revenue shares are common for small sales teams and business owners who want to expand without hiring more full-time employees.
With referrals, you might offer a commission to a partner who helps introduce and assist you in closing a prospective customer.
Revenue sharing is usually better for businesses that help a customer use your product or service better. For example, software vendors have expert partners who might help a mutual customer use the software more effectively. As a result, the customer may spend more money with the software vendor. And the expert partner would get a percentage of sales based on agreeable terms.
If you plan to build a tower for office space or make a movie, consider forming a joint venture with another business or group of companies.
Let’s say you have all the equipment and staff to film the story but want to add computer graphics. That’s where a partnership with another production company with those capabilities makes sense.
If two businesses have similar target customers, it often makes sense to partner on a cross-promotion.
Spend some time thinking about whether there are businesses in your community you can partner with. When approaching them:
- Be honest and clear about what you want and what’s in it for them.
- Be patient and willing to negotiate to ensure both parties are happy with the deal.
- Be ready to walk away if you can’t arrange a fair and mutually profitable opportunity.
Just like when you’re hiring employees, place trust at a premium. You can always ask their existing or past partners whether they were happy with a recent joint venture or cross-promotional experience.
21. Drive customers to your business
While creating a website can be made simple with plenty of online tools to assist you in your journey, driving customers to your business can be much more tricky. Depending on your type of business you’ll need:
- Online ads: Ad placement on a popular website and social media
- Print advertising: Ad placement in a magazine or newspaper
- Networking opportunities: Attend business events in your community
- Referrals: Ask for referrals from your customers either through word of mouth or sharing on their social media
Even with these tools, both time and commitment are required to build brand reputation and customer loyalty.
Don’t be afraid to ask questions
Asking for help may sometimes be a challenge, but don’t underestimate the power of utilizing your network or teaming up with a mentor for help. Take advantage of your social and business circle of friends for better insight.
How much does it cost to start a business?
There’s no easy answer. The cost of starting a new business varies by business type, industry, and location. Estimate your startup costs on the SBA website before starting your business to determine how much you’ll need and whether you should apply for funding.
There are a few costs every business can expect to incur upon startup. These include things like:
- Registration fees
If you plan to open a brick-and-mortar business, you’ll need to pay for office space, equipment and supplies, and utilities.
Regardless of your business structure, you still need to pay for things like:
- A website
- Market research
It’s a good idea for every new business owner to invest in an accountant or legal professional. And if you plan to hire employees or contractors, they’ll expect to be paid too. If you work in a trade, you may need to purchase special equipment or machinery to get started, or you may need to outsource your production.
Start by identifying all your business expenses and how much they’ll cost. Some will have well-defined costs. You’ll have to estimate others to the best of your ability. From there, organize your expenses into one-time expenses and ongoing expenses.
Track these expenses carefully because they may be tax-deductible. The SBA recommends counting at least one year of monthly expenses in your startup costs.
When should you start a business?
There’s never going to be a perfect time to start a business. Unless you have a crystal ball, you can’t predict what’s in store for the economy or your life. So the best time to start a business is when you feel you have the time and energy to devote to it. You’re passionate about your idea, and you’re ready to take the leap.
But there are a few other indicators that you might be ready:
- You’ve done your market research. You know there’s a space for your new business in the market. You know who your competitors are and how you’re going to stand out.
- You have a business plan. Remember, seasoned business owners recommend starting with a business plan.
- You’re OK with the risk. If you’re terrified to fail, too terrified to take some risks, you might not be ready to start a business.
- You have some cash saved. You’ll likely need at least some access to money during your startup phase. If you have some cash stored away, you may be better positioned than someone paying off large debts.
- You can dedicate your energy. If you’re already experiencing a lot of stress in your personal life, it might not be the best time.
Of course, these are no hard and fast rules. Many would argue that a pandemic isn’t a great time to start a business. But 28% of people say that the coronavirus only accelerated their plans to start a business within the next 12 months. And 72% of prospective business owners feel optimistic about the road ahead. They affirm that the best time to start a business is when you feel ready.
Is starting a business difficult?
Starting a business can be difficult, but it’s easier with help.
Seasoned business owners recommend getting help setting up financial systems, choosing a business structure, registering your new business, and even choosing a business name. But prospective entrepreneurs aren’t totally eager to follow that advice.
Nearly half of prospective business owners say they plan to set up their financial systems on their own. Another 50% say they’re going to choose their own business structure and hope for the best. And 76% say they don’t need help choosing a business name.
It might seem like a frivolous cost to invest in help in these areas. But current business owners emphasize the importance of getting these things right the first time. Many said they wish they would have invested in financial management sooner, including expense tracking and invoicing solutions.
And while registering your business might seem simple, structuring a business incorrectly can have costly consequences.
There are lots of steps you must take when starting a new business, but no one expects you to be an expert right off the bat. Finding a mentor or investing in outside help increases your odds of success.
How to start a business with confidence
This article outlines the necessary steps you must follow to launch a new business, but we’ve only scratched the surface. You will need to chart your own course. Remember to start with your vision, research your opportunities, and record it all in a business plan or journal.
It’s critical to understand and manage your startup costs and cash flow wisely. If you aren’t self-funded, find out which investment options make the most sense for your business.
Outsourcing or hiring employees who are experts in their field can free up your time to focus on what you do best and drive growth. Plus, you can utilize services to automate processes, like accounting software to help with your books and closing. You can also lean on business partners in your community to support and grow your customer base collectively.
When in doubt, ask for help. Expert advice can take your business to greater heights. And remember that fortune favors the bold, but it smiles on the prepared.
More from MediaFeed:
25 businesses you can start from home
Featured Image Credit: Deposit Photos.