Starting a business can be exciting and challenging at the same time. Starting a business from the ground up is not an easy task by any means and should be approached with extreme caution and planning. There are many things that must be considered before you start your business; however, if you would like to legally run your business as a small business then you need to fill out the correct paperwork, licenses, and tax forms. The first step is deciding what kind of business you would like to start as well as what state such business will operate in. You will also need to determine if your business will operate within certain specifications by using different licenses and tax types available. The following information focuses on basic requirements for starting a small business, selecting a location, and developing a foundation
Starting a business requires a lot of work. The amount of documentation, legal requirements, and strategic development can simply be overwhelming. But without putting in the effort, you’ll struggle to turn your idea into a successful business.
Now, we’re not looking to scare you away from entrepreneurship. We just want to keep things realistic, while telling you that it is 100% possible to start your own business. It’s going to take time, effort, and potentially a few setbacks, but you can do it.
How to start a business
At this point, you may be wondering where to start. Should you work on your business name and logo or tackle your business structure? Does it make sense to already start applying for loans or focus on product development?
It can be difficult to know the right steps to take. But that’s ok. Starting your own venture is all about trial and error. Working through the process to find what works for you and what resonates with potential customers.
But rather than being overwhelmed by all the decisions and tasks you have at hand, there are steps you can take to kickstart the development of your business. Let’s get started.
Determine if entrepreneurship is what you want
Before diving into the details of your potential business, it’s best to take stock of yourself and your situation.
- Why do you want to start a business? Is it money, freedom, and flexibility, to solve a problem or some other reason?
- What are your skills?
- What industries do you know about?
- Do you want to provide a service or a product?
- What do you like to do?
- How much capital do you have to risk?
- Will it be a full-time or a part-time venture?
Your answers to these types of questions will help you narrow your focus.
This step is not supposed to dissuade you from starting your own business. Rather, it’s here to get you thinking and planning. In order to start a successful business, passion alone isn’t enough.
“Know yourself, and work in a job that caters to your strengths. This knowledge will make you happier.”
— Sabrina Parsons | CEO of Palo Alto Software
Conduct a self-assessment
You need to plan, set goals, and above all, know yourself. What are your strengths? What are your weaknesses? How will these affect day-to-day operations? You could conduct a SWOT analysis on yourself to figure this out.
As you get started, your business will likely dominate your life so make sure that what you’re doing is stimulating and challenging, but not completely outside of your expertise. You’re going to be in it for the long haul. Use what you learn from the SWOT analysis to think through what you want your life to be like, not just what you want from your business.
Some good questions to ask yourself include:
- What would you do if money wasn’t an issue?
- Is money really important? Or rather, is making a lot of it really important? If it is, you’re probably going to be cutting out a number of options.
- What really matters to you?
- Do you have the support of your family, especially your immediate family? They may have to make sacrifices at the beginning, so it’s important to have them behind you.
- Who do you admire in business? Maybe there’s even someone in the industry you’d like to go into. Why do you admire them? What are their likable traits? What can you learn from them?
Answering these questions (and many more) about yourself and your abilities isn’t necessarily going to ensure you’re successful, but it will get you thinking about your goals and about what motivates and inspires you. Use this time to make sure that you are matching the business you want to start to your personal aspirations.
Refine your idea
Once you know why you want to start a business, it’s time to find and develop your idea. More than likely, you already have something in mind after going through your self-assessment. But if you need inspiration, you can check out our sample plan library to explore different industries, or read up on trending start-up ideas.
Now it’s not enough to just think you have a good idea and run with it. You need to validate that there is a need. You also need to start addressing whether this idea is sustainable or not.
Start with a Lean Plan
We’ll get into the specifics of how to explore the market and determine if you’re idea is a good fit in just a moment. Right now, we recommend that you consider starting a Lean Plan to help make the rest of this process much easier.
The Lean Plan is a simple, one-page document that helps you refine your idea. It ensures that you’re considering your mission and value proposition early on, while also providing structure for the more technical portions of your business. In fact, it will provide you with the perfect template to tackle the rest of these steps.
