How to Start a Small Business | Personal Finance
Starting a business can be an exciting time for entrepreneurs – one full of big dreams for the future. But starting a business also carries significant risk and requires a big commitment (of both money and time) to succeed.
While starting a business can feel overwhelming, following these steps can put you on the path to success.
1. Refine Your Idea
Even if you think you’ve got the next billion-dollar idea, it’s important to think carefully about whether the concept is truly a viable business.
“To really understanding the market and the needs in the marketplace, you need to ask yourself a set of ‘Why’ and ‘What’ questions,” says Karen Kerrigan, CEO of the Small Business & Entrepreneurship Council. “Why are you launching the business? What is the problem you are going to serve in the marketplace?”
Run your idea past trusted people in your network and ask for honest feedback. Think carefully about criticism you receive and see if it can help you hone your idea. If possible, find a way to test out your idea, whether that’s running a pop-up shop or offering a free service to a few potential clients to see whether the demand meets your expectations.
2. Create a Budget (for Yourself and Your Business)
While you may not need a formal business plan, you should have some idea of how much money you’ll need to run the business and how your business will earn revenue.
“Figuring out the input costs and the selling price and all the components that make the economics work is super important,” says Tammy Halevy, executive director of Reimagine Main Street.
If you’re not planning on drawing a salary during the early years of the business, you’ll need personal savings or other funds set aside to pay for your living expenses until the business gets off the ground.
3. Figure Out How to Fund Your Business
While there’s no one “right” way to fund a business, this decision will have implications later on the value of your business and its financial flexibility. The best source of capital for your company will depend on several factors, including your industry, your access to investors and your feelings about debt.
Keep in mind that the vast majority of businesses are self-funded by the founder or with money from family and friends, since more professional investors or lenders typically want to see a track record before parting with their own capital.
4. Build Your Team of Advisors
At a minimum, you’ll need a small business lawyer and an accountant. They can help you figure out the best structure for your business (whether that’s a sole proprietor, limited liability corporation or some other structure), and make sure that you’re setting aside the right amount of cash for taxes.
“Hiring a great accountant can be the best use of your penny if you’re anything other than a sole proprietor,” says Venkat Krishnamurthy, president of small business networking platform Alignable. “You can do it yourself, but it’s not too much money and it will serve you well over the long haul.”
5. Hire Carefully
Once you’re able to start expanding your business, take your time building your staff. Remember that the first few hires will really help set the culture and tone of your workforce.
“Adding an employee is a big step, because it will change the nature of how you spend your time,” says Greg Ott, CEO of small business credit marketplace Nav. “But it can also be the key to unlocking the growth of your company. It really is, for most businesses, the path to scaling and growing and getting more revenue.”
6. Market Your Product or Service
It’s never too early to start marketing your business. The best approach will depend on your industry and your budget, but it’s important to start thinking about branding and marketing early on.
While that will likely include building a website and using online marketing tools, it’s also important to focus on building your network and word-of-mouth referrals. Try out a few different methods to see what seems to work with your audience.
7. Prepare to Pivot
Remember that Amazon started as an online book sales company and Netflix used to sell DVDs by mail. Successful businesses change with the times, so expect to make changes to your business model if you see that one approach is not working.
“A lot of businesses ultimately end up being in a different place from their initial starting point,” says Luis Ramos, director of business advising at Accion Opportunity Fund. “That’s why I always test the importance of getting out there and testing the product first and foremost. You may end up learning fairly quickly that what you think the market wants is not what it wants or needs.”