How to Set up a Small Business in 5 Steps

If you have not done it in the past then knowing how to set up a small business right can be tough. Starting a business involves a series of strenuous tasks like strategic planning, financial matters, and legal formalities.

Besides these, running a business involves taking on risks. However, taking the risk is not about making decisions blindly. risk assessment requires in-depth planning and effort. Passion and planning are prerequisites for setting up a new business. You should be in a position to take on debt before you start any new business.

If you are already deep in debt, you may need to first pay it off. For an easy way to see how fas you can pay off all your debt, use my free Debt Snowball Tool as a reusable calculator to help you.

Know Yourself First

Before embarking on the journey to set up a business, a self-assessment helps to develop a more focused vision. You may want to take a moment or two to ponder on things like:

• Your reason for starting a business
• Knowledge of the market and industry
• Your required skill-set for that business
• The capital for investment
• Launching a product or offering a service
• Part-time or full-time venture
• Your lifestyle and goals

This self-awareness will lead you to refine your business plan. There are several ways to write up business plans. For instance, you can write a standard business plan or start with a lean plan. A lean plan is a single-page document that gives a simple overview of your business concept. It contains a set of assumptions regarding your business that you need to validate.

• Is your business idea sustainable?
• To what extent do you have an understanding of the customer’s problem?
• Would they be satisfied with your service or product?
• What business strategy would you opt for?
• Besides this, you can share your lean plan with reliable sources for feedback.

Keep reading the article to learn more about lean startups. 

After these warm-up exercises, you can venture into your business. The following five steps would enable you to set up your business the right way.

Conducting in-depth Market Research

Conducting market research is a way of getting firsthand knowledge of economic trends and consumers’ behavior. Good market research enables you to find potential customers. Competitive analysis is crucial for making your business unique from the ones already existing. Besides, market research prepares the businessmen for the potential risks involved.

Gathering demographic information is a good way of achieving this understanding. It includes customers’ info regarding age, wealth, interest, or other parameters related to your business. So, this gathered data helps you answer important questions. 

• What is the demand for your service or product?
• How many customers would be interested in paying for your services?
• What is the income range of potential customers?
• How can you access your customers?
• To what degree the market is saturated with similar services or products?
• What are the business strategies adopted by your competitors?
• What are the latest small business trends?

There are two methods of conducting market research; you can either use an existing source or go direct to the customers.

Existing Research Sources

These are the free sources that provide reliable customer and market information to help small business owners. Examples of a few of them are USA gov Statistics, Consumer Spending, Gross Domestic Product, Bureau of Economic Analysis, U.S. Census Bureau, and many others.

Existing sources are energy and time-saving. But it is difficult to get specific information relevant to your business. Therefore, they are best suited for getting general information like market trends, incomes, and demographics.

Going to the Customers

  Making direct contact with your customers gives you an in-depth understanding of the behavior of customers. However, it requires a lot of effort, time, or money. You can use this method for specific information feedback from the customers regarding service, product, improvement, experiences, and the priority of the customers. You can conduct direct research through surveys, questionnaires, focus groups, and interviews.

Competitive analysis lets you know your competitors. You must be aware of their market share, their weaknesses and strengths, the impact of your business on them, their impact on the probability of your success. Porter’s Five Forces model is a method that helps you understand where you stand in the market. The model deals with five significant factors that determine whether your business is sustainable in the market or not.

• Competitive rivalry (intensity of the competition)
• The bargaining capacity of suppliers
• The bargaining capacity of customers
• Threats for new business entries
• Threats for alternative services and products.

Writing a Business Plan

A business plan provides a roadmap for setting up a business. It provides a guideline for different phases as to how to structure, run and grow a business. An effective business plan acts as a tool to present the potential scope of your business to others. In fact, it might help your business to get investment and business partners.  

There are no hard and fast rules for writing a perfect business plan. It must fulfill your business requirements. Business plans are either traditional or lean startups.

Traditional Business Plan

Traditional business plans are detailed and comprehensive. They may consist of many pages giving a complete description of every step. Parties willing to invest in a business would demand a traditional plan. Traditional business plans comprise of nine sections. However, you can stick to those that are suitable for your business and skip others.

• Executive Summary: it tells about your mission statement, your product, services, team, location, and sometimes financial information.
• Company description: it provides detailed information about the company and how your company stands out of the crowd.
• Market Analysis: it tells about your industry outlook.
• Organization and management: it tells the readers about who will run the company and the legal structure of your company.
• Service or Product: it describes your product or services. 
• Marketing and sales: this section describes your sales and marketing strategies. 
• Funding Request: this section outlines your funding request to the potential investors.
• Financial projection: it tells the financial story of the business.
• Appendix: This section provides the list of documents that are part of the business plan.

Lean Startup Plan

Lean startup business plans are brief and focus on the key points. They consist of one page only. However, lean plans do not work for the investors’ satisfaction. Lean Startup format deals with the following components. You can include any of them in your need.

• Part one Key Partnership: they include suppliers, contractors, manufacturers that work with you.
• Second part Key Activities: they tell about your dealing and interaction with clients.
• Next is Key Resources: it tells about the leverage resources you offer to your customers.
• Fourth comes Customer Segment: the section tells about which group of customers you would be serving.
• Remember to include Cost Structure: this section about how your company would manage the costs.
• Last, be sure to have Revenue Streams: this section tells about how the company would earn the revenue.