You can download our free Lean Planning Template right now to get started.
Conduct market research
Once you decide on a business that fits your goals and lifestyle, it’s time to evaluate your idea. Who will buy your product or service? Who will your competitors be? This process will help you address your opportunity, value proposition, market size, and competition sections of your Lean Plan.
There are a number of ways you can do this, including:
- Performing general Google searches,
- Speaking to people already working in your target industry
- Reading books by people from your industry
- Researching key people
- Reading relevant news sites and industry magazines
- Taking a class or two (if this is possible).
If you don’t have time to perform the research or would like a second opinion, there are people you can go to for help, like government departments and your local SBDC.
“The more you know about your industry, the more advantage and protection you will have.”
— Tim Berry | Founder of Palo Alto Software
Evaluate your target audience
It’s not enough to just state the current market. You need to know what portion you’ll be able to claim and if it’s really possible. To determine how attractive your prospective market really is, we suggest doing a market analysis.
It will guide your research as you think about:
- How urgently do people need the thing you’re selling or offering right now?
- What’s the market size? Are there already a lot of people paying for products or services similar to yours? Have you honed in on who exactly your target market is? Being specific will help you focus your marketing message and investment.
- How easy is it (and how much will it cost you) to acquire a customer? If you’re selling enterprise software, this may require a significantly larger investment than a coffee shop.
- How much money and effort will it cost to deliver the value you would like to be offering?
- How long will it take to get to market? A month? A year? Three years?
- How much up-front investment will you need before you can begin?
- Will your business continue to be relevant as time passes? A business that repairs iPhone X screens will only remain relevant so long as the iPhone X sticks around. If your business is only relevant for a specific period of time, you will also want to consider your future plans.
Research the competition
If you like, you can even take things a step further and consider the consumer needs currently not being met by businesses in the industry. This is a good time to take a look at potential competitors. And remember, the presence of competitors is oftentimes a good sign! It means that the market for your product or service already exists, so you know that you have potential customers who are willing to spend money on your product or service.
While you’ve got the time, learn as much as you can about your competitors, about what they provide to their customers, how they attract attention, and whether or not their customers are happy. If you can figure out what’s missing before you even get started, your job will be made that much easier when you do finally set up shop.
Validate your idea
Lastly, it’s important to field test your idea, services, or products. As you conduct research, take the time to actually speak to your potential customers. Present them with the concept you intend to launch to gauge interest, as well as confirm which competitors they may already use and the price they’d be willing to pay. If you can, it may be worth developing a minimum viable product (MVP) to help showcase what you’ll be providing.
You don’t even need to do this process in person. Instead, you can:
- Send out surveys
- Join forums and Facebook Groups
- Run ads
- Sell pre-orders
The important thing is to establish what success looks like. Know what threshold you need to hit and be willing to pivot your idea or target audience if it’s not panning out as you expect.
Write your business plan
If you will be seeking outside financing, a business plan is a necessity. But, even if you are going to finance the venture yourself, a business plan will help you figure out how much money you will need to get started, what it will take to make your business profitable, what needs to get done when, and where you are headed.
A roadmap for your business
In the simplest terms, a business plan is a roadmap—something you will use to help you chart your progress and that will outline the things you need to do in order to reach your goals. Rather than thinking of a business plan as a hefty document that you’ll only use once (perhaps to obtain a loan from a bank), think of it as a tool to manage how your business grows and achieves its goals.
While you might use your business plan as part of your pitch to investors and banks, and to attract potential partners and board members, you will primarily use it to define your strategy, tactics, and specific activities for execution, including key milestones, deadlines, and budgets, and cash flow.
You have a head start with your Lean Plan
Here’s the thing, your business plan does not have to be a formal document at all if you don’t need to present your plan to outsiders. Instead, your plan can follow a Lean Planning process that involves creating a pitch, forecasting your key business numbers, outlining key milestones you hope to achieve, and regular progress checks where you review and revise your plan.
