13 Jul Small Business Start-Up Kit
Before giving yourself a big pat on the back for having a great business idea, you need to ask yourself if you have all the know-how to go about it the right way.
There are certain things that one must know before they jump into the bandwagon of millions of new businessmen trying to make it big out there. There are certain steps and factors that have to be put in place, on the fulfillment of which, one can go ahead with their business venture.
Start a Small Business by Following these Steps:
We have all had that moment where we thought of making a living from a particular passion, hobby, or skill. Maybe you just want to be your own boss and have more control and flexibility over your work. Or you want to make more money because you believe you have a fantastic business plan.
Small business owners find starting a business challenging, to say the least. This kit offers all the tools and tips you need to succeed in your small business. It is designed to help you find an idea, spot a gap in the market and start your own small business.
STEP 1: Business Idea
Every business starts with an idea – an idea that stands out from the rest. Before you dive into your new business venture, one must answer several questions about themselves, their idea, and what is actually involved in starting a business. Planning a business entails more than just finding financial means and a space to rent/lease. It involves objectively answering essential and relevant questions that will determine whether you’re ready to start a business.
A few important factors to consider are:
- Is there a gap in the market?
- Will your business idea work in your location?
- Do you have the required resources?
- Do you have the right price?
- Is it the right time for your business?
Is there a gap in the market?
You would be shocked that some people go into business without thinking about the problem they want to solve. If the need is met by other businesses, one has to consider how theirs will do better. Providing quick delivery, cheaper pricing, higher quality, or generally giving a value-added product or service presents a market opportunity.
Will the business idea work in your location?
If you’re starting a new business that mainly operates offline, location is a critical factor to consider. Being near your customers significantly improves the demand for your product or service.
Do you have the required resources?
Beyond having physical resources, one also needs other reliable skills and knowledge. For instance, you might require the services of an accountant, financial advisor or business mentor down the line. Aspects of marketing the business and establishing a customer base are also things to consider.
Do you have the right price?
You have to put your customers in mind and consider how much will enable you to make a decent profit.
Is it the right time?
A business should be executed at the right time for it to serve its purpose.
STEP 2: Set Up a Business Plan
Just as a blueprint is used to ensure a building will be structurally solid, a business plan ensures a business stays afloat. The purpose of a business plan is to simply gather the key elements of your business in one document.
It helps one to identify clearly the products or services one will sell, what they will cost to produce, and the sales revenue one expects during the duration of the operation. Most importantly, a business plan describes the fundamentals of the business idea and provides financial calculations to prove that it will make money.
A good business plan is used to:
Describe Your Business and Yourself
A business plan begins by describing the beauty of your business idea. If you intend to show your plan to potential lenders or investors, this is where you prove to them that you’ve found a product that customers really want and need.
To achieve this, you should include the following in your plan:
- A statement of the purpose of your business
- A detailed description of how the business will thrive
- Market analysis
- Competitor analysis
- Marketing strategy
- A résumé showcasing your business accomplishments (if you’re seeking to raise start-up money; or if you need to convince suppliers, contractors, employees, and key customers)
State Your Business Purpose
For your business to succeed, your product or service has to have a purpose. You have to show how your business will solve a real problem or satisfy an actual need.
Describe Your Business Operations
Once you’ve been able to define the need your business will meet, you need to outline exactly how it will operate. This has to include specifics such as:
- How the product or service will be provided
- Where the key supplies will be bought
- Your customers’ means of payment
- How many employees you will have and their functions
- The hours of operation
- Your business location
Define Your Market
You have to be sure that there are customers who are ready and willing to buy your product or service. After establishing that there is a solid demand for your business, define and describe who your customers will be.
Analyze Your Competition
Having a great business idea doesn’t guarantee success. Other businesses might have already gripped the market or someone is out there looking to perfect what is missing in yours.
Analyzing your competition entails showing why your business will develop and keep an edge over your competitors. Put yourself in your customer’s shoes and consider why they would go for you instead of your competitor. You can start by considering the quality of products or services, convenience, reliability, and price.
Define Your Marketing Strategy
An effective marketing strategy should be based on the particular characteristics of the market that one is trying to reach while considering the goal of reaching as many customers as possible at the least expense.
Even small businesses that don’t have much of a marketing budget shouldn’t forego smaller-scale plans. Small business owners should come up with an effective strategy on how to reach more customers.
Make Financial Projections
After determining how your business will operate and how it will attract customers, you need to figure out how the business will turn a profit.
