Starting a small business is never easy as it requires a lot of work and involves a high degree of uncertainty. Likely, we all dreamed about running a business for ourselves at some point in our lives, and, done right, owning a small business is very rewarding both in terms of income and control. Today, we share our 7 key elements you should consider before starting a small business.
Starting a small business
Check out the statistics regarding small businesses shown above and you find the impact of small businesses on the economy as the drivers of economic growth worldwide.
Yet, the failure rate for small businesses makes starting one a scary proposition, especially if you have financial obligations or require health insurance from an employer (an obvious benefit for countries offering universal health care). Not only is startup scary, but it’s also a lot of hard work, especially in the beginning when the founders must wear a number of hats. Check out our tips below to help you make a smooth transition to ownership.
1. Develop your business idea
One of the first things you must do when starting a business is to identify your business idea. Consider ideas built around something you’re passionate about, have the required skills for, or fit with your prior experience. There are no unique ideas and ideas are a dime a dozen. It’s the research needed to develop your idea and its implementation that sets you on the path toward success. So, don’t feel stymied if your idea doesn’t appear unique but, by the same token, don’t think an idea will guarantee success.
Make sure you ask yourself why, how, and what, before stepping into your small business as you need a well-defined idea to improve your odds of success.
Now that you fleshed out your business idea, you must conduct market research to validate your business idea. You must understand as much as possible about your market, including consumer culture, competitive strategies implemented by others, the impact of economic conditions, legal and regulatory factors that constrain your proposed business, and how technology enables your business operations. At the end of your research effort, you should develop proforma statements to estimate revenue and expenses for a 5 year window. You’ll need this information developed in great detail based on a thorough evaluation of information before you seek outside financing to justify the investment of outside stakeholders.
Grounding your analysis in metrics and informed opinions supports your forecasts. Finding this information is made easier through access to online metrics of past performance in the industry, forecasts of industry experts, data from competitors, consumer surveys, and government data. With access to social media, you can even listen to conversations in real-time to discover the unmet needs, attitudes, and preferences voiced by real consumers.
3. Business plan
Once you accumulated all the necessary information, the next step is to create a business plan. Building on your research, a business plan projects all aspects of the business operation including operational structure, marketing, resource planning, and personnel.
A written plan, not one jotted down on the back of a napkin or constructed in your head, is necessary as a guide once you start your business and to show prospective investors/ lenders. Commonly, businesses plan out 5 years from the start of operations, with year 1 fleshed out in great detail while subsequent years are more superficial. As each year closes, the next year is fleshed out and another year is added to the original plan. Thus, you have a rolling 5-year plan.
4. Business name
When starting a business, you need to create a brand name that reflects who you are and what you do. Good brand names are short, simple, and unique. They’re easy to pronounce and remember. Changing your brand name later because it doesn’t fit is difficult so take the time necessary before landing on the right name. Having a unique name will make you stand out amongst your competitors who are in a similar niche so avoiding similar elements will help you attract more people. Having an eye-catching name also helps you market your business better and will contribute toward building a positive brand image.
When deciding on your business/brand name, check that the corresponding domain name is available since domains are unique for obvious reasons. Failure to check available domain names may mean you can’t acquire the .com so you must settle for the .info or some other less desirable extension that allows the owner of the .com to steal your online traffic.
5. Take care of legal requirements
While you focus on creating business plans and researching ways to start your small business, the last thing you want is to end up in some legal trouble. Whether you have rented a place or working from home in your garage, you need a license for your business (with rare exceptions). The licensing requirements are different in every city, state, and country, so pay attention to the business formalities. Registering your business name may involve a separate legal form unless you choose to form a corporation of some type. Forming a corporation takes care of name registration for you.
You also need to ensure you create a business account, set up standard procedures, and so on to help you run your business effectively. Whether you are working at home or in a foreign land like Hong Kong, these HK incorporation services can prove quite beneficial for your small business. In foreign markets, the challenge is even greater as each country has its own requirements and regulations.
A tax ID number is another essential requirement for businesses, as it allows the IRS or other taxation entity to ensure you pay proper taxes as required by law. Keep in mind that you’re not required to obtain a separate tax ID number if you work by yourself as you can use your social security number. If your business involves retailing, you’ll also need a sales tax registration.
If you have employees, ensure you comply with tax regulations as well as OSHA (Occupational Safety and Health Administration) requirements.
6. Fund your business
Every business needs money to run and depending on the goals and the size of your company you may require outside financing in the form of investors or loans. However, the best way to fund your business is by self-financing or asking your friends or family to help you get started as you don’t lose control of your business when using these forms of financing. Getting outside investors often involves relinquishing some level of control of your business to those investors or the board of directors installed by them. For instance, Steve Jobs was removed from his company, Apple Computers, when the board didn’t agree with his plans for the business.
Venture capital is an especially dangerous form of financing (despite the fact that most folks staring a small business court these investors shamelessly) as VC firms make short-term investments and want their money out to reinvest within 5 years. Thus, they may force a sale to get out or want assurances of a buy-out within that timeframe. Starting a small business is a long-term strategy that suffers greatly from such shortsightedness.
In other cases, investors bring experience and skills to the new business. For instance, Adobe co-founders credit the sage advice from an investor-installed mentor with making the company what it is today.
One of the most crucial steps in starting a small business is dedicating sufficient resources of time, money, and expertise to your marketing function, yet many small business founders see an investment in marketing as a wasteful expense when funds are scarce. The Small Business Administration recommends spending 7-8% of anticipated revenue on marketing your small business. And, while my experience working with small businesses through this government entity shows most plans include funds for accountants and/ or financial officers, most don’t include a single dollar for marketing beyond maybe a splashy launch.
If you think about it, this makes little sense since all the free cash acquired by the small business comes from revenue. All the other money available comes with a cost in terms of interest or dividends. When you’re starting a small business, make sure you set aside sufficient funds to market your business or you’re likely doomed to failure.
But, how should you spend those funds? Here are some options (read that as requirements):
- A website
- Content marketing for SEO (search engine optimization) and engagement on social media
- Advertising (either online or traditional or some combination)
- Email marketing
- Analytics and tools
Other marketing options are:
- New product development
- SMS marketing
- Testing and experimentation
- Customer research
Creating a website is a requirement today. Your website is the online salesperson for your business so make sure you spend a lot of effort creating logos, creating a cohesive design, and enhancing user experience.
When building a website make sure you use reliable web hosting (99+% uptime) so your site does not suffer from downtime and provides the necessary load speeds to keep from losing clicks. Most businesses hire web designers or website developers to create their site professionally but as a small business, that might seem too expensive. With some basic understanding of web design, and available tools (most are free), you can create a great website without writing a single line of code.
We all know the importance of digital marketing in our tech-evolved modern world. Just creating a website is not enough; you need to focus on reaching your target audience online. SEO is the foundation of digital marketing and one of the most crucial components to gain brand awareness. And, this requires a sound content marketing strategy.
Learn to optimize your website with SEO by adding high-quality images, third-party videos, clear navigation, backlinks, relevant keywords, social networking, email marketing, and so on. Once you learn and implement SEO on your website you can grab the attention of your online visitors more efficiently.
By following the aforementioned steps you will not only be able to start your small business more effectively while increasing brand awareness in your niche market.
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