How to Start Your Small Business

4/24/2024

Small businesses are the backbone of the United States economy and are the unsung heroes of the American Dream. Starting a small business can be overwhelming and complicated for first-time entrepreneurs. Once you’ve decided to start a business, it’s important that you have clear expectations of the road ahead, otherwise it’s a process that can quickly become intimidating and paralyzing.

Starting a business involves planning, finding the right funding for your business, and making important financial decisions. These are just a few examples of the key areas you can expect to navigate as an entrepreneur. There is no one size fits all approach to starting a new business, but there are certainly steps to help you outline your goals, develop a plan, and ultimately launch a successful business.

Determine Your Business Concept

The first step in figuring out how to start a small business is to come up with a business concept. Ideally, you want to land on a business idea that is something you’re passionate about and that also serves an unmet need in your community. After you’ve done some brainstorming, take time to research your potential business ideas. Ask family and friends for feedback on the concept and scope out any competition in your local area. Then, leverage your findings to select the most viable option.

Create a Business Plan

Once you’ve determined what your business concept will be, you then need to create a business plan. A business plan is a document that’s meant to serve as the guideline for your new business. It illustrates how you’ll turn your business idea into a thriving venture by providing explanations of each facet of your organization, from marketing to finance. If you’re planning on seeking outside funding, either from a bank or investor, they’ll likely want to see your business plan as well.

In your plan, you’ll discuss your idea, the opportunity, the competition, how you plan to fund it, how you’ll acquire customers, the risks, and solutions. A business plan helps lenders and investors know that your business idea is feasible and profitable. However, as a business owner, creating a business plan can also help identify your strengths and any potential pitfalls before you hit the ground running.

Read More: Setting Long-Term Goals and Financial Strategies for Small Business Owners

Funding your Business

Securing funding for your small business is one of the most important parts of getting started. You need enough capital to open the doors and pay your business and personal overheard for at least six months. Accessing traditional types of funding, like short-term or long-term business loans, can be difficult for a new business. However, there are plenty of methods available to get the money you need.

Small Business Association (SBA) loans, which are provided by banks, but guaranteed by the Small Business Association, have looser qualification criteria than traditional business loans and are often very attainable for new businesses. It’s important to keep in mind that if you’re taking out a loan to fund your small business, you must pay it back. Just like any other loan, you must pay your SBA loan by the agreed upon terms.

If you have the funds to do so, your own money and resources can also help fund your small business. This could mean using your savings or selling some investments. If you don’t have the funds to invest in your own business, you can look for investor, often called an “angel investor.” As the name implies, an angel investor is someone willing to provide financial support to help with the success of your business. This type of investment usually involves ownership share and/or a piece of the ongoing profits.  

Read More:  Baker's Dozen of Affordable Marketing Tools and Tips for Small Business Owners

Business Budget

Before you go too far setting up your business finances, you need to know what kind of finances you’ll need on hand to keep your business moving forward. This means you need to create a startup budget. Think of your startup budget as a financial roadmap. Meaning, it lays out where you are, where you want your business to go, and, from a financial perspective, how to get there.

How do you create a budget for a completely new business? Start creating your budget by making a list of all the different expenses you’ll have in starting your business. From there, categorize each of those expenses as essential, non-essential, and for later. Generally, new businesses can take some time before they start driving revenue, but during that period, you’ll still have to cover your expenses. Estimate how long it will take before you start bringing in revenue, calculate your monthly overhead costs, and figure out how that impacts your budget. Creating your small business budget can be as simple as making a spreadsheet to track expenses, so don’t be intimidated by it.

Read More: The Principles of Budgeting

Business Credit

Extended business credit is to be used for strictly business purposes. Business credit is available in many forms, including credit cards, loans, and lines of credit to cover routine expenses or fund growth initiatives. Lines of credit are typically used to cover operational expenses, not to purchase assets. Personal and business credit are subject to different regulations, lender policies, and protections. When personal and business credit are fully separated, any disputes or negative notes on one are unlikely to affect the other.

Keeping personal and business accounts separate increases the borrowing power and protects the credit scores of each entity. Bad personal credit can reduce business borrowing power, but separating the two won’t necessarily improve the individual’s credit rating. Periodically check to see if a credit file exists on your company at one or more business credit reporting agencies, such as Experian, TransUnion, or Equifax, and ensure any details are accurate. Pay debts on time and in full to maintain good credit standing and safeguard your access to loans. Such funding is critical to seize opportunities that arise unexpectedly or in cases where cash flow is interrupted.

Read More: Everything You Need to Know About Credit

Business Bank Account

Not only do you want to keep your business and personal credit separate, but you’ll also want to keep your business and personal bank accounts separate. By doing this you’re protecting your personal savings, making it easier to track business earnings and expenses, which will enhance your professional image. Separating your personal finances from those of the business from the start streamlines accounts and taxes and makes it easier to get a clear read on your business’s financial health. Having a business bank account may also show potential investors and lenders that you understand the fundamentals of business and are taking this venture seriously.

One of the most critical aspects of small business management is managing finances. Taking the time to develop solid financial management practices can significantly benefit your business in the long run. By taking control of your finances and staying on top of your financial goals, you can set up your business for financial success and feel financially confident. Now that you know the proper steps to take when setting up your business financially, you can focus on getting your business off the ground.

 

 

Go Back