If you aren’t presenting to investors, don’t think of this as a formal pitch presentation, but instead a high-level overview of who you are, the problem you are solving, your solution to the problem, your target market, and the key tactics you will use to achieve your goals.
Hopefully, you’ve already started developing your Lean Plan at this point as you explored your business idea. If not, now is the time to get started. Because, even if you don’t think you need a formal business plan, you should go through the planning process anyway. The process will help to uncover any holes or areas you have not thought through well enough.
What goes into a formal business plan?
If you do need to write a formal business plan document, you should follow the outline below.
The standard business plan includes nine parts:
- The Executive Summary
- Target Market
- Products and Services
- Marketing and Sales Plan
- Milestones and Metrics
- Company Overview
- Management Team
- Financial Plan
- Appendix
If you would like detailed information on how to write a business plan to present to banks or funders, there are plenty of online resources, including our own comprehensive guide.
You will also find hundreds of sample plans for specific industries on this very website. Use them at your leisure but be prepared to adapt them to suit your precise needs. No two businesses are the same!
Types of business plans
If you are simply creating a business plan in order to stimulate a discussion with potential partners and associates, you may want to consider opting for a “startup plan,” also known as a feasibility plan. As your business grows you can flesh out the sections as you see fit.
In contrast to the standard plan and the startup plan, is the operations or annual plan. This type of plan is used for internal purposes and primarily reflects the needs of the members of the company. This type of plan is not intended for banks and outside investors. You will use it either to plan your company’s growth or expansion or to set company-wide priorities.
If the latter is true and you are using the plan in order to direct your internal strategy, you are creating a strategic plan, a type of plan that will include a high-level strategy, tactical foundations of the strategy, specific responsibilities, activities, deadlines, and budgets, and a financial plan.
Get your finances in order
The goal of any business is to make money. Otherwise, you just have a hobby (which is also OK!). But if your goal is to find effective ways to start a business, knowing what you’ll need to start up and how to manage cash flow once you have it will be integral to your success. Although it’s hard to get a definitive list of reasons as to why most businesses fail, cash flow and insufficient capital are frequent culprits.
There are two sides to this coin: financial literacy and securing funding (if it’s needed). Let’s start with the first one. There are plenty of businesses you can start with minimal startup costs, but others will require money for inventory, equipment, or physical space. A clear view of your total investment—before you spend a cent—is a must for helping to make important projections, like when you’ll break even.
Where the money ends up going will largely be determined by your business, but our research shows that for most businesses, product and inventory costs represent a large share of spending in Year 1. If those calculations show you’ll need more funding than you can afford to spend out of pocket, you can look at options like a small business loan, a Shopify Capital offer (for those qualified), or a crowdfunding campaign. Read more on how to get a business loan and the different types of loans you can apply for.
The second part of the equation is financial literacy or understanding the flow of finances through your business. Remember, if the math doesn’t work, your business won’t work. Bookkeeping needs to be one of your primary financial tasks as soon as you’re ready to start making purchases for your business. Accurate records of your income and expenses will help you keep an eye on cash flow and make for a smooth transition to working with an accountant or bookkeeper later on—when you’re able to afford professional help in these areas, it’s some of the best money you invest.
To make managing your finances far easier, take the time to open a business bank account and obtain a business credit card. Keeping your personal and professional finances separate makes doing your business taxes much simpler and can help you automate some of the financial steps to starting a business as well. Doing this will be especially helpful if you want to know how to start a small business with no money.
Financial resources:
- Shopify Capital. Financing that helps approved merchants get the funds they need without lengthy bank approvals or giving up part of their company.
- Profit First. A book designed to help you understand how to start a company and make it profitable, no matter what kind of business you run.
- Accounting tools. Apps that work directly with Shopify to streamline your accounting processes.
- Business Loan Interest Calculator. Easily calculate fixed-rate loans for your business.
Develop your product (or service)
You’ve done the legwork, understand the financials, and, ideally, have begun to validate your idea with early interest from customers. Now, it’s time to go deeper into how you’re going to build what you sell. For a product-based business, developing your product could mean taking one of three general approaches:
A. Create your own product
Whether you’re making items by hand or sourcing an original product from a manufacturer, developing your own product to sell can help you stand out in the market.