Funding Your Business

Funding your business is the most crucial aspect of running a business. The financial decisions determine how you run and structure your business. You may seek financial assistance from an outside party if you lack funds for your business project. The amount of funding required depends on the financial situation of the business owner and the requirement of the business. After having estimated the amount of startup funding, you can choose between various funding options.

Self-funding

Self-funding involves the leverage of personal financial resources. It may include financial assistance from family, friends, or using the saving accounts or assets. It gives you full control over your business as well as the freedom to take risks. But it is advisable not to take unnecessary risks too far. Otherwise, you may overleverage and that could bring unwelcome penalties. Such as a lowered credit score and lowered ability to borrow.

Venture Capital

The business owners get the venture capital in exchange for an ownership share in the company. You can run your business on venture capital investments. Venture capital works mainly for high- growth company dealing with higher risks and longer investment vision. The process takes place in the following steps.

• Find a well-reputed and experienced investor. 
• Share the business plan with the investor.
• The investor would go through the details.
• Both sides decide terms and conditions.

Crowd Funding

Crowdfunding is a way to set up a small business using money from your prospective customers. The crowd funders do not buy-in or lay claim to any shares or ownership in the company. Rather they just prepurchase products and in return, they receive some special gift, treat, or perk from the company. Crowdfunding is a low-risk way to fund expansion as the business owner has only good faith, but no legal obligation to pay back the money.

Business Loan 

Getting small business loans works for the business owner who doesn’t want to share the ownership of their company. You should present your business plan, financial projections, and expense sheets for the coming five years. The documents help the banks to have a better understanding of why they should give you the loan. Keep in mind, it is not easy to apply for and receive a loan, but it is worth it if you need it.

Small Business Administration (SBA) Investment Programs

SBA supports small businesses to get a loan when they face some trouble in getting a loan from commercial banks

Program one small business investment companies: these are the private business funds to support the qualifying small businesses.

The Second program small business innovation research: this program helps small businesses in researching commercialization.

Also the small business transfer technology: they offer funding to small businesses for federal innovation research and development.

Picking the Right Location for Business

Business location determines the type of customers, promotions, and time the business will take to grow. Selection of the location that suits your business contributes a lot towards the success of your business. An ideal location for a specific business involves certain other factors like the layout of the store or outlet, design, color scheme, lighting, display items, product display, and attitude of the workers. All these things constitute the overall environment of the place.

While deciding on the location, the business owners should consider certain things.

Price: is it affordable for you?

Visibility: is the location visible to the potential customers?

Access: is the place easily accessible in terms of parking and transportation?

Competitors’ distribution: how many business competitors are there to compete with your business?

Rules and regulations: do the state rules and regulations support your business, or they hinder it?

Making Your Business Legal

While I am primarily giving general rules that apply to many places in the US and beyond, be sure to follow the local laws and rules that apply to you where you are. I am not offering or giving any legal advice, just pointers to help guide you toward success.

Choose Your Business Name.

A business name is a stepping stone towards legalizing or legitimizing a business. The business owners can use their imagination, creativity, and market research to select the business name. An appropriate name is one that complements your product or service and truly reflects the identity of your business. Keep in mind, that it may become the Brand that you develop for your business.

Registration Your Business

Registering your business transforms your business into a legal entity. The registration procedure depends on the business structure and area. Business registration offers legal and tax benefits. Registering for small businesses is a simple process that involves registering the business name with the local or state government. Sometimes the small businesses register with the federal government for tax-exempt status or trademark protection.

In the case of a corporation or partnership, the businesses need to register with any state where they conduct most of their business activities. Some states allow registration online, in person, or through the mail. 

Getting Tax ID Numbers

The federal tax ID or the state tax ID works similar to a social security number for the business. Remember, you need an Employer Identification Number (EIN) to hire employees, pay federal taxes, opening a bank account, applying for business permits and licenses. Every business needs a tax ID number if it does any of these:

• Pays its employees
• Files tax returns
• Works as cooperation or with certain organizations

Getting License or Permits

Businesses need permits or licenses from federal and state agencies. There are different requirements and fees for different business activities, locations, and states. After some time, the permits get expired, so it is compulsory to renew them.

Opening a Business Bank Account

Opening a business bank account becomes essential when you start receiving or spending money for your business. It provides you with legal protection as well as compliance. Business accounts include a saving account, checking account, merchant service account, and a credit card account.

Customers can pay with credit cards or checkouts instead of paying you directly. Besides, you can authorize any employee to take care of banking tasks when needed. Business banking also offers an option for a line of credit for the company account in urgent situations.

FAQ’s

Final Thoughts

In short, if you are trying to set up a new business, always prepare yourself for the mistakes. Trial and error is the key to a successful business. Keep in mind, you should be okay with learning from your mistakes. Also, honest analysis of the mistakes improves your decision making. So, arrange review meetings with your team frequently.

Evaluate and upgrade your business and marketing strategies often. Give value to your customers as well as welcome their feedback. Broaden your vision and forecast for the coming month. Stay consistent and keep track of your performance and review it.

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