The most daunting part of creating a business is deciding where to start. It can be hard to imagine taking your ideas to the next level when there’s so much advice to sort through. To help you on the journey of building your business, here are 10 things you need (and some bonuses to think about) when preparing to get started:
Your Reasons / Motivation
Welcome to the very beginning! To start a business, you’ll need a skill, passion, or idea that motivates you so sincerely that it will carry you through the tough work ahead. This is the most important step. While it can be fun to come up with ideas, being clear on your reasons and motivation will help you when you hit the inevitable hard day.
Are you looking for more ways to pay the bills? Do you have a marketable skill or hobby that you’re willing to turn into your job/career? Maybe you’ve been passionately perfecting a hand-crafted a good, and are ready to take it beyond friends and family. Or perhaps you’ve been freelancing, and want more autonomy than a typical 9-5.
Every business owner has different reasons for getting started, so it’s important to consider what motivates you and how you’ll incorporate this into your current personal and professional obligations.
Start small, and test things as you go along. Before jumping all in, think about what you can accomplish on a part-time basis until you’re ready to increase your risk exposure.
Believe in yourself! It can be hard to strike out on your own without immediate validation. Make sure you have a way to keep your mindset optimistic, realistic and focused.
Start networking with other business owners in your field, and hear what they have to say. You can learn a lot from each other's successes and missteps, and save yourself time.
Take care of yourself-- you’re the boss now! No one’s going to tell you but you when you need a break or a vacation, so make sure you’re taking care of employee #1 with realistic work/life balance goals.
A Business Plan
Once you have your idea, one of the best things you can do is create a business plan. This helps to keep your own headspace organized, and is also critical if you ever seek outside investment. The process of writing your executive summary and doing a market analysis are labor intensive, but worthwhile. Setting achievable goals for your business and defining key benchmarks of success can make you more appealing to investors. There’s no one right way to write a business plans, but the main ingredients are:
Executive Summary - what your company is and why it will be successful
Company Description - Detailed information about your company
Market Analysis - industry outlook and why/how your target market needs you
Organization and Management - How your company will be structured and who will run it
Service or Product Line - Describe what you sell or your provided service.
Funding Request - describe your funding requirements
Financial Projections - convince the reader that your business is stable
When coming up with a business plan, think about your audience. Is this plan for potential investors, or is it just an internal road map to keep you on track?
There are many templates online (and often for free!) to help guide you through the process of writing a business plan. Looking at examples might inspire you!
If the plan is just for yourself, a simple 2-3 page document that you can easily refer back to is more than enough.
Business plans don’t necessarily need to be long, but if you are going to use it for something like seeking funding, 4,000-5,000 words is a good range to shoot for if you want to be thorough.
Unorganized and unfocused business plans are off putting to investors if. Be sure to distill your goals and your services to a digestible level.
A Target Market and Customers
This should be sorted out in your business plan, but you can’t have a business without customers to sell to. When deciding on your target market, consider the following information:
Who are your potential customers? What’s their age? Their gender? What’s their location? Their annual income?
What are your customers’ buying habits?
How large is your target market?
What should your price points be?
Who are you competing against?
What are your competitors’ strengths and weaknesses?
How will you get your first 1-10 customers? 10-1,000? +1,000?
Validate your market early, and often. It’s hard to have a business if you don’t have customers who are willing to pay you for your product or service.
Don’t be shy! - former coworkers and family friends are all potential clients, be sure to tell them you’re launching a business. They can test your first offerings and give detailed and kind feedback (before you launch into more brutal feedback from strangers.)
Creating a small business can be stressful. It’s a learning experience where you’re creating something from scratch and experiencing failures as you go. Make sure you have a community you can lean on when times get rough.
Consider finding a mentor. Working with someone you admire who has been working in your field for a long time; they can tell you what to avoid, what to lean into, and set a great example of success.
Join small business networking groups to ask questions and build a friendly group of like-minded individuals who share your victories and challenges
A Business License and Business Structure
Depending on the business you’re starting, you might need specific federal, state or local permits and/or business licenses. The licenses you’ll need on the state level will depend on your business and your business location, and fees vary across the country. You can learn more about what permits you need for your type of business, and apply for them through the federal government and county offices. If you’re wondering when to incorporate (either LLC or C corporation), unless your business may expose you to a lot of liability (like construction, physical store, etc.) you can generally stay a sole prop until your business is on solid ground and will be open for a while. You will definitely want to incorporate before you start to hire employees or seek formal funding.
If you’re running your business as a part-time side hustle, incorporating as an LLC or corporation could be overkill, and may not be worth the ongoing fees, effort, and upkeep.
Expanding your team makes sense if a partnership expands your reach or fills gaps in your skills. Partners and employees should increase efficiency or production.