- Ideation. The SCAMPER model is a useful tool for quickly coming up with product ideas by asking questions about existing products. Each letter stands for a prompt: Substitute; Combine; Adapt (e.g., a bra with front clasps for nursing); Modify; Put to another use (e.g., memory-foam dog beds); Eliminate; Reverse/Rearrange (e.g., a duffle bag that doesn’t wrinkle your suits).
- Prototyping. Prototyping involves experimenting with several versions of your product, slowly eliminating options and making improvements until you feel satisfied with a final sample. These days, with the innovation of 3D printing, designs can be turned into physical samples at a much lower cost with a quicker turnaround time.
- Costing. Costing is the process of taking all of the information gathered thus far and adding up what your cost of goods sold (COGS) will be, so you can determine a retail price and gross margin. We have a free spreadsheet you can copy for your own product.
🎯 TIP: There’s a whole lot more to explore when it comes to getting a product made. If you’re just getting started, check out our complete guide to the product development process.
B. Customize an existing product
Various print-on-demand services let you add unique designs and branding to white label products, including t-shirts, leggings, towels, backpacks, and much more. This option is popular for categories where most of the differentiation comes down to design; coffee mugs can use a variety of materials, for example, but many customers are actually buying the witty phrase or branding, not the build quality. If you have an existing audience as a content creator, this model is also great for selling merch to your fans—once you know what they want.
C. Curate a selection of products
Dropshipping is a way to sell existing products without holding inventory. With dropshipping, you partner with a supplier of existing products who ships and fulfills your customer’s order only after you’ve made a sale; your job as the dropshipping is to handle marketing and customer support. This model is highly accessible and can be competitive in certain product categories, but it gives thousands of entrepreneurs the chance to start their business immediately without shouldering a huge upfront investment for inventory.
One last thing: as you develop your product, keep your total costs in mind when figuring out your pricing. While your product’s price is not solely driven by costs—and there are many factors that influence pricing—it’s important to price your product profitably.
Learn more: Which Business Model Is Right for You?
Pick a business structure
There are many ways to start a business with different incorporation structures. Your business structure influences key parts of your business, from taxes to operations to your personal liability. Choosing the right structure is about balancing the legal and financial protection you need with the flexibility offered by different options. It’s an important decision, and it’s one you should consider carefully before you launch your business.
Business structures vary based on your country and area, but two common types—that may go by different names in your country—are sole proprietorship and incorporation. A sole proprietorship is great if you’re the only person involved in the business and is usually the lowest-effort structure to pursue, but it leaves you personally liable for the business and its activities. You can hire employees as a sole proprietor, but you’ll need an employer identification number to do so, which means registering your business.
On the other hand, if you opt for a more formal structure, like a corporation or a limited liability company, it’s easier to involve multiple owners and you’re not personally liable for the business. At the same time, there’s more paperwork and steps involved in starting and maintaining a corporation.
When it comes to considering the right legal structure for your business, there are a few factors you’ll need to consider as you understand how to start a small business:
- Where is your business located? Your country’s laws will outline the different business structures you can form and whether or not you need a business license to get started.
- What kind of business are you running? Some structures are more suited to businesses of a certain scale or within a certain industry. There might come a time when you need to restructure your business in order to work with new partners. It’s not uncommon for large businesses to ask that their suppliers or partners be incorporated, for example.
- How many people are involved? If you’re going it alone as a solo founder, you may be able to look at streamlined options. If you have a business partner or multiple people with ownership in the company, you’ll need to look at more advanced options to ensure everything is set up and shared properly.
An accountant or lawyer can be helpful in evaluating the different options available in your area and in the process of setting up a business. You can also check out this sole proprietorship vs. LLC comparison.
Conclusion
If this is your first time starting a small enterprise business then you may be wondering how you can make this possible? Fortunately, there are multiple things you can do to help make it realistic for you to start one.