Having formal business education before starting your venture is not mandatory. However, your business knowledge is vital to your success and will help you avoid failure. This is proven by Failory’s 2019 report that says 90% of startups fail, and the problem boils down to a lack of knowledge and planning.
Understanding the basic steps of starting a business and having good planning and organizational skills will help you avoid the pitfalls of business failure. So, how do you become a successful small business owner? Here are six simplified steps to get started with your own small business.
How to Start a Small Business
Any business owner would tell you that starting a small business requires a lot of work. Now don’t feel overwhelmed because here are simplified steps that you could follow to get started on your small business.
1. Research your business idea.
Being passionate about your idea is not enough to make your business work. Sometimes when you are passionate about your ideas, you get too excited about taking action without researching and thoroughly planning your steps. Thus, you spend valuable time and money on unfocused activities. Proper research helps you anticipate and solve potential problems and increases the best possible chance of business success.
How to research your business idea?
Here are some simple steps to start your business idea research.
- Research about the market. Read reports and conduct market research to determine the viability of your product or service.
- Study your competitors. Identify your top competitors and find out how they sell their products and services and their pricing.
- Research what your customers are looking for. Ask for a product or service review, use web analytics, or check your competitor’s website or page for any reviews or feedback from their customers.
- Conduct a SWOT analysis. Brainstorm your business’s unique points using SWOT analysis (strengths, weaknesses, opportunities, and threats).
2. Create a business plan.
Your business plan is your guide that helps you outline and achieve your goals. Without a business plan, you will not have a solid understanding of the trajectory of your business, and it will also be difficult for you to track your progress.
Writing a business plan does not need to be long and formal; a one-page business plan will do containing these basic components:
This is a brief introduction of your business, products or services and what problems it solves. It also includes your target market, goals for the next year or two, and the reason why you are writing a business plan—is it for your potential investors, bank loans, etc. Although most people include this in the last part of the business plan, the executive summary should be well thought of before you write your business plan.
This provides the reader with a clear understanding of your business idea. Start with a short description of your business, what you do and what makes you stand out against your competitors. Another tip in writing your business description is answering your business’s who, what, where, when, why, and how.
- Who are you and the name of your business; your target market
- What do you offer (your product or service); your present and future goals
- Where is the location of your business (physical store or online store)
- When will your business start; is the deadline that you want t/o see results
- Why should the target market avail of your product or service
- How will your business function (sole proprietorship, partnership, corporation)
Extensively research your target market, who they are, and how they consider a product or service before availing. Once you have gathered all of the information on your target market, you should explain your Market Analysis section, who your customers are, their needs, and how you plan to bring your product and service to them.
Research your competitors and find out how you can outshine them and how you can position your business in the market. This is by collecting and reviewing information, like the strengths and weaknesses, and using those to create tactics to gain an edge over your competitors.
Explain your product or service
Give the full details and description of your product or service and its benefits to its consumers. You could start by indicating the problem your product/service is trying to solve, how it will solve the problem, and what sets it differently from your competitors.
Organization and management structure
This part should describe how your business organization operates and the function of each member within the company. You may also add information highlighting the relevant experience of each team member.
Execution of strategy
Use this section to explain what you will do to execute your small business successfully, like your marketing plan, sales plan, and anything involved in running your business like the equipment you will use, facilities, vendors, and so on.
The last part of your business plan includes your financial plan. This includes your projected loss and profits, balance sheet, cash flow tables, sales forecast, personnel plan, spreadsheets, and charts that will show where your business currently stands and where it will be in the future. This will also help you determine if you need funding for your business.
3. Determine your budget and obtain funding.
Budgeting for your business is critical as your budget drives important business decisions, such as purchasing new equipment or expanding your business. It also helps you see how your business finances will look in the future and forecast how much you need to spend and earn.
How to create a business budget
Now that you understand the importance of budgeting let’s jump into the basic budgeting components.
- Estimate your sales and revenue. You need to figure out how much money you make from your business, regardless of how much you spend to get there. Make sure that you account for all income that is flowing in your business.
- Determine your total fixed costs and expenses. Get a handle on how much it will cost you to earn your revenues—starting with your fixed cost. Your fixed costs are the expenses that remain the same every month, like Internet and phone plans. Once you have determined your costs and expenses, add them together to get your total cost expenses for the month.
- Include variable costs and expenses. These do not come with a fixed price and may vary each month based on your business activities. Variable costs and expenses can include utilities like electricity, shipping costs, and the cost of the raw materials you need to come up with your product. Tally your variable costs and expenses at the end of each month to understand how these fluctuate based on your business’s performance and manage your projections accurately.
- Predict your one-off costs. These are expenses that happen less frequently and can sometimes be one-time spends, such as furniture, equipment, software, and a new computer.
- Set aside an emergency or contingency fund. If your small business is self-funded, it is ideal that you keep costs low with an additional 20% of your budget as a cash reserve to help you plan for your burn rate. The burn rate is the amount of cash you spent in your business for a month. Determining your business burn rate can estimate how long it will take before your cash reserve runs out.
- Put it all together. Tally your total income and your total expenses to create a view of your financial standing for the month. Then, compare cash flow to cash flow out to determine your overall profitability.
Now that you have an idea of your overall cash flow, you can now create your budget and know how much startup funding you’ll need. You may also obtain funding for your small business through loans, financing, finding investors, venture capital firms, crowdfunding, and funding from your family and friends.
4. Decide on your business’s legal entity.
Legally establishing your business is vital to save you from having future headaches. Before anything else, as a new business in your area, you need to get a permit or license before you start operating. Then you need to register your business name. The next step is to decide on the business entity structure for your business. You may ask a business attorney to help you choose your business entity. Below are the three common business structures you could choose from:
It means that you are the only owner of the company, and you are the only one responsible for any liabilities. The pros of this structure are that you only need to do less paperwork, and you can start operating your business right away under your own name without taking formal actions. However, you don’t get much legal protection when someone files a legal complaint about you.
This means that two or more individuals are the owner of the business. Therefore, you need to carefully choose your business partner since you will be tied with them financially and legally.
This is a more complicated business structure and is often used for larger companies. It also requires having a board of directors and officers.
5. Manage your finances
You should arrange your financial statements such as balance sheets, income statements, and cash flow statements. Not only will these documents help you track your profit, revenue, and expenses, but these will also help you with your application for financing and tax filing.
Hiring a bookkeeper or an accountant will help you manage your business finances, or you may also use accounting software like Quickbooks and Freshbooks to help you generate your accounting documents automatically.
Fulfilling your tax obligations should be your top priority in financial management because you could lose your business if you fail to do this. Properly managing your finances helps you prepare your annual tax return.
6. Create your website and social media accounts
Having a website and social media platform establishes the credibility of your business. Most consumers will turn to your store’s website or social media platform before purchasing your product or service. Since we live in a digital world, establishing your business presence is a great way to advertise your business and generate sales. In fact, about 2.14 billion people worldwide make purchases online. Therefore, building a strong online presence allows you to gain the credibility you need to attract customers, and your website and social media platforms will help you connect with your consumers to any part of the world at any time.
If you want to start your small business, you should start taking action. Having a business is not for the faint of heart. You may experience some failures, but it does not mean that you are incompetent and that you should stop. Instead, think of it as a failed experiment, and you need to start over again and keep moving. Every time you rise from an obstacle, you grow mentally stronger. So start working on your ideas now!