You’re ready to take the leap and start a business. Congratulations! Making that decision might feel risky, but it’s a good thing.
According to a recent study by Oxford Economics, 74% of small and medium business owners are willing to take big risks to ensure success. “Fortune,” as the saying goes, “favors the bold.”
Still, you should also consider that:
- Two-thirds of business owners say the first year is the toughest.
- Only half of small businesses survive more than five years.
- Competition, cash flow, and taxes are the top three threats to a profitable business.
- Creating your own business is a rewarding opportunity to achieve work-life balance while pursuing your passions. But, it isn’t easy. Fortunately, if you’re diligent when starting your company, you’ll put yourself in a much better position for success.
- This article guides you through the 15 steps to start a business. We’ve provided a downloadable step-by-step guide so that you have the “know-how” to start a successful business. No matter what kind of business you have, this roadmap should prove useful.
1. Define your vision
A business without a vision is like a ship without a rudder. Defining the vision of your business should set everything else in motion.
Drafting a mission statement should serve as the foundation of your vision. In a few paragraphs, identify your company goals and the high-level strategies you’ll use to accomplish them.
If writing a mission statement isn’t in your skill set, visit some of your competitors’ websites to learn from, and emulate, what they’ve written. Patagonia’s mission statement inspires customers and employees alike:
Notice that it’s broken down into three parts that are easy to follow
- Mission statement: “We’re in the business to save our home planet.”
- Narrative: “Our reason for being.”
- List: “Core values,” etc.
When writing out your vision, be as clear and concise as possible. Make sure you also write a compelling and motivational message that inspires team members to work together towards a common goal. Your statement should help convey your “why.” It answers, at the most basic of levels, why you wanted to get 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 that you have a strong business opportunity before going too far. Here are some critical steps to follow.
Select a product or service
What will your business sell, and how do you plan to be different from competitors (e.g., what is your value proposition or unique selling proposition)?
Define your target market
Who will your business serve? Begin with demographics like age, gender, income and location. Then, go deeper through personas or create a customer journey map.
Identify key competitors
Having competition is a good thing, as it means there’s a demand for your product or service. Compare similar products or services both to replicate what your market loves and to differentiate yourself from what’s already available.
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 market size of your potential customer base. Estimating the current and future monetary value of your business idea and setting reasonable goals will help you win a “piece of the pie.”
But, how? That brings us to our next step.
3. Write a business “canvas” (then, a plan)
The good news is you’ve already done some of the work by tackling the first steps above. Keep in mind, 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 even say you should instead start with a business model canvas: a one-page document that covers the critical information you need to get started. This option will save you time and get you up and running faster.
You can download our business model canvas and checklist to get started. Once you’ve been in business for a while or you’re ready to seek funding, you can build out a more detailed plan. It should cover each section in the screenshot above in more depth. This includes everything from:
- Resources to operate.
- Your overall marketing plan.
- What your cost and sales structure will look like.
- How you’ll manage your finances, expansion and more.
4. Understand your startup costs
Even if you’re self-funded and have yet to work with angel investors, you must still understand your startup costs. Here are some crucial facts:
- The majority of businesses start with less than $10,000.
- Three quarters relied on their personal savings.
- The number one regret of owners looking back on the first year is they didn’t spend more time learning about financial management.
- The majority of businesses require $50,000 or more in annual revenue to feel confident about their long-term health.
You should 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 (e.g., your operating income and salary). Also, be mindful of forgotten costs like business taxes.
It takes a few years to build up your revenue, which is why it’s so critical that you recognize costs and cash flow early on, which leads us to our next step.
5. Plan your own starting finances
Determine how you will fund your business if you don’t have your own startup cash. And, you don’t have to seek angel investments or venture capital. Instead you can turn to these methods
You’ve likely heard of the crowdfunding platforms Kickstarter or Indiegogo. This is a popular route for many new business owners. It works by seeking funds from a large number of people, rather than one major investor.
These are small business loans, often less than $10,000, that you can apply for to get your business off the ground. You’ll have to research your microloan options, depending on what country you live in, 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 before you do so.
Depending on what country you live in, you may be eligible for grants, either from your government or private organizations, to help you finance. Again, you’ll have to research what those grants are, whether you qualify and how to apply.
Friends and family
Last, but not least, plenty of businesses get their start through the help of friends and families. Don’t be embarrassed to reach out. At the same time, take those pitches seriously by outlining all the work you’ve done through your canvas or plan.
6. Determine your business structure
Now, it’s time to define what type of company you plan to run by choosing the legal structure of your business entity. Are you better off as a sole owner or proprietor? Do you have a partner? Do you plan to incorporate your business?
Each option has its advantages, as well as associated tax reporting responsibilities and regulatory requirements.
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 are first starting. As your business grows, you may wish to switch to a different legal structure. This could be an excellent option for those with a small side-hustle or day job.
If you are going into business with another partner, then you will need to register as a business partnership. Because each partner will have a stake, you must work with a lawyer and a tax professional to layout the type, terms and tax implications of your partnership.
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.
There are several other options, depending on which country you live in. For example, you can form a Limited Liability Company (LLC) in the United States, or operate as a sole trader if you’re in Europe. Speak with an accountant or bookkeeper to determine which option best suits your needs for today and the future.
7. Investigate your legal requirements
Before you launch your business, consult with a lawyer to ensure you’ve considered all the legal requirements. Include legal fees in your financial planning as well. It’s essential to have a good lawyer on-call to solve legal and contract disputes, and to provide advice before signing a new contract.
