Starting a business requires an understanding of the real-world scenarios that can’t be mimicked on a piece of paper. Once you’re in a business, the path to success will be determined by different experiences and unexpected outcomes. Since none of us can predict the future, successful businesses are always based on preparing for the unpredictable.
As a first step on the drawing board, it is necessary to chalk out a business plan by understanding what you need to do before stepping into the real world. This guide will offer step-by-step instructions on designing a blueprint complete with the necessary ideas to start a business.
Before the launching day, every startup has to go through six steps. These include:
- Creating a Business Plan
- Completing Legal Formalities
- Understanding Tax
- Acquiring Funds
- Setting up Business Operations
- Marketing Plan
Every business guide has different ideas to discuss, but the structure of initial blueprint remains the same. Let’s discuss each of these steps in more detail:
Creating a Business Plan
A business plan is a document that defines why you think your business idea will succeed in the marketplace. The document outlines the nature of your business, market research, competitor analysis, and details of products. There are literally thousands of sample business plans on the Internet that can provide in-depth information on writing a perfect business plan. You may download a sample from the Internet, and start working on the initial draft any time; however, there are three critical things to remember.
First, your business plan should specifically focus on what makes your product different from the competition. Perhaps, this is the single most important section of the entire business strategy as it is used to convince banks, loan officers, and others that your business is worth funding.
You should critically analyze why the market needs another business like yours. Is your product different from others or your price-value proposition is better than the competition? Maybe, there is a demand for your product or your locality may be in need of a better service. Simply, every new business must fulfill a vacuum in order to succeed.
Amazon differentiated its product from the market leader Barnes and Nobles by providing convenience to order books from home. Similarly, the iPhone made its mark by focusing on style and features. Jansy excels because it provides brands cosmetic packaging to enhance brand value.
Secondly, keep your business plan short. Instead of putting everything in it like the business template usually suggest, only focus on the main points such as your strengths and market research.
Lastly, think of your business plan as a living and breathing entity that will adapt to the changing business environment as you expand. Keeping the business plan short and concise enables business owners to change their plans even in the midst of a hectic business schedule.
Completing Legal Formalities
Your real step into the business environment will come as you complete business formalities of the start-up. To complete the paperwork, new business owners may have to go through the red-tape and visit government offices, if required. On the other hand, you can also hire a professional to complete the formalities by paying them a fee from your pocket.
Legal work typically involves three steps. First, you must decide on the legal structure of the business. If you are a single person, sole proprietorship or LLC may be a good solution for your business. If more than one person is involved in setting up the business, partnership or a corporate structure is more suitable.
Understanding the legal structure of your business is extremely important as it will have tremendous ramifications on your profits and legal responsibilities as soon as you start a new venture. Accordingly, it does not hurt to speak to an expert allowing them to proceed with this legal formality. For complex matters such as setting up a corporation or partnership, expert assistance is mandatory.
The second step is to register a name. As anyone will tell, a good business name is the backbone of a business because you can’t change it after you have put a substantial effort into your business. Therefore, it makes sense to take ample time thinking about a good business name, which complements the real product or service you are selling.
In the United States, there can be more than one business with the same name as business names are registered on a state-by-state basis. The only cause of concern is trademark and intellectual properties that can often conflict if there are two businesses with similar names.
Once legal structure and business name are taken care of, it’s time to check if your business requires a business license or a seller’s permit. For instance, opening a pharmacy will definitely require a business license to operate. Similarly, if you are a retailer or wholesaler selling tangible products such as bicycles, crockery, and vehicle, you should apply for a sales permit.
Understanding Tax
Every small business in the United States is liable to pay tax to the government. To make thing easier, small business owner can get in the tax net by applying for EIN, Employer Identification Number. Anyone can easily get an EIN by visiting the IRS website and completing a brief document regarding business particulars.
Mostly, small business owners are liable for three kinds of tax. These are self-employment tax, employment tax, and excise tax.
As its name implies, self-employment tax is for someone who is self-employed. For instance, sole proprietorship is a business entity with only one person. In such a case, you are required to file Form-1040 on your behalf if your net earnings for the year are more than $400.
Similarly, if you have employed someone, then business owners are liable to file an employment tax. Employment tax filing is done separately from the self-employment tax. There are certain forms that need to be filled. These forms offer detailed information to the IRS about your employees. Types of employment tax include social security tax, Medicare tax, and Federal unemployment tax, among others
Paying excise tax is also an important part of the tax regime. Regardless of the nature of the business, excise tax is levied on certain products that businesses sell. The most common type of excise tax is tax on vehicles such as buses, tractors, and trucks.