Your state, county and city may require different permits, especially if you are selling goods locally. As more and more sellers go online, regulations are rapidly changing to require you to have a sellers permit even in that case. If you’re caught without one at tax time, penalties can be steep. Check your state’s requirements here.
While there are lots of ways to fund a business, the type of funding you’ll need depends on the type of business you’re looking to build. Will your business be capital intensive and require cash to purchase inventory, hire employees, or rent a location? Or can you get started for little to no cost if you’re offering an online service like consulting or web design?
According to the Chamber of Commerce, 75-80% of small businesses in the U.S. are self-financed, but if you don’t have a mountain of personal savings to self fund, you can look to the following options to fund your business with external resources:
Private investors can make funding decisions quickly and provide you with knowledge and industry contacts. Generally they supply funds to small businesses and operate as limited partners in your business and success, and will ask for a percentage stake of your company or expect a return on their investment.
Bank loans can have low fixed interests rates, flexibility, and you maintain control of your business and business goals
Using crowdfunding platforms like Kickstarter or Indiegogo provide flexible, liquid funding. It also helps you gather your first customers in one place and validate your business idea with minimal risk.
Starting a business generally requires more money than you’ve budgeted, and having a little cushion can help absorb surprise expenses.
Set up a separate bank account to easily track finances
Consider what makes you feel most comfortable and in control, do you want the support of an angel investor or prefer the freedom of a traditional loan?
I cannot emphasize enough how important it is to have a website, especially in light of COVID and businesses moving their operations online. This is true even if you don’t intend to set up an online store! A website is how new customers will learn about you, no matter what you do. Think of it as your face and voice when you’re not able to be there in person.
One of the first things to purchase is a domain. For people selling physical goods and merchandise, platforms like Shopfiy or Etsy allow you to run online shops efficiently. If you’re selling a service, setting up payment methods for your clients is important. Do you take payments through your website or through invoicing software? Having clear communication about your fees and how payment is fulfilled will do wonders for your business relationships and keep clients up to date and coming back.
Think about setting up an online payment system, whether through Square, Paypal, or Venmo.
If you have digital shops through your Instagram or Facebook, it’s still important to have a centralized website that directs clients, since potential customers will Google your name and want to know more information.
Set up your website to collect email addresses from interested clients. Building a personal contact list will help for future expansion, managing deals, or general marketing pushes.
Check out Hatch’s detailed guide on setting up (or sprucing up) your website.
A Business Attorney
While attorneys seem like they are only necessary in the event of a lawsuit, they’re a great resource for preventing legal complications before they begin, and making sure your business is up to regulatory standards. They can help with forming your business, creating the infrastructure, and selling your business if that’s something you eventually do.
Retaining a full time attorney or legal firm will be costly. A-la-carte legal service companies like Legalzoom, Rocketlawyer, and Corpnet can help with specific legal tasks like filing for licenses, incorporating, acquiring patents, etc.
If you need help filing paperwork for your business (say your incorporation paperwork) a business attorney can help
If you’re ever revamping your business structure (say expanding or shifting focus) and attorney can make sure you do it above board
An attorney can be your best resource if you have a detailed question about compliance, and can ensure you’re not heading toward paying penalties or fines for something you didn’t know
Just like funding, finances are an important part of your business and it’s easy to get lost in the weeds. In order to protect yourself and alleviate stress, hire a trustworthy accountant. Accountants can guide you through tax season, what expenses to keep track of during the year and money management so you can focus on running your business.
Light bookkeeping can be done by a clerk if you just need record keeping and cutting checks
Bookkeeping software works, but it’s not everything. The downside of skipping financial support is that you end up financially liable for any mistakes made, which can come with very steep consequences. Better to cover your bases.
Small business insurance can protect you, your investment, and your future. In most cases, policies are required by law (even if you’re a sole prop) and are generally easy to get, but the tricky part can be selecting what kind of insurance you need and then evaluating your needs every year going forward. Remember, insurance is tax deductible, so long as the coverage is for operating costs. If something unfortunate and unexpected happens (injury, destroyed property etc), you can file a claim to cover costs up to a specific amount (depends on your policy). There are seven kinds of business insurance that you might need depending on the size of your business:
The larger your staff, the more insurance coverage you’ll need. Think about the good of your team when looking at policies.
If you’re a sole proprietor, you still should have liability insurance to protect you from lawsuits.
Shop around for the right policy.
Starting a small business can be daunting and exciting, but securing these 10 things will help set you up for success. Not all of them need to be done at once, but taking one step at a time will lead you to greater peace of mind down the line. Stay tuned for additional deep dives into each of these topics, with helpful tips on each.
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