How to Start a Small Business | Guide | What You Need to Know about Starting a Small Business

Guide: Top Ways on How to Start a Business

Many people have great ideas that could turn into great businesses, so this article will look at the necessary steps for how to start a small business.

Having a spark of inspiration—a moment of clarity—is a blessing in itself when it comes to starting a small business, but it’s only a start: bringing such ideas to life can be formidable tasks. So formidable, maybe, that the perceived stress can immediately squelch any inspiration.

This article will look at three foundational pillars for how to start a small business, not only to help diminish the potential headaches, but also to help smooth out the steps to starting a small business.

We’ll first consider the importance of doing adequate market research before starting your own small business, and we’ll provide a few places to start your research. The relevant data is crucial to the second step—the development of a solid business plan—in which you will flesh out several crucial things about your small business.

Image source: The AllState Blog

After taking a look at the aspects of how to start small businesses, we’ll consider several financing options for your small business. As we’ll see, there are many options available, and each has potential benefits and risks. These options should help you answer the question of how much does it cost to start a small business.

Once you address these three foundational pillars of how to start your own small business, you’ll be well on your way to bringing your small business to life, as all the groundwork will be properly laid out.

The scope of this article will first begin with the legal requirements for starting a small business, and then we’ll move into the initial steps to starting a small business. Also, the following principles and steps to start a small business apply to a wide variety of small business structures, whether you’re starting a small business from home with only a virtual location, or even if you’re starting a sole proprietorship with only a physical location.

Legal Requirements for Starting a Small Business

You should double-check the legal requirements for starting a small business before you dive into your market research and business planning. This is to make sure that, once you have all your research, business planning, and funding squared away, you don’t get halted by some surprise law or requirement.

There are several things to investigate when it comes to the legal requirements for starting a small business:

Registering your business: This involves determining your business structure (sole proprietorship, partnership, etc.).
State license: Some states require that businesses carry a state business license; some do not.
Local business license: Some counties require that businesses have licenses to operate in their localities.
Permit for sales and use: Most states require that businesses selling taxable products apply and maintain a sales and use permit.
Miscellaneous business permits: Other permits may be required, depending on your type of small business. For example, you may need a particular permit for reselling merchandise, a health permit for a food-based business, or perhaps a zoning permit if you will be working from home.

Once you determine the legal requirements for starting a small business, you’re ready to dig into your market research.

Research Your Target Market

First, when determining how to start a small business, you’ll need to do some research to learn about your potential customers. Doing market research before starting a small business from home or another location consists in analyzing data that will reveal which products are in demand, and these insights will later inform the other factors of how to start a small business.

Market analyses will identify opportunities for sales, delineate current or potential hazards in your chosen industry, and reduce business risks. This is the first crucial step in the many steps to starting a small business.

The U.S. government provides statistics in the following categories, which you should find invaluable when you are determining how to start your own small business:

Also, there are other sources of market data that are valuable to starting your own small business, such as academic institutions, trade groups, or business magazines.

There are definitely some online sites that can be valuable in your research, which should definitely aid anyone in need of help starting a small business. KnowThis.com is a site that has links to diverse web resources for market research. MarketResearch.com has copious amounts of research reports (more than 250,000) on various markets, and the database is updated daily.

Business Plan

Writing a solid business plan is arguably the most important stage in the steps to start a small business.

When it comes to figuring out how to start a small business, there are several things to include in your business plan, which is the second crucial stage in the steps to start a small business. Remember, this is a road map, so the more detail you give it, the stronger your foundation will be. We’ll begin with the company description.

If you are starting a small business from home, not every following category or aspect needs to be defined in your business plan. Pick and choose those that feel pertinent to your home business.

Company Description

When starting your own small business, think of the company description as an in-depth review of your business’s structure and goals and unique offerings. Here are some things to consider and possibly include:

Describe your potential business and the market you’re trying to penetrate.
Describe how your products/services will address the wants of the target market.
Describe the specific targets for your business (e.g., other businesses, organizations, or consumers you will serve).
Describe your specific competitive advantages (e.g., key personnel, strategic locations, superior value).

Market Analysis

A market analysis is crucial to starting your own small business; in essence, a solid business plan will show potential lenders or investors that you fully comprehend the entities (people or organizations) you will be doing business with—crucial aspects for how to start a small business.

There are five main components to market analyses for starting your own small business:

Target marketing: This uses market segmentation to delineate one or a few target markets upon which to focus the business initiatives when starting a small business. When thinking of how to start small businesses, think of segmentation as separating potential markets into four categories: demographics, geographic factors, psychographic factors (i.e., attitudes, possible desires), and behavioristic factors.
Pricing strategies: These should be tied in to the growth sequences of your small businesses.
Promotion and advertising plans: Strategies that ensure advertising reaches targeted customers.
Distribution plans: Strategies that help deliver goods or services after customers’ desire is established.
Demand forecast: The finishing touch on marketing analyses. Demand forecasts try to figure the first-year inventory, which in turn informs staffing and financing. New small businesses, however, many find it challenging to determine the demand forecast. When starting out, it is practical to begin by analyzing similar companies market shares alongside potential marketing.