Predicting and planning your business finances is vital when attracting investors, and demonstrating how your business idea will soar. If your first projections show your business losing money, you’ll have an early opportunity to make sensible changes, such as raising the prices or cutting costs. Neglecting your financial projections will only bring losses when it’s too late.
To get an understanding of your business’s financial projections, you’ll need to make the following estimates and calculations:
- A break-even analysis – Simply use a year’s income and expense estimates to determine if your business can make a profit. If you find it hard to project a solid profit, you might want to consider another business idea.
- A profit/loss forecast – You’ll need to refine the sales and expense estimates you reached on the break-even analysis into a formal, monthly projection of your business’s net profit in the first year of operations.
- A start-up cost estimate – This is simply the total cost of expenses one incurs before the business opens. They are meant to give a true picture of how much money one needs to get the business up and running.
- A cash flow projection – Forecasts of profit/loss don’t guarantee smooth cash flow throughout. A cash flow projection simply lays out how much cash will be available on a monthly basis. This lets you determine if you need a credit line or set up other arrangements to ensure funds are available.
STEP 3: Federal, State, and Local Start-Up Requirements
Before you can legally start your business, you have to take care of legal requirements with government agencies. Just like any other business, small businesses have licenses, permits, approvals, registrations, codes of practice, standards, and guidelines that might influence the business.
It’s not rocket science to start up a company that offers limited liability be it a corporation, LLC, or limited partnership. However, the process can be a bit more complex than starting a sole proprietorship or general partnership.
Getting business permits and license requirements allow one to:
- Give their business an identity
- Enable the government to protect the public
- Keep track of your finances for tax purposes
There are basic regulatory structures that every businessperson has to deal with, the respective agencies, and their types of requirements. Here are general legal start-up steps:
- Step 1: File organizational documents with the Secretary of State or other alternative offices (corporations, LLCs, and limited partnerships only).
- Step 2: Obtain a Federal Employer Identification Number (FEIN).
- Step 3: Register your fictitious business name with your county or state.
- Step 4: Obtain a local tax registration certificate (also known as a business license).
- Step 5: Obtain a permit to sell retail goods and collect state sales tax.
- Step 6: Obtain specialized Licenses or Permits.
Step 1: File organizational documents with the Secretary of State or other alternative offices (corporations, LLCs, and limited partnerships only).
Only corporations, LLCs, and limited partnerships need to file organizational documents with the state (Sole proprietors and partnerships can skip this step).
As opposed to sole proprietorships or partnerships, businesses that offer limited liability don’t just start as soon as their owners start selling products or services. To undertake this type of business, you need to file registration papers with your state filing office. Because these business structures are regulated at the state level, each state has different rules for creating and managing them.
For corporations, the organizational document is known as the Articles of Incorporation. For LLC s, it’s generally called the Articles of Organization (Certificate of Organization or Formation). Limited partnerships also have to file registration documents with the state.
When it gets to filing your organizational documents with your state, one has to register the corporate, LLC, or limited partnership name at the same time. This is done because the agency in charge (commonly the Secretary of State) must approve all names before being registered, otherwise, the organizational application will be rejected. The name of your small business won’t be approved if another business of the same legal structure (corporation, LLC, or limited partnership) in your state has already taken ownership of the business name you intend to use.
To save time, it is wise to do some research before filing your papers and ensure your proposed name is available. Simply call or write to the state filing office to confirm name availability. If you’re lucky, there are a few states that allow you to conduct the process online.
It’s very important to know that even though your name has been accepted by your state filing office, it doesn’t mean it’s completely free to use. There are trademark and unfair competition laws that may prevent you from using a name used by another business. This includes businesses that aren’t included in your state corporate, LLC, or limited partnership name databases. At this point, it’s wise to do a trademark search before choosing your business name.
Step 2: Obtain a Federal Employer Identification Number (FEIN)
Sole proprietors and partners don’t have to create their business by registering with any state office. As long as they started engaging in business activity, their business more or less exists by default.
However, if you’re starting a sole proprietorship or a partnership, it is essential to get a Federal Employer Identification Number (FEIN) from the Internal Revenue Service. This should be your first registration task as one can get it before they’ve registered with any other agency or filled out any other forms.
Corporations and LLCs are also required to apply for a FEIN, but they have to file their organizational documents with the state first.
What is a FEIN?
