So you’ve got an idea for a business and you think it’s a great one. Or perhaps you’ve got a degree in business and you’re ready to become your own boss. Those are both great starting points, but what are the next steps? How do you go from a brilliant idea to a legal, profitable small business owner? These three steps will help you get started.
Research, Research and Research Some More
Starting a business represents a huge investment of both time and money so you want to identify any issues or pitfalls before you get too far down the road. To put your idea to the test, ask yourself some of these questions and be objective (even harsh) in your answers:
- Is there a legitimate need for this product/service?
- Who is the target market? Who do you envision buying this and what are their buying habits?
- What is the target market’s age, income, education, gender, ethnicity and marital status? How do consumers in this demographic typically behave?
- Do other companies offer the same product/service or a similar one?
- How has the competition done? What’s their approach?
- If there’s significant competition, how would your product/service offer something unique, of a higher quality or at a lower price?
If you don’t feel like you can be impartial, enlist a trusted friend or even spend a little money asking a professional whether your idea holds water. If it doesn’t, you’ll sink; it’s much better to know this from the outset.
Devise a Plan
We’ve heard it a million times because it’s true — “failing to plan is planning to fail.” Start with a one-page business plan that details your background/expertise and how it might affect the business. For instance, if you have a Master of Business Administration, this is a great place to mention it. You’ll also want to cover the relevant competition, profile the target market and have well-crunched numbers about expenditures and realistic profit projections. Finally, most business plans like these offer an operating section that dives into logistics like staffing, equipment and facilities.
If you plan to secure funding (and you probably do — most small businesses don’t start with a boatload of cash), you’ll want to take this one-page and expand it to provide even more detailed information about each of these areas. Banks, lenders and potential investors will use this information to decide whether to back your idea and what terms they’ll offer.
Once you’ve vetted your idea and secured funding, you’ll need to make sure your business can legally operate. This can include several steps.
Register your company. Unless you plan to operate under your full name and be a one-person-show, you’ll need to register your business. In all likelihood, you’ll need to register the business name with the state government and you may want to file with the United States Patent and Trademark Office to protect any intellectual property.
Get Tax IDs. Federal and state tax ID numbers work a little like social security numbers, but for a company. They’ll give you the blessed privilege of paying Uncle Sam and your state government taxes on your profits.
Apply for licenses and permits. Most small businesses need a license or permit to conduct business. The type of license or permit you need will vary based on your industry, location and the government’s rules. The U.S. Small Business Administration can help you determine which ones you’ll need.
This is the quick and dirty version, of course. These steps can be quite involved and could take around 12 months to do correctly. It’s important to take your time and do your due diligence. Putting in the extra time can pay dividends in the long run.