Here are some of the questions to ask and services to request from a lawyer:
- Should you trademark your company name or logo?
- Do you need a patent, copyright or intellectual property protection?
- Can they create standard contracts for negotiating with other businesses and vendors?
- What’s involved in forming a sole proprietorship, a 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, and even region, will have its own set of rules as well. Your local and federal government websites are an excellent place to begin your research about requirements.
You should also consult national consumer and privacy laws for collecting personal customer information.
8. 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 will differ by country and even region. Do your homework to understand your local requirements.
First, ensure your name is available. The quickest way to find out is through an online search. Type your desired name into search engines like Google and Bing. Check social media platforms, such as Facebook, Instagram, LinkedIn and Twitter. Then, reference your local secretary of state’s office to ensure another firm isn’t using the name. If you plan to conduct business in multiple countries, be sure to check for the name’s use in those states or countries as well.
You should register that name and ensure it’s valid before creating business cards, logos, websites and more. It’ll save you stress and likely a significant headache later. Again, registration sites differ based on which regions and countries you operate in.
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, there are additional costs associated with every registration you do.
9. Apply for permits and business licenses
Visit your government services or the Small Business Administration (SBA) website to find out whether your business requires any national or local licenses or permits.
While you’re at it, check to see whether 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 employer identification number if you plan to hire employees or open a bank account. This will also serve as your tax ID so that you can pay federal, state and local taxes.
Your accountant can advise you on any other tax-related applications you may need to complete. Again, this process depends on where you live and what type of business you’re operating.
10. Open a small business bank account
There are different types of business bank accounts and products that can help you save money and grow faster. As soon as you’re ready to start your business, 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 actually benefit you.
If you’re planning an international business strategy and expect to generate a high volume of sales in those overseas markets, opening a bank account in the local market makes even more sense. You’ll save money on bank transfer and currency exchange rate fees.
Also, establishing a financial presence country-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.
11. Set up your accounting systems
If your accounting system is set up correctly from the start — with future growth in mind — you’ll save yourself time and money long-term.
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 that let you see how your finances are doing month-to-month.
You might also consider accounting software that automates this process and can help you visualize the money coming in versus money going out.
Regardless of the option you choose, maintain an exhaustive record of all of your finances in one place. Every level of business has legal and tax obligations for record-keeping. Nailing down your booking from day one frees you up to work on growing your business.
12. Outsource essential functions early on
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 skillset can cost you time and money.
Delegate or outsource tasks that aren’t your area of expertise (e.g., accounting, admin or public relations). If you have the funds and legalities worked out, you can hire a few employees to share the workload.
It might be tough at first to trust other people with your business, but if you find 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 to help you cover areas where you aren’t strong. Managing your sanity is just as important as managing your time.
13. Familiarize yourself with payroll taxes
If you do decide to hire someone instead of outsourcing, you’ll need to familiarize yourself with business taxes. Employee salaries require taxable amounts withheld from their payroll. Speak with your accountant to ensure you meet all your tax responsibilities. Be sure to ask common payroll questions to understand the basics of payroll.
Digital payroll services offer both self-service and full-service options. Some of the benefits of using payroll software include:
- Setting up and tracking employee health insurance, retirement plans, deductions and garnishments.
- Monitoring employee payroll data and annual changes (e.g., bonuses and salary bumps).
- Having a digital process to deposit your taxes automatically.
- Being able to add new employees to your payroll system automatically.
- Enabling automatic online direct deposits, which transfer funds into your employees’ accounts worldwide.
For more information on what’s involved in setting up and administering online payroll, check out: How to use payroll software to manage payroll effectively or to better understand how the processing payroll works for your business.
14. Build a basic web presence
If you don’t at least have a website and email address in today’s always-on, digital world, do you even exist?
To win new customers, you must include a website as part of your marketing strategy. Fortunately, you don’t have to spend a ton of money setting up your small business website. There are lots of affordable options available.
When you have the time and resources, you can move on to adding social media profiles and consider other digital marketing tactics like paid ads, reviews and search engine optimization.
According to 99Firms, 61% of small businesses invest in social media marketing and nearly 50% of small businesses spend $10,000 or less on digital marketing each year.
As your business grows, so too can your budget for building a stronger, more impactful digital marketing strategy.
15. Explore business partnerships
While we talked about reasons to go into partnership with another person when you start a business, we should also address partnering with other companies for collective growth.
There are many different ways to form a partnership, like:
Referrals and revenue share
Some work with partners to help them sell services in exchange for a commission or revenue share deal (e.g., one business gives another one a percentage of the sale). It’s very common if you have a small sales team and want to expand your efforts 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 new 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 to use the software more effectively and, therefore, spend more money with the software vendor. The expert partner would, therefore, get a percentage of sales based on terms both parties agree on.
If you plan to, say, build a tower for office space or make a movie, you might 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 in afterward. That’s where a partnership with another production business with that staff and 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 that you can work with on a partnership deal. 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.
Learning how to start a business is the first step
This post outlines the necessary steps you must follow to launch a new business. Remember to start with your vision, research your opportunity, and record it all in a business plan or canvas.
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 will free up your time to focus on what you do best so you can drive faster growth. You can also lean on business partners in your community for support and to collectively grow your customer base.
Always remember, fortune favors the bold. But, it also smiles upon those who are prepared.