Don’t Miss: Namely Reviews—What Is Namely? Is Namely Legit? A Scam? (Cloud HR & Review)

All-in-One Change Management Tools

Top Rated Toolkit for Change Managers.

Get Your Change Management Tool Today...

Management and Organization

When starting a small business, after your market analysis, the section on management and organization should come next. This should, in essence, include information about a small business’s ownership and management team.

When figuring out how to start small businesses, there are many ways to go about crafting the management and organization section, but generally you should begin with ownership details.

The owners’ names should be listed, along with their ownership percentages and the types of ownership—for example, limited or general partner, preferred or common stock. Narrate the general involvement of the owners and whether they’ll be silent or active partners.

Management

Here, describe a list of members of your management team—who they are and what they’ll do. Also, if intending to share your business plan with potential investors, make sure to describe the achievements of your management team. When you’re thinking of how to start small businesses, remember that potential investors will appreciate people with successful track records.

Product or Service Line

Next, it’s time to describe in detail what you’ll be offering. Think about writing this section for the customers’ benefit. That is, you want to describe, in adequate detail, the ways your target customers will benefit from what you’re selling.

Here are some aspects that you should focus on in your product section of your business plan for starting a small business:

Descriptions of products or services: Describe how your product will meet certain needs of customers. Include advantages over competing products. Finish with the present stage of development of your products/services.
Describe your products’ or services’ life cycles.
Describe any current patents or copyrights for your products/services—whether they are anticipated, pending, or existing.
Describe any present or future activities for your products/services that pertain to research and development.

Marketing and Sales

Now that you’ve delineated your products or services, the next step in how to start a small business relies in determining how you’ll penetrate your target market. That is, it’s time to describe the strategies for marketing and sales that you will use when starting a small business.

A good place to begin is by describing your mission statement for why you’re starting a small business. For example, Coca-Cola’s straightforward mission statement, “2020 Vision,” states three simple premises:

Refresh the world
Inspire moments of optimism/happiness
Create value that makes a difference

After presenting concise, powerful statements, you can then go into further detail on the entire vision, values, and culture of your small business.

Branding

Branding is a crucial aspect in how to start small businesses. Provide detail on how you wish to portray your small business—that is, describe its image and how it will connect with target customers.

Here are some aspects to consider:

Your small business’s logo
Potential website structure
Photos of your store
Photos of your products/services

Marketing

Here is where you must describe your target market in detail. You must describe your methods of marketing and why they will work successfully to connect with targeted customers. Talk about advertisements, potential giveaways, or promotions.

After describing your marketing tactics when you are determining how to start your own small business, delineate their potential monetary costs, such as those that may result from cultivating public relations or even sending out flyers. The money expected to be paid to employees for training them on the products/services would be highly informative as well.

Also, describe how you will keep track of the success or failure of your marketing strategies.

Describe the Competition

When thinking about how to start your own small business, you should go into detail on competitors’ products or services. Describe the gaps left by their weaknesses and why your product or service will fill those gaps.

How You’ll Complete Sales

Next, describe your sales strategies that will “seal the deals” created by your marketing efforts. For example, say that you send out flyers to attract customers and succeed in doing so. To turn the attention into sales, certain things should be considered:

Product displays
Store organization
Employees’ behaviors and product knowledge

Such things affect sales and thus should be considered when starting your own small business.

Another important aspect to consider when thinking about how to start your own small business is how customers will respond to your prices. How do your prices compare to competitors’ prices? What are your profit margins?

In essence, your marketing and sales section should describe how you will reach out to customers, how much it will cost to do so, and how you will capitalize on that gained attention. Capitalizing on gaining customers’ awareness is one of the most crucial steps to start a small business.

Funding Request

If you need help starting a small business—that is, if you’re looking to inspire investors when starting a small business, you should include a funding request. Here’s what you should include:

Your present needs for funding
Potential fund requirements projected for the next five years
In what ways will you use the funds (e.g., acquisitions, working capital, capital expenditures)
Any contextual plans for financing certain situations (e.g., buyouts, debt repayments, or even selling the business)

In essence, include not only the funding that you need to start your small business but also the funds that you’ll need in the future.

Executive Summary

Your executive summary will function more as a concise introduction, but it should be composed after you have completed the previous sections. When starting a small business, you won’t be able to focus on such things as growth highlights by default. What you want to ensure is that you convey the sense you’ve done thorough research on targeted markets.

