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Starting a small business is a big decision. From startup costs to a labyrinth of legal considerations, the process of entrepreneurship can seem daunting. Even so, it's something that millions of Americans have done successfully. In no particular order, here are six key steps to take when considering starting a new company.
1. Choose a Business Structure
One of the most important decisions to make involves picking a legal structure. The legal structure you decide upon will impact taxation, the paperwork necessary to be filed, and liabilities. This step needs to be done before you even register your business. Different structures have varying advantages and disadvantages. For example, forming and running a sole proprietorship gives you total control, but it doesn't separate your personal liabilities from company liabilities. A limited liability company (LLC) does in most cases but requires much more paperwork. Note: staying covered on more than the basics is often a good idea, so shop for commercial insurance plans that might augment your protection.
2. Develop and Write a Business Plan
A business plan lays the groundwork for the foundation of your business. A mission statement, a description of your product line, and a general market analysis are only a few ingredients in a good business plan. Remember, this document will be "selling" the notion of your company to the government and potential investors. Traditional business plans are long and involved (and with good reason), but "lean startup" variations exist that focus on the bare necessities. Investors and lenders usually consider more information preferable, so don't skimp on the specifics.
3. Acquire Funding
Accurately determining necessary funding is critical to success. Self-funding is the dream of many entrepreneurs. It isn't always workable. Getting venture capital from investors is one possibility. Crowdfunding is another option, especially for smaller companies. Both of these possibilities require navigating an array of legal considerations. Small-business loans are an option that can help minimize risk, but lenders often require a comprehensive business plan. The U.S. Small Business Administration (SBA) can aid in securing a loan, so consider reaching out.
4. File Everything Correctly
Registering your business with the federal government (and probably your state and local government) will keep your brand legal. Acquiring a state and federal tax ID (The latter is also known as an EIN or Employer Identification Number) is another critical step. It will also be necessary to apply for various permits and licenses. These vary by industry and may not always be obvious. For example, if your company operates certain vehicles, you'll have to register with the Department of Transportation. Research all statutes thoroughly.
5. Pick Your Location
Will you and your employees work from home, or will they come to the office? Will your business be done online or at a brick-and-mortar storefront? These decisions will affect your taxes and permits. The location of your company also affects labor laws and property value. These factors will radically alter the calculations of your startup costs. Buildings also have to be filled with appliances and powered by utility systems which incur repeated costs. Don't forget that zoning laws forbid certain businesses in specific locations. Again, study all of these considerations before making a decision.
6. Engage in Market Research
Learning about your target audience is critical to reaching them. Without good market research at the start of your business venture, there's no way to make accurate projections of future success. Good research has a quantitative component consisting of hard numbers like demographic data. It also has a qualitative side, which includes brand impact and shifting cultural expectations among consumers. Whether it takes the form of surveys or statistics, market research puts your finger on the pulse of consumers.
Becoming a business owner takes a combination of hard work and good planning. There is no "one size fits all" approach to starting and running a company. Remembering these basics will help you build a strong foundation for future success.
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Published on March 25, 2023
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