When you’re looking to launch a new business, there are many things to consider. The questions you ask and the decisions you make before you launch are critical, helping you identify core elements of the company and its structure that can position it for future success.
Here are some of the basic considerations entrepreneurs should factor into their planning before they open the doors.
1. Whether to Launch
This question is perhaps the most important one to answer: Should I start the business?
Answering that question is a multi-fold venture, with multiple layers and complexities.
You need to determine if you are fully committed to the work it takes to launch your own business. You need to be prepared emotionally, physically and financially for the journey.
Let’s consider the financial part. Until you have a steady income stream, you will need to rely on personal savings to cover your monthly expenses.
You also need to persevere in fine-tuning the products and services your company offers. You’ll need to face rejection and criticism along the way. However, a strong belief in what you are providing can go a long way towards success.
2. Do Your Research
Research is an important element of any small business. Your initial research should focus on three areas:
- Markets
- Customers
- Competitors
Market Research
This research helps you understand the markets in which you choose to compete. It includes learning about the communities in which you look to sell, the business climate, potential locations, and the industry. What are the trends that are defining the market and industry? Where are they headed in the next 1, 3 and 5 years?
Customer Research
Who are you selling your products and services to? Knowing the likely customers for your company is essential, no matter what industry you’re in or selling B2B, B2C or B2BC.
You want to answer the question: Why will customers want or need my product or service? The answer can help you fine-tune what you offer and make sure that you are making the case for how your products and services can solve customer problems.
You should also build profiles of your customers based on shared demographics around age, gender, location, income and profession. These ideal customer profiles will help position not just what you sell, but also how you sell and market.
Competitor Research
You need to know who you’re up against. Competitor research helps you refine your pricing, pitch and messaging.
Understand who has market share where you want to sell. Then use that information to differentiate what you’re selling to make it more attractive to your customers.
3. Build a Business Plan
Any new business should spend the time constructing a well-thought-out business plan. The plan helps you answer core questions and is necessary if you’re looking to secure financing. Here are the core elements of a business plan:
- Executive Summary. Includes your name, mission statement, company description, how your products and services benefit customers, description of products and services and financial overview
- Company Description. Goes into more detail about the business purpose, how it helps or benefits others, details about the customers and their shared demographics, and the uniqueness of your products and services
- Market Analysis. Here is where you will summarize the research you’ve done on the markets and competitors, including competitor names, offerings, and, where known, sales information and their customer demographics
- Descriptions. More detail on your products and services, including the history and the purpose of each
- Sales and Marketing. Your approach to selling, with detailed descriptions of the strategies, tactics and expected outcomes
- Funding. If you are seeking bank funding or investors, here is where you lay out how much you will need, how the funds will be used over the next five years, the type of financing you’re seeking and your desired terms and conditions
- Financial Analysis. Details on past results, if any, and five-year projections, with monthly or quarterly forecasts. Will include balance sheets if you’ve already started your business and other charts and graphs to illustrate your financials
4. Choose a Business Structure
Your business structure is the legal organizational type used to define your company. The business structure you choose will have an impact on how your company operates, the taxes you pay and the amount of liability exposure you have.
There are multiple business types to consider, but the most common among small businesses are a sole proprietorship or limited liability company (LLC).
Sole Proprietorship
This is the simplest business type. There’s no formal paperwork to file and as the sole owner, you are responsible for all the decisions the company makes.
A sole proprietorship is called a pass-through company for tax purposes. That’s because the profits, losses and deductions are passed through directly from the company to the owner’s individual income tax returns.
From a liability perspective, a sole proprietorship carries some risk. There are no legal protections for the owner and in the case of a court judgment against the company, creditors can come after the owner’s personal assets, including homes, cars and savings.
LLC
An LLC is the most popular business structure for small businesses. In an LLC, you have choices about how the company is managed, either by the owners directly or by hiring a manager to run the day-to-day operations.
Taxes work much like with a sole proprietorship, with tax factors passing through from the company to the owners’ tax returns.
From a liability perspective, an LLC is a far safer choice. Except in extreme cases of misconduct, the owners of an LLC are protected from personal liability and their personal assets are protected, too.
Forming an LLC does require paperwork, both to file originally and on an ongoing basis. Starting a business in states like Florida, for example, requires filing paperwork and ensuring that all your documents are correct. That’s why many small businesses turn to a trusted partner to file and manage the paperwork.
Suggested read: LLC Operating Agreement Template
5. Establish Business Bank Account and Credit Card
Running a business means being professional in how you appear to customers, partners and vendors. One of the best ways to achieve that professionalism is to establish your company with a bank or other financial institution.
With a business bank account, you can gain credibility, with transactions conducted on accounts that share your business name. Blending the personal and professional finances is risky and can erode the credibility you’re seeking to establish.
LLCs and corporations (another business structure) are required to have separate business bank accounts.
A business credit card is another good way to gain credibility. And with a business credit card, you can begin building a credit score for your business that’s separate from your personal credit. This business credit score is important and can help you gain more favorable rates on loans and insurance policies.
6. Choose a Name
A professional business name is important to convey who you are and what you do. When filing an LLC, you will need to choose a legal name, which may be different from the name you use commercially, which is known as your “doing business as” or DBA name.
States have online databases where you can research potential legal and DBA names. You’ll also need to formally file your names so that others do not take them.
7. Develop Your Brand
How do you want to be seen by your customers and the public? Answering this question helps to define your corporate brand. The brand is your public persona, a way to convey what your business is about.
Brand elements include your name and logo, which is a visual representation of your company. It’s also about the fonts, colors and words you use in signage, a business card, advertisements and other materials to promote your business.
8. Find Advisors
You don’t need to answer all these questions by yourself. A trusted team of advisors is essential for any business leader. These perspectives, from experienced advisors, help you answer questions and frame next steps in the company’s growth.
The most common advisors to employ are:
- Attorney. A lawyer can answer legal questions, draft contracts and partnership agreements, and review materials on your behalf
- Accountant. An accountant helps track and analyze your finances, prepare balance sheets and financial materials, and advise on where to invest
- Financial Advisor. As a business owner, you have important decisions to make about your future financial well-being, succession plans and how to invest your hard-earned income
Starting your own business is an exciting time. By planning and asking important, tough questions, you’ll be positioned for success.