That is, you want to ensure you convey that you fully understand your potential customers’ needs and how you will meet those desires with your products/services.

Describe the things that encouraged you to start a small business, as well as any long-term plans. In short, try to be both comprehensive and concise at the same time.

Financing Your Small Business

When you are figuring out how to start a small business, there are several possibilities in how you can finance your small business, answering a large part of the question of how much does it cost to start a small business. Unfortunately, banks often refuse to provide loans to people who need help starting a small business, but there are certainly other financing options to explore.

First, though, how much does it cost to start a small business? According to the Kauffmann Foundation, the average costs for starting a small business is about $30,000. However, if you’re starting a small business from home or a micro-business, costs could be as low as $3,000. However, every business is going to be different, so to answer the question how much does it cost to start a small business, try to narrow down the following items:

Start-up expenses
Capital expenditures
Current assets

Once you delineate these categories, you’ll be one step closer to determining how much does it cost to start a small business. After you have a firm understanding of your assets and your expected expenses and capital expenditures, you can then allocate your available resources.

If you need more capital, consider these four popular ways to fund a new business. Each has pros and cons for your consideration.

Rollovers for New Businesses

$5,000 initial fee and $1,500 annual fee

If you have a 401(K), traditional IRA, or a similar account (with at least $50,000 in it), you can use the funds for starting a small business.

Pros: Rollovers have no early withdrawal penalties/taxes, won’t cause debt, your retirement savings will grow if your business succeeds.
Cons: About a $40,000 limit.

Credit Cards

10%–20% APR and $50–$100 annual fee

If you have a credit score of 650 or higher, you can apply for a credit card for starting a small business.

Pros: Promotional introduction rates and reward programs can help your business, and responsible use can help your credit score.
Cons: Credit card companies can randomly lower credit limits, and your personal credit score can be damaged.

Home Equity Loans or Lines of Credit

3%–8% APR

If you qualify, you can borrow around 80%–90% of your home’s equity. To qualify, you’ll need to have around 20%–30% equity in your home and a credit score of 650 or higher.

Pro: Home equity loans have low interest rates.
Con: You’ll be gambling with your home.

Venture Capitalists

To attract venture capitalists when you need help starting a small business, your small business will need great potential for turning a profit. Generally, they seek high returns—about 10 to 15 times their original investments within a five-year period.

Pros: You won’t risk creating debt when starting a small business.
Cons: You may have to forfeit a stake in your small business.

In short, when starting a small business, there are many ways to finance your new endeavor. Like in your business plan, make sure you flush out all the details and comprehend the potential costs and benefits of whichever method you choose.

Conclusion

The above themes—market research, writing a business plan, and securing funding—are arguably the three most important steps to start a small business, whether you’re starting a small business from home or something larger.

Of course, you should begin by researching the legal requirements for starting a small business. Making sure you understand the pertinent laws will help prevent any potential hiccups in the other steps to starting a small business.

When fathoming how to start a small business, there is much to consider, but you should begin by doing in-depth market research before starting a small business. Once you have finished your preliminary research, your next step is to lay out a detailed business plan, which will serve as the crucial foundation for your small business’s transition from concept to reality. What’s more, establishing a detailed business plan before starting a small business will increase your chances of obtaining support from venture capitalists or other potential investors.

To figure out how to start your own small business, you must include thorough details in your business plan. First, you’ll begin with a description of your small business; then you’ll move into a detailed market analysis. Afterward, you’ll want to describe the organization and management of your small business. Marketing and sales details should come next. If you are seeking funds, be sure to include a section for funding requests.

Once the above aspects are fully delineated, you’ll want to write a comprehensive yet concise executive summary. Think of it as a high-quality introduction meant to entice potential investors to support you. Once your executive summary is complete, your business plan—the second stage of the crucial steps to starting a small business.

When determining how much does it cost to start a small business, pay close attention to how you will finance your small business. There are several ways to do so, and each has its potential benefits and risks. Take the time to consider which finance method best suits your needs and financial situation before starting a small business.

Take your time and fully flesh out the above steps to start a small business when determining how to start a small business because the market research, business plan development, and funding plans will become your road map. When you do, you’ll have taken some giant steps forward in starting a small business.

Once you’ve finished the initial steps to start a small business by shaping these foundational pillars, you’ll be immensely closer to bringing your business goals from the conception stages to reality.

AdvisoryHQ (AHQ) Disclaimer:

Reasonable efforts have been made by AdvisoryHQ to present accurate information, however all info is presented without warranty. Review AdvisoryHQ’s Terms for details. Also review each firm’s site for the most updated data, rates and info.

Note: Firms and products, including the one(s) reviewed above, may be AdvisoryHQ's affiliates. Click to view AdvisoryHQ's advertiser disclosures.