How Do I Start a Business?
Half of all start-ups fail within the first five years according to the Small Business Administration. While there are no fail-proof ways to ensure your start-up’s success, you can arm yourself with information and resources to give your business a fighting chance. To help you think about the right things as you start a business, this article covers the following topics:
- Read before you start a business
- Know the basics of starting a business
- Steps for starting a business
- General tips for starting a business
Read before you start a business
Go to a bookstore or the library, and pick up at least three books related to starting a business. Read, take notes, and read more. This accomplishes two things – one, you’ll know if you’re mentally prepared to start a business, and two, you’ll create a road map for your start-up phase. If you breeze through the books and feel energized by the material, you’re ready to tackle the basics of starting a business – solidifying a business idea and drafting a business plan. The notes you take will become an invaluable resource.
Here are some good books to read if you're thinking about starting a business:
- Escape from Corporate America by Pamela Skillings
- Starting from Scratch by Wes Moss
- The Small Business Start-Up Kit by Peri H. Pakroo
Know the basics of starting a business
The following are some basic elements you’ll need before starting a business:
- A good idea – Identify things you excel at and brainstorm related business ideas. Bakery owners are typically bakers and dog walkers love dogs. Similarly, you want an idea that uses your talents and is something you’ll enjoy every day.
- A business plan – The business plan is a comprehensive document that outlines a company’s main goals and how they’ll be achieved. Financial, marketing, and operational strategies are spelled out in the business plan, which then becomes a guidebook for the first few years after you start your business. It’s important for every start-up to have a formal business plan. If you need funding from a bank or venture capitalist, they typically require you to have a polished and thorough business plan. If you’re funding the initiative yourself, the business plan will serve as a vital roadmap for your business. Start with a business plan template and tweak it to meet your needs. Be prepared to work on the business plan over a few weeks or months, as you will make many strategic decisions while writing your plan. Because the marketing plan and financial projections are crucial pieces of the plan, spend extra time on them.
- A mentor – Talk to contacts you have from your own business experience if possible. For example, if you work for an architecture firm and are ready to set up your own shop, there may be a colleague that you used to work with that now has his own freelancing business. Ask if you can share your ideas and get some feedback. If you don’t have any promising contacts, you can secure a mentor through SCORE, a resource partner of the Small Business Administration that specializes in workshops and mentor programs for new entrepreneurs. If you decide to work with a mentor, do your own research before making any major decisions. At the end of the day, you’re still the expert of your own start-up!
Steps for starting a business
As you research and plan your start-up, learn the following steps for starting a business:
- Select a business entity type – An entity type designates your organization as a distinct and separate legal existence. Common entity types include sole proprietorships, partnerships, corporations, and limited liability corporations. Don’t take business entity selection lightly, as this decision will impact your expenses, liability protection, and amount of paperwork going forward. It’s usually advantageous to begin your business as a sole proprietorship or partnership until you have enough liability risk to warrant incorporating as an LLC or S-corporation. If your business will be a corporation or limited liability corporation, you’ll need to file articles of incorporation in your state.
- Register your business name – You need a legal business name to file government forms, obtain your employer identification number, and apply for a business bank account. Sole proprietorships and partnerships must register their business name with the Secretary of State. However, a corporation or LLC does not need to register its business name if it operates under the name stated in its articles of incorporation. Registering a business name is also known as filing a “DBA”, “doing business as”, or a “fictitious name”. Visit Business.gov for more information on registering your business name.
- Obtain an employer identification number (EIN) – You must have an employer identification number, also called a federal tax ID, if you plan to pay employees. Business partnerships, corporations, and some other types of organizations are also required to obtain an employer identification number from the federal government. It’s free to get your EIN online.
- Make sure you have proper licenses and permits – Licenses and permits serve as your legal authorization to conduct business. Most cities require you to have a local business license, and some states require a license. City and state governments may also require you to have permits depending on where your business is located and what type of products or services you provide. For example, if you plan to open a store, check the city zoning laws to make sure your desired neighborhood allows commercial businesses. Typically, federal, state, county, and city branches of government each regulate business. Make sure you’re in compliance with laws at all levels or you may be fined or forced to stop doing business. Business.gov is a good resource for finding your state and local government regulations.
These are just basic steps for starting a business. Because legal and tax issues can easily be the most difficult topics to navigate when starting a business, you might also want to check out some tax and legal questions for starting a business.
General tips for starting a business
Starting a business is a complicated process. Use a comprehensive checklist for starting a business so you can track your progress and make sure you don’t forget anything. Take good notes during the planning phase to minimize complications later on. Once you’re confident that you know what’s needed to launch your business, you’re ready to hit the ground running. The final thing to remember is that you’ll definitely hit bumps in the road. Your success depends on your ability to take mistakes in stride and continue moving forward. With a lot of information and a little luck, your business venture will hopefully be a success.
By: Gale Bowman
7-05-2009
After graduating from Notre Dame, Gale realized that young professionals need a source of reliable information as they face “real world” challenges. Gale manages WhatCollegeForgot.com and is pursuing an MBA at the University of Chicago Booth School of Business.
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