A business’s federal employer identification number (or employer ID), is quite similar to an individual’s Social Security number. This number is used by the government to identify your business, and used often when providing important business documents. It is a vital document that is used to enter your business’s local tax registration forms, federal tax returns, and any applications involving business licenses.
Step 3: Register your fictitious business name with your county or state.
A fictitious business name (FBN) – also known as DBA (doing business as) – is any trade name that doesn’t contain the legal names of the owners (for sole proprietorships or general partnerships) or that one that doesn’t match the company’s corporate, limited partnership, or LLC name on file with the state.
Most states require a business that use fictitious business names to register the name with the county clerk in the county where its main headquarter is located. In different countries, this requirement goes by different names: fictitious name certification, DBA filing, trade name registration, or something similar. FBN registrations are usually done at the county level but one can register the FBN with the Secretary of State or other state agency in different states.
States keep track of business names to prevent customer confusion between two local businesses using the same name and to make it easy for customers to know the owner of a company. This promotes transparency and allows customers to easily contact the owners when making complaints or taking legal action against them. Therefore, owners have to register their business names so as to make it harder for unreliable businesses to operate anonymously and defraud customers.
It is important to file for an FBN statement as many banks do not open an account under your business name. Failing to register it means that it won’t appear in any fictitious business name database. Any other business will be less likely to see it and may start doing business with it. Avoid getting into confrontations with other businesses as it may present a legal battle that you don’t want to have.
Depending on your business structure, there are rules that apply when registering fictitious business names:
- Sole Proprietorships – a sole proprietor who includes his or her last name in the business name does not have to file an FBN statement.
- Partnerships – if a partnership includes the last names of all the partners, they don’t have to file an FBN statement.
- Corporations, LLCs, and limited partnerships – these do not have to file an FBN statement unless it operates under a different name from its official name as stated in its Articles of Incorporation, Articles of Organization, or Certificate of Limited Partnership.
Step 4: Obtain a local tax registration certificate
A majority of cities require all businesses to register with their city’s tax collector, regardless of the business type, structure, size, or name. However, businesses located in rural areas can register with the county clerk instead.
Depending on where you are located, different localities use different names for the process such as tax registration, business tax application, business license application, or tax certification.
In other circumstances, some businesses have to meet more requirements. There are a variety of tax registration certificates that are not the same as specialized licenses that businesses are required to have – such as a permit from the local health department for handling food, from the Federal Communications Commission for broadcasting over the radio waves, or from a regional air management district for emitting particles into the air.
Small business owners have to register with a local tax collector. Just like the federal and state governments, the local government collects its cut of your business income. Tax registration is basically the local government’s way of keeping track of your business so as to collect the taxes you owe them.
Cities and counties tax businesses differently from the feds or states. Localities are known to tax businesses based on various criteria such as net profit, gross income, number of employees, total payroll, number of vehicles, number of machines, or even seating capacity.
If being assigned categories and a tax rate wasn’t enough, businesses may also be subject to special taxes for particular activities. The privilege of registering to pay local taxes also demands one to pay an annual fee, which varies in different cities.
Be sure to check with your local office for the most current rules and rates as they are always changing. For city requirements, the tax collector’s office is able to provide the forms required to register in your city, and also a breakdown of business categories and tax tables.
Step 5: Obtain a permit to sell retail goods and collect state sales tax
In most states, any business must have a seller’s permit if it sells any tangible goods to the public. Businesses that sell only services are not required to have a seller’s permit.
It is important to know that selling tangible goods demands a seller’s permit whether the sales are taxable or not. For example, most states exempt certain sales from state sales tax of food or sales to an out-of-state customer.
In most states, one needs a seller’s permit to conduct non-taxable sales even before they begin to sell tangible goods. When the sales are made, one can distinguish the taxable ones from the non-taxable ones. When it’s time to report and pay sales taxes to the state, you only pay tax to the taxable sales.
To obtain a seller’s permit, contact the state agency that governs sales taxes. The process of obtaining a seller’s permit involves submitting a simple application form and even paying a fee.
Step 6: Obtain specialized Licenses or Permits
Some business activities are prohibited until one obtains a license or permit. For instance, some business locations require special approval from the local planning department especially if the business has the potential to harm the environment or hurt the public, amongst other risk-free situations.
Regulations are designed for different purposes. Local regulations focus on the location of the business and determine if it is a nuisance or threat to public safety. State and federal regulations, on the other hand, focus mainly on the type of work and whether you have the qualifications for it.
