So, you want to know how to start a business? To many would-be entrepreneurs, the prospect of setting up a company from scratch is a little intimidating. Many people get overwhelmed by the registration process and legal jargon; however, this is probably one of the more minor aspects of starting a business. In fact, it’s more about qualities than technicalities. If you want your business to be a success, you need to be passionate about it. With passion, you’ll find commitment, tenacity, and drive – and the rest is practical. In this article, we run you through how to start a business from the ground up so you can turn your passion into a career.
1. How do I come up with a business idea?
You know what you’re passionate about – whether it’s travel, fitness, technology, or people – but how do you turn this enthusiasm into a business idea? In some ways, coming up with an idea for a business is easy – it’s coming up with a good idea that’s the hard part. Therefore, before launching, carefully analyze all the options. Begin by asking yourself if consumers have a problem you can solve; many of the most successful companies provide solutions. However, this solution needn’t mean reinventing the wheel. Sometimes it will be a case of improving on another company’s offer, either through developing a better product or offering it at a lower price.
2. How do I identify my target market?
A part of isolating a problem that consumers need solving is determining a target market. Before deciding on your business idea, you need to figure out if this market is big enough to support your offer. You should also consider how crowded the field is and how you think you’ll fare against the competition. Compare your strengths and weaknesses, and identify market opportunities and threats – a process otherwise known as a SWOT analysis. For example, is there an existing demand for your product or will you have to educate consumers about your offer? How will you communicate this to them? By thinking through questions like this, you can determine the size of your potential client base and begin to develop a business plan – which we’ll cover in the next section.
3. What is a business plan and how do I write one?
Writing a business plan is the most important stage of assessing the viability of your business idea. Not only will it help you to break down opportunities and threats, it’ll help you devise a strategy going forward. Perhaps the most common reason startups fail is because entrepreneurs have no plan – and writing a business plan will mitigate that actuality. Furthermore, your business plan is a crucial tool for sourcing third party funding and investment. Your plan should follow a clear, simple structure, and include the following elements:
- An executive summary, that introduces your business giving a clear, concise view of your aims and objectives. Keep this to no more than two paragraphs.
- A company overview, which will outline the product or service you provide and explain the value proposition it provides.
- Your market analysis, which breaks down your target market and the competitive landscape.
- A description of the company structure, explaining who does what, their background, and what their experience brings to the team.
- Your sales strategy, which explains how you intend to promote your business and differentiate yourself from competitors.
- Revenue projections, which will outline your financial strategy, including your current position, future goals, and how you intend to reach them.
- Finally, your business plan will have appendices which detail any additional relevant information.
For a more detailed description of each of these points, check out our 8-step business plan crash course. However, once you’ve written your plan, it’s important to keep it updated. Remember, your business plan is a working document that will change in line with the company’s developing goals.
4. How do I register a business?
Although we began this article by saying the most important part of starting your business is passion, it was inevitable that we were going to get to some legal stuff. Below is a crash course on how to officially register your business as a legal entity, which is a technical but crucial aspect of how to start a business.
However, how you register your company will depend on the structure you choose. Choosing the right structure isn’t something you can change easily, so be sure to some in-depth research before making your decision. Properly understanding each structure is also essential to meeting your tax and accounting obligations. There are several different types of business structure, but the following are the most common in the USA:
- Sole proprietorship, where a company is owned and operated exclusively by an individual. This person is entirely responsible for the business, including all liability and any profit or loss.
- Partnership, which is an association of two or more persons who are responsible for all profit or loss.
- Limited Liability Companies (LLCs), which are the most basic business structure that separates a company’s liability from the personal liability of the owner.
- Corporations, which are entirely separate entities from the owner or partners.
Which structure should I choose?
The structure you choose will depend on the scope and goals of your business. Below are descriptions of why you might select each structure.
1. Sole proprietorship
A sole proprietorship is the simplest type of business entity to establish. As a sole proprietor, you’ll call all the shots and reap all the financial benefits – no other individual or employee can own a stake in your company. However, it also means you can never sell your business; it only exists as long as you run it. Furthermore – and this is very important – the financial interests of the company and your personal finances are intertwined. Therefore, if you need to file for company bankruptcy, you have to file for personal bankruptcy.
A partnership is the same as a sole proprietorship in that it draws no distinction between the owners’ finances and the business’. Furthermore, it’s very important to draw up a robust partnership agreement to protect each party’s interests. However, a benefit is that registration and taxation is much simpler than incorporating.
3. Limited Liability Company
LLCs are a very flexible structure that is useful for a variety of ventures. The key benefit is that you can separate the company’s finances from your personal finances. However, unlike an incorporation, an LLC is taxed more like a partnership. That said, the catch is that the company can only exist so long as the original owner operates the business. Therefore, if you aspire to sell up one day, you need to think about incorporating.
It’s the most complex, but incorporating has its perks. Your business will be an entirely separate entity from you, which means your financial interests are completely distinct. This means that say, for example, if someone sues the company, your personal assets are protected. Furthermore, as introduced above, your business will continue to exist without you – which means you can sell the company or trade stocks. However, corporations are subject to more complex tax regulations.
How do I register as a sole proprietor?
Now, after a lot of jargon, some good news – if you decide to form a sole proprietorship, registering your business is very simple. All you need to do is:
- Pick a name and check the U.S. Patent and Trademark Office (USPTO) website to make sure no one has trademarked your name already.
- File for a business license with your locality.
- Set up a business bank account to keep your business spending personal finances organized.
How do I register a partnership?
Registering a partnership is the same as a sole proprietorship with one snag – you’ll want to write a partnership agreement. Although they’re not compulsory, it is strongly advised. A partnership agreement will detail the percentages of ownership and how the partnership operates. This will help avoid conflict further down the line.