Acquiring Funds for Business
You can be an expert in business strategies, but no strategy can be implemented without funding. According to recent statistics by United States Small Business Administration, most business owners start their businesses with a few thousand dollars. The most popular ways of getting business funds include credit card loans; funds from friend and families; and crowdfunding.
Overall, bank loans remain an important funding source amounting to more than $600 billion. In fact, small loans such as credit card loans and borrowing from family also form a huge part of the funding process. For brick and mortar stores that require several thousand dollars, venture capital, bank loans, and crowd funding are suitable forms of investment.
Remember, borrowing a loan is just one aspect of the business, which does not mean that you have to take a loan. In fact, nearly one-fourth of startups do not take any kind of a loan. As such, more than half of the small business owners in the United States start the business with their own personal savings.
The amount of funding required depends on the nature of business. Many small businesses can be established with less than $3000. There are also a growing number of online businesses that require even less cash to start. In contrast, funding for a small business can also go into millions of dollars in healthcare and research-based industries.
Typically, there are five major avenues that you must consider for funding your next business idea. These are:
- Bank Loans: Borrowing from banks requires paperwork and a good business plan. Normally, bank charges high interest rates for such borrowings so it makes sense to shop around.
- Credit Card Loans: If you have a good credit history, getting a credit card loan may be better due to a lower interest rate.
- Crowd Sourcing and VC Capital: These sources of funding are suitable for businesses that require large amounts of funding. Accordingly, business plans play a critical role in getting funds from these sources.
- Personal Savings: The most economical means of fund are your personal savings, which does not require you to pay any interest.
- Family & Friends: Getting a loan from family and friends is advantageous because you can pay it in installment according to flexible terms. In contrast, late payments and non-payment issues can negatively affect your relationship.
Setting up Business Operations
Have you ever thought why every business plan puts so much emphasis on the income statement, balance sheet, and cash flow? The most important reason of this financial analysis is to critically evaluate the financial outcome of a business once they start their operations. Setting up business operations may seem easier, but controlling your expense can be a lot harder. Most small businesses fail because they can’t keep up with their expenses.
The majority of business operations fall under three categories, which includes setting up operations in your home; renting a small office; and opening a large store front.
To keep expenses to a bare minimum, it is a great idea to start from your home office. A large number of new businesses can take help from technological innovations enabling them to operate from home. The only downside to this setup is the perception of professionalism. As most of us relate business to a physical store, home setup may only be viable for certain kinds of businesses that can either operate online or those who already have a lot of public contact.
Renting an office space is a viable option for most small business owners. Still, the rental expense and related utility charges will be the main expense of the business. Try to keep this expense to a minimum until you are able to meet the break-even point. To make ends meet, try to set up an ancillary fund that can provide regular income to cover rent and utility expense of the store.
Most large storefronts also go out of business due to their expensive features. For smooth operations, large stores should be cautious of extensive renovations that will likely deplete any savings. On a similar note, they should not hire more employees than their immediate needs because employee expenses will quickly inflate.
Marketing for Business
Marketing is the mainstay of a business; therefore, you should reserve cash for this critical segment. Most first-time business owners don’t realize that it can take more than a year for a business to break-even, which means that marketing will be the only source that will eventually determine the success of a business. You need a proper marketing plan to stay afloat during the first two years of operations.
As a rule of thumb, never market your business without estimating the ROI, return on investment. Before marketing, you should have some sort of an idea as to what you can expect from your marketing offers. Marketing expectations can be fulfilled by market data, which can provide numbers on the possible outcome in numerical figures.
For example, using Google Ads, you can estimate the amount you will spend on an advertisement compared to potential sales. Amazon is another reliable market, which can offer good estimates of returns without skimming through the data. In fact, your market research on local markets can also prove beneficial in gathering marketing data for ROI purposes.
Experts recommend that you should start marketing by introducing your business to friends, family, and acquaintance. This is generally the most preferred method for small businesses in the first two months. Regardless of expenses, it may also be better to hire an employee who can market your business in the local community. It will enable you to take care of business operations without spending a lot of time in the field.
Overall, marketing should never be done without understanding the impact of ROI, return on investment.
There is a lot of information about business strategies on the Internet, but you need to focus on the basics. The essential points addressed in this article make the crux of business ideas. Accordingly, it is critical to remember basic fundamentals of business because these business fundamentals are a gold-mine for savvy businessmen. Don’t try to stuff information that has nothing to do with the practicalities of the real world.