Zoning and Local Permits
Local business regulations handle the physical location of businesses and the safety of the premises and equipment. City zoning laws regulate the type of activities allowed in specific locations. For instance, the zoning board might disapprove of your business location if it’s in an area zoned exclusively for residential purposes.
If your business doesn’t adhere to the zoning laws, you then have to get a ‘conditional use permit’ or be granted an exception to the law (variance). The city or county planning department is normally in charge of the zoning laws.
Even if your business has met zoning requirements, it might still have to be approved by other city agencies such as the fire or police departments, building inspector, or the department of public health. To ensure you comply with local laws, such as health and fire codes, noise laws, and environmental regulations, you could need one or more permits from these agencies.
Register with your local tax collector to receive more information about these agencies and the type of businesses needed to contact them. The county clerk can also direct you to information about regulatory agencies in your area.
State and Federal Regulations
State regulations mainly focus on how you conduct your business and regulate your business activities through licensing.
Businesses that are highly specialized or are likely to affect the public welfare are in more need of a state license or permit than any other business. If there’s a risk that might result from poor handling of your business activities to harming the public, you need a state license. Examples of state-licensed businesses include bars, auto shops, health care services, and waste management companies.
The federal government doesn’t put strong regulations on small businesses as much as local and state offices do. However, in some cases, they may need a federal permit or license to engage in certain activities such as:
- Operating a common carrier for hire, such as a trucking company (Interstate Commerce Commission)
- Establishing or operating a radio or television station (Federal Communications Commission)
- Manufacturing drugs or meat products (Food and Drug Administration)
- Manufacturing alcohol, tobacco products, or making/selling firearms (Bureau of Alcohol, Tobacco and Firearms)
- Providing investment advice or counseling (Securities and Exchange Commission)
STEP 4: Bookkeeping, Accounting, and Financial Management
The financial tools used in your business planning (profit/loss analysis and cash flow projection) are the same tools small business owners should use in accounting but employed slightly differently.
Managing your business finances helps in tracking your income and expenses, hence, improving the chances of making more profit. Your business will have well-organized financial information that is vital in filing tax returns and local tax registration papers.
A well-maintained bookkeeping system helps your business:
- Price your goods and services more competitively
- Cut down on costs strategically and improve your bottom line
- Pace the business growth attentively
- Reduce your taxable income by making wise purchases
- Avoid tax penalties caused by errors in tax returns
The Financial Management Process
The financial management process can be broken down into three main steps:
- Record keeping – this involves keeping a record of business expenses and income. All-inclusive summaries of the income and expenses of your business are the heart of the accounting process. Business sales and expenditures must have a reference of records containing the amount, date, and other relevant information about that transaction. This can either be found in the form of income receipts or expenditure receipts.
- Periodic record keeping – this involves entering your income and expense information into a bookkeeping system such as financial management software. The more sales your business makes, the more you enter your receipts. A high sales volume, demands one to see what’s happening every day and not fall behind with the paperwork. To achieve this, you would have to create an account, create income and expense categories.
- Generate financial (profit/loss) reports – to follow how the business is doing, financial reports gather various financial data to identify its financial situation. For instance, a profit and loss report compares monthly income to monthly expenses and shows whether the business is making enough sales of products or services to cover monthly costs. A cash flow projection shows similar information, but also includes more sources of income such as capital contributions from owners or loans, and organizes the information differently to demonstrate whether the timing of your income can pay business expenses with respect to time.
STEP 5: Small Business Marketing
Now that you have a great product/service and have built a solid business infrastructure to support it, how will you get customers to make purchases?
Marketing is simply the process of reaching out to potential customers and attracting them to your business. Some business owners get excited when it comes to the marketing process, while others find it intimidating and difficult to pursue.
Marketing your small business does not have to be time-consuming, complex, or expensive. As a matter of fact, the best marketing methods are the simplest and cheapest ones.
For example, a method as simple as encouraging good word-of-mouth and networking within a well-defined target audience can cost you little to nothing and still significantly help your business develop name recognition and build a potential customer base.
As a matter of fact, generating positive word-of-mouth is one of the most powerful ways for a business to develop its reputation and attract customers. Other economical marketing methods, such as sending out press releases and promoting media coverage, can create better exposure than spending a fortune on advertising.