How do I register an LLC?
If you want to separate your business and personal finances, then things get a little more complex. If you want to set up an LLC, you need to register the company with your state. Before getting started, make sure you research the state’s specific requirements. However, to give you an idea, the process is likely to include the following steps:
- Pick a name and as before, check no one else has it already.
- Choose a Registered Agent, which is a personal or business address that receives mail on behalf of the company.
- File your Articles of Organization with your Secretary of State, which officially registers the LLC. You can obtain all the relevant paperwork from them.
- Write up your Operating Agreement, which details the portion of the company each member owns.
- Get your Employer Identification Number or Federal Tax ID Number, which identifies your company to the IRS.
- Obtain any necessary business permits or licenses according to state laws.
- Open a business bank account.
For a more detailed breakdown of this process, check out our article on how to register an LLC.
How do I register a corporation?
Registering as a corporation is the most complex of the four structures. In this case, we would strongly advise seeking the counsel of a legal professional to make sure you fully understand the process and your obligations. However, broadly speaking, the process is quite similar to setting up an LLC, with a couple of extra steps.
- Pick a name.
- Appoint directors – frequently the owner will appoint themselves as a director, however, this needn’t necessarily be the case.
- Choose a Registered Agent, as with an LLC.
- File your Articles of Incorporation with your state’s Secretary of State office. You’ll be able to get the paperwork from them.
- Compose your corporate bylaws, which detail the governing rules of your organization. Generally, these will cover things like the stocks which the corporation is authorized to issue and record-keeping procedures.
- This is an optional stage, but it’s good to draft a shareholders' agreement. This document will detail how a transfer of ownership operates, amongst other things designed to protect each shareholder’s interests.
- Hold an initial board of directors meeting to agree on bylaws, shareholders’ agreements, and stock issuance.
- After the above is agreed at the initial board meeting, you should issue stock certificates to shareholders.
- Get your Employer Identification Number or Federal Tax ID Number.
- Obtain any necessary business permits or licenses.
- Open a corporate bank account.
As a small business, it’s unlikely that you’ll be subject to some of the more onerous conditions of the Securities and Exchange Commission (SEC), which is the body that regulates stock trading. However, again, we strongly advise that you seek legal counsel before incorporating. Once you’re established, it’s also sensible to hire an accountant. If you have a lot of transactions going through your company, you’ll want someone with a comprehensive understanding of your financial obligations. In the long run, they’ll save you more money than you’ll spend on them.
5. How do I create a brand for my business?
Your public identity is crucial to the success of your company. Therefore, branding is essential. At the very least, you need a logo, a website, and a professional email address – in today’s competitive environment, firstname.lastname@example.org isn’t going to cut it. Furthermore, as with business accounting, we can’t stress enough the value of getting someone that knows what they’re doing to help brand your business.
However, in this day and age, this doesn’t mean you have to spend a fortune with a graphic design firm. Instead, there are a wealth of freelancers on numerous online platforms that can help you make a professional-looking company brand and website. However, if you really must bootstrap, slick DIY website builders like Squarespace can help you create something aesthetically pleasing. Just try to avoid third party branding, as ‘built with Wix’ footers tend to make consumers go cold.
Finally, onto some more legal matters. Once you’ve created your unique brand, you will want to consider trademarking. This will prevent anyone else from misusing your company name or brand. The same goes for any product or process innovation; in this instance, you’ll want to apply for a patent to stop anyone copying your idea. These legal structures are created to protect your intellectual property and your company’s brand, so make sure you’re covered.
6. Speaking of protection – do I need insurance?
Short answer – yes. You’re likely more than aware that accidents can happen and a business’s success is very much related to its resilience through adversity. What’s more, liability lawsuits are becoming more and more common. At the very least you should consider General Liability and Business Property insurance. Alternatively, you can find a Small Business Owner’s Policy that package this cover in a single policy. Furthermore, if you’re going to hire, most states will require you to take out Workers’ Comp insurance. Once you have these primary types of cover in place, research insurance coverage that’s relevant to your sector. For example, if you’re opening a garage, you’ll definitely need Commercial Auto insurance.
7. How do I find funding for my business?
Finally, the million dollar question. Starting a business requires investment and you’ll need to have a reliable source of working capital to get your venture off the ground. Below are some ideas about where to source funding:
- Many successful businesses have been self-funded. Consider cultivating a nestbed of personal savings to help get your business going.
- Lots of entrepreneurs also use their personal connections to source capital. For example, consider asking friends and relatives to invest in your business. The positive of this arrangement is your family are unlikely to slap high interest rates on their lending; however, it’s important to be careful that their investment doesn’t jeopardize your relationship.
- Depending on your sector or background, you might qualify for a small business grant. These grants are free funding intended to help minorities or certain industries. However, they often have a stringent qualification and application process. Check out our article on small business grants for more information.
- Perhaps the most straightforward way to fund a new business is to apply for a small business loan. Although this comes with risk, the lending landscape is now more diverse than it used to be – now, the big banks aren’t your only option. Check out this guide about sourcing startup funding from lenders.
- For most small businesses debt financing is the most realistic option. However, if you’re starting a company within an industry with fast-paced returns like tech, then you might be able to get equity financing from an angel investor or venture capitalist. In exchange for a stake in your company, these individuals will invest in exchange for a stake in your venture.
Remember, if you decide to take out debt financing like a small business loan it is essential to make sure you can keep up with the repayments. Therefore, you should factor any debt expenses into your business plan.
Ready to get started?
And there you have it – how to start your own business for scratch in seven points. Now you’ve made it this far, hopefully you’re well on your way to turning your business idea into a reality. If you want more resources and advice on small business ownership and funding, check out our articles on how to grow your business. Good luck!