Launching a small business is exciting. You’ll finally stop working for others and can pursue your dream.
Though ownership tends to be stressful, time-consuming and risky, more Americans than ever are taking the entrepreneurial plunge. According to Inc., 5.5 million new business applications were filed in 2023, the highest number on record.
While each venture is unique, there are some general steps every small business owner should take. Follow them and your path to success will be that much smoother.
Make Sure You Have the Time and Energy
If you’re accustomed to a 9-to-5 schedule and having weekends for leisure, get ready for a big change.
Make sure you understand the time commitment, says Camile Sardina, founder and CEO of Evolist Media in New York City. “You’ll be putting in even more work than you did as an employee,” she says. “It’s 24/7 for me. In the beginning you’ll be doing it all yourself, too.”
That time commitment may not abate, either. A U.S. Chamber of Commerce report found that 50% of small business owners reported working more hours in 2022 than they did the previous year, with labor shortages exacerbating the problem.
When starting a business, Sardina suggests letting your friends and family know that you won’t be as available as you were before.
“I texted people and told them I’m trying to build something,” she says. “I explained that I’ll be limited in my conversations for a while, and will be slower to respond.”
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Adjust Your Business Idea Before You Start
Even if you believe you’ve got the next billion-dollar idea, think carefully about whether the concept is truly a viable business.
“To really understand the market and the needs in the marketplace, you need to ask yourself a set of ‘why’ and ‘what’ questions,” says Karen Kerrigan, president and CEO of the Small Business & Entrepreneurship Council, an advocacy, research and education organization. “Why are you launching the business? What is the problem you are going to serve in the marketplace?”
Run your concept past trusted people in your network and ask for honest feedback. Take their criticism into consideration. If possible, test out your idea, whether it’s running a pop-up shop or offering a free service to a few potential clients to see whether the demand meets your expectations.
Adam Thatcher, founder and CEO of Grace Farms in New Canaan, Connecticut, says hearing feedback can be painful, but it’s necessary.
“You’ll have this vision of the grand idea of your masterwork, but you have to be realistic,” he says. “Listen to others who know the business better than you do.”
Create a Realistic Budget to Launch and Operate
Even if you don’t have a formal business plan yet, you will need to know how much money it takes to launch and operate.
“Figuring out the input costs and the selling price and all the components that make the economics work is super important,” says Tammy Halevy, executive director of Reimagine Main Street, a Los Angeles-based initiative focused on accelerating growth and opportunities for small businesses and their employees.
In the simplest terms, the steps to build a business budget include:
1. Determining how much it will cost to get your business off the ground.
2. Knowing how much capital you have on your own and the amount you’ll need to get from other sources.
3. If you take on loans, understanding the payment terms and making sure you can adhere to them.
4. Conservatively estimating your monthly business revenue for at least the first year.
5. Adding your fixed costs (such as rent, payroll and debt payments) to your variable costs (like marketing and materials) and subtracting the monthly total from your estimated monthly business revenue for the first year.
Once you’ve run those numbers, you can adjust as needed. The more troubleshooting you do in the beginning, the better.
Also, if you’re not planning on drawing a salary during the early years of the business, you’ll need personal savings or other funds set aside to pay for your living expenses until it gets off the ground.
Get Your Funding in Order
While there’s no one “right” way to fund a business, this decision will have implications later on the value of your business and its financial flexibility. The best source of capital for your company will depend on several factors, including your industry, your access to investors and your feelings about debt.
Be aware that securing business loans from a financial institution can be a challenge. A 2023 Goldman Sachs survey found that 77% of business owners said they were worried about how they would access credit.
To augment loans or even to replace them, you may turn to credit cards.
At first you may want to use the personal accounts you already have, but credit cards developed for small businesses are better. You can use them for all sorts of ventures, and they’re a good way to organize and track your business expenses. Most are equipped with accounting tools and a business-centric reward program.
Exercise prudence when charging, though.
“Never overextend yourself,” Thatcher says. “Everything adds up, from the gas in the tank to the dinners out with clients.” The business card may be in your company’s name, but you will be personally responsible for the debt.
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Decide on the Business Structure
How your business is structured affects everything from taxes to liability issues to funding opportunities. Here are the most common options:
— Sole proprietorship. This is the simplest business structure, and as a party of one you have total control over your venture.
— Partnership. This is for when you have at least one other person going into the business with you and who is part owner of the company.
— Limited liability company (LLC). With this business structure your personal liability will be reduced, which can protect your assets against losses from lawsuits and bankruptcy.
— C corporation (C corp). This makes your business a separate legal entity and offers strong personal liability protection.
— S corporation (S corp). This is available only to small businesses with no more than 100 shareholders. It can have tax advantages over a C corp.
Before you decide on a business structure, consider getting advice from a professional first. Visit the website SCORE for free guidance.
Build Your Team
“Hiring a great accountant can be the best use of your penny if you’re anything other than a sole proprietor,” says Venkat Krishnamurthy, president and co-founder of Alignable, a small-business networking platform. “You can do it yourself, but it’s not too much money and it will serve you well over the long haul.”
Eventually you may also need a lawyer to make sure all of your paperwork and business taxes are correct.
Take your time hiring staff, too, so you can ensure that they are right for your company. The first few hires can help set the culture and tone of your workforce.
“Adding an employee is a big step, because it will change the nature of how you spend your time,” says Greg Ott, CEO of small business credit marketplace Nav. “But it can also be the key to unlocking the growth of your company. It really is, for most businesses, the path to scaling and growing and getting more revenue.”
Market Your Product or Service
The best approach to building a small business will depend on your industry and your budget. Consider marketing tools that will generate the most bang for your buck, such as Facebook ads, and spread the word about your business on social media platforms.
In most cases you’ll need a website. If you have the skills and time, you can create your own with platforms like Squarespace and Wix. A logo that you can have stamped on everything from T-shirts to mugs might be a great marketing tool, but if you don’t feel comfortable designing your own, gig workers on platforms like Fivrr are at the ready.
Pounding the pavement by interacting with people can be your best bet for word-of-mouth marketing, and doesn’t cost anything.
“Get out in the world and be super outgoing and gregarious,” Thatcher says. “Don’t be shy to tell everyone what you’re doing. You may be embarrassed at first, but get over it. Now everywhere I go I wear my branded hat. You never know who you’ll meet.”
[Related:Why the Rate of Black Business Ownership Is Going Up]
Prepare to Pivot
As you move along the process of starting your own business, you may become weary and frustrated. Things won’t always go your way.
Rather than give up or stick with what’s not working, be prepared to pivot. Successful entrepreneurs are elastic. For example, if açai bowls are trending down but fresh squeezed juices are trending up, find ways to tweak your business model to prevent falling sales.
“A lot of businesses ultimately end up being in a different place from their initial starting point,” says Luis Ramos, director of business advising at Accion Opportunity Fund, a nonprofit small business lender.
“That’s why I always stress the importance of getting out there and testing the product first and foremost. You may end up learning fairly quickly that what you think the market wants is not what it wants or needs,” he adds.
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How to Start a Small Business originally appeared on usnews.com
Update 02/23/24: This story was published at an earlier date and has been updated with new information.
