Starting a small business can be a rewarding but challenging new venture. Many hear or read about new start-ups making millions of dollars. However, in order to make it to that level, no doubt the owners had to work hard, make lots of sacrifices and plan ahead for the future. Below are a few tips on what to look out for when starting a small business.
Decide What You Really Want to Do
While you may have always had dreams of owning your own business, you still need to figure out what you really want to do and what are your motivations for starting a small business.
Your motivations and goals need to be aligned with the type of business you want to start. Before you start really honing in on a business idea or model, first determine how that business is going to fit in with your current lifestyle and the lifestyle you want for your future.
Ask yourself, how active do I want to be in this business? You may think in order to make money you have to have a large service business with lots of employees. But that is not necessarily the case. More importantly, it’s best to start a business that coincides with your future goals.
Examine Your Finances
Take a look at your personal finances to determine if you can really afford to start a new business. If you owe a lot of debt or have very little money saved, now might not be the time to get started. It’s important to have your personal finances in order when starting a new business. Many banks or lenders will look at your finances to determine if they’re going to loan you money. Also if you are struggling to pay your own bills, how are you going to be able to pay for the needed business expenses that will arise?
When your personal finances aren’t in order, it creates unnecessary stress in your life and will hinder the progress you can make in your business.
Write a Business Plan
Part of the planning stage involves writing a business plan. A business plan is a roadmap that shows what type of business you want to start, the parties involved, your mission or goals for the business, your competition as well as financials. Many lenders will require a business plan as part of the loan application process. Even if you don’t plan to go to the bank for a loan, it’s still a good idea to create a business plan. It helps you determine where you are and what you want your business to become.
The document doesn’t have to be long but it should cover the basic operating principles of your business. If you’re not sure how to create a business plan, search the internet for free business plan templates.
After you finish drafting your business plan, you need to start working on your marketing plan. While some of the information may be taken from your business plan, you need to have a clear direction as to who is your target customer, how are you going to reach them, what service(s) you’re going to offer and how you plan to do that better than your competition. During this time, you want to determine how much you plan to spend on advertising and marketing for your business. Since you’re a new business, it’s a good idea to think of some free advertising that you can use to help defray your start-up costs.
Decide on Your Legal Structure
Just because you’re starting a small business doesn’t mean you shouldn’t take steps to legalize and formalize your business structure. While being a sole proprietor may be easiest, it also offers the least amount of legal protection against your personal assets. Talk to your lawyer or accountant to decide if you’re better off starting an LLC, Corporation or Partnership. Each legal entity has its own pros and cons so getting professional advice beforehand can save you money down the road.
After you’ve decided on the legal structure, be sure to register that name with your local government. This not only notifies the government that you’ve started a new business, but will prevent others from using the name you’ve selected.
Setup your books
Whether you decide to use a computer based accounting program or pen and paper, be sure to setup your accounting system from the very beginning. If you’re not very familiar with bookkeeping, you can hire someone to do this task for you or you can purchase a program like QuickBooks or Peachtree. These programs are reasonably priced and offer tutorials for beginners.
Setting up an accounting system allows you to see how much money the business has at any given period of time, how much you owe and who owes you. This information is vital because it lets you know if your small business is profitable or if you’re losing too much money. Also if you ever decide to apply for a loan or take on investors, they will likely want to take a look at your accounting records.
Starting a new small business is a great opportunity to create financial independence for you and your family. By using the tips above and taking the time to plan, you will no doubt be on the road to success.