Other effective ways of promoting business include:
- Networking with potential customers, the business community, government officials, and community leaders
- Creating incentives for your customers to pass good word of mouth about your business to others
- Pitching stories about your business to local media
- Organizing or participating in special events such as grand opening parties, product demonstrations, trade shows, or informational seminars
- Establishing a website and promoting it
- Distributing brochures, flyers, or other literature
- Listing your business in local directories
Define Your Market
The very first task when marketing your business is understanding the dynamics of your market is. Basically, all you should know is your potential and current customers, your competition, and your industry. When you have a clear understanding and vision of these three, then you’ll be in a better position to tailor your business to suit your customers’ needs through effective marketing strategies.
Categorically, you can ask yourself these questions when figuring out research methods that would suit each group:
- Who are your target customers?
- What products or services do they need or want?
- Where or how do they buy products or services?
- How much do they pay for your products or services?
Primary Research Methods
- Surveys and questionnaires
- Focus groups
- One-on-one interviews or inquiries of trusted contacts
Secondary Research Methods:
- Magazine or trade journal articles
- Reports from previously conducted studies
- What do they offer?
- What do they charge?
- How do they provide the products/services?
- Who are their customers?
- What is their competitive edge?
- Primary sources such as marketing materials, websites, etc.
- Trade shows
- Magazine or trade journal articles
- What are the standard practices?
- What are the latest trends?
- What does the future hold?
- Magazine or trade journal articles
- Trade shows
STEP 6: E-Business: Selling and Marketing Online
E-business comprises more than just creating websites. With innovative technology emerging every day, the possibilities are endless. Businesses can now promote themselves and sell their products and services online. The only challenge is with the rate at which the e-business landscape is constantly evolving making it challenging to keep up with the current trends.
Small business owners typically get involved in e-business to:
- Build the brand and recognition of the business
- Attract new clients and customers to visit the physical business or to contact the business
- Collect email addresses or other contact information for marketing efforts
- Showcase their product or portfolio items
- Selling products through e-commerce
- Answer common customer questions and reduce customer service phone calls
- Attract investors
- Publishing updated information such as recent technology releases
Websites are now known as the base camp of your e-business activities. They are still important as a central repository for business information and also act as a revenue center for online stores. However, nowadays the website cannot work alone but in sync with a wider range of online activities that collectively serve to generate business.
If heavy social media networking is not beneficial to your business, the conventional way to go is to have a simple website that includes basic information about what the business does and relevant contact information.
Websites are designed to:
- Project a professional image
- Reach the ever-growing number of consumers who look for businesses online
- Communicate more in-depth information than you can’t fit on a business card or brochure
- Create a platform where one can post information that potential and current customers can access
- Facilitate sharing your business through satisfied customers
- Cutting costs on paper printing
Online Outreach Methods
Websites can generally be the focal point of a business’s online presence. However, there is a growing list of other online methods of communicating with potential customers.
Email Marketing and E-Newsletters
Small businesses can now email different kinds of information to customers who have signed up to receive such communication. One can send either marketing information or more substantive information (e-newsletter). Marketing information sent by email is known as an email announcement, email promotion, or marketing email.
Publishing an e-newsletter or substantive material requires full commitment. Publishing-oriented websites are different from marketing websites as they focus on substantive information such as articles or basic reports. Online newsletters and other publishing activities require higher commitment, frequent updates, and high-quality standard information.
Blogs have been around for quite a long time. However, recently they have been the preferred strategy as they offer easy, effective ways to communicate late-breaking information. All one needs is to regularly update them, be more web-savvy, and have quality content that keeps customers coming back.
Implementing a comprehensive social media strategy promotes your business when it is a well-thought-out plan and represents a clear idea of where to focus your efforts. Small business owners need to figure out which social media sites will work best for their business and the communication objectives using the particular platform.
Planning on opening a traditional brick-and-mortar store? Nearly every marketing operation is now taking place online. This makes it tough to distinguish between the diverse digital marketing people use today.
Some common marketing channels include:
- Social Media Marketing – Ecommerce websites are highly visual, therefore, success on your social media platform depends on how you use imagery to drive attention and traffic to your product pages.
- Content Marketing – content is meant to improve your website’s ranking in search engines and answer questions related to your industry
- Search Engine Marketing – Search engine marketing (SEM) comprises both search engine optimization (SEO) and paid advertising. SEO relies on one’s knowledge of Google’s ranking algorithm to optimize content, SEM can involve pay-per-click (PPC) campaigns, display campaigns, or product-specific ad campaigns, such as Google Shopping, which allow one to pay for top spots on search engine results pages.
- Local Marketing – Often overlooked, this tactic of marketing allows small business owners to double down on the areas where most prospects are and allows you to offer incentives to your potential customer base.