If you have a business idea that you want to pursue, an opportunity that you want to exploit, then, you need to start a business. However, starting a business is not, on its own, a guarantee of success. Every great business is built on great strategy. Without proper strategy, all your capital, time and effort will be wasted. In this article, we will discuss five things you need to do before starting a business.
Assess Your Idea’s Viability
The first thing you have to do is assess how viable your idea is. Often, we get carried away by an idea and do not do enough research to discover if there is a market for our idea, the kind of revenues we can expect, the degree of competition in the industry, among other questions.
Draft a Business Plan
This follows from the first point. The purpose of a business plan is to document your business’ goals, how you will attain those goals, and how quickly you will achieve those goals. The business plan also outlines the nature of your business, any financial projections made about the business, and the strategies it will employ to achieve its targets.
Drafting a business plan is a formalization of the first step. As you write it, you are asking yourself questions about the business, about its possible strengths and weaknesses and about how you will overcome difficulties in chasing your targets.
The business plan, done right, should answer any major questions that a business owner or lender would have. It should tell the reader how the business will be run, and what to expect in terms of financial and operating results.
When writing the business plan, you will also have to consider the impact of regulation on your business.
When you have completed the business plan, you will have made a good case for the long-term viability of your idea, or discovered that your idea does not hold water. The business plan will help you get funding if you need it. Even if you are working alone and do not need external funding, a business plan helps clarify your idea.
Choose a Business Structure
When you’re starting a business, you need to decide what kind of business entity to establish. Your business structure determines the income tax return form that you will have to file. The most common business structures are the sole proprietorship, partnership, corporation, and S corporation. Another popular business structure is the Limited Liability Company (LLC), which is allowed by state statute.
Not only does the business structure affect your businesses income taxes, it also affects day-to-day operations, your ability to raise funds, as well as how much of your personal assets are under risk.
So before you register your business with your state, you should choose a business structure that gives you the right mix of legal protections and benefits.
The majority of businesses will also have to get an employer identification number (EIN) and file for the appropriate permits and licences.
You need to be very careful when you are making your choice. It is possible to convert your business structure to something else in the future, but often there are restrictions and the process is time consuming, can lead to unintended dissolution of your company, and tax consequences.
You should consult with an accountant, attorney or business counsellor before making your choice. Consult other resources to learn more.
Unless your business idea is very small, you will usually not be able to fund it yourself. You will need to get funding from external parties. Persuading external parties to fund your business. External funding can be in the form of a loan, or, of equity. External funding allows you to grow your business, cover the operational costs that are a hurdle to establishing the business, and do so faster than would be possible if you only used your own funds.
External funders will usually want to see your business plan, and in some instances, a pitch deck presentation.
If you succeed in getting external funding, you will be able to start your business with the capital it needs.
Remember to highlight the prospective returns on invested capital (ROIC) of your business, as well as the competitive landscape your business will be operating in, as well as your compelling value proposition. You see, investors want to know what percentage of the money they invest will return as profits (ROIC), how fierce the competition is -investors don’t like competition- and what makes your idea so amazing. If you can answer those three questions, you will have gone a long way toward getting funding.
Organize Your Documents
When you have got the funding your business needs, it’ll be time to start operations. Yet, before you can start hiring employees, or developing solutions, you will need to sort out all your paperwork.
As we said above, you will have to get an employer identification number (EIN), and any permits and licences. Depending on the state and the nature of your business, you may or may not need to get a permit or licence.
Check with the Secretary of State in your state to find out what permits and licences are needed to operate your business. If you did your homework right when drafting your business plan, you will know the answer to this already.
In general, every business needs an EIN. There are a number of ways to apply for an EIN but the easiest is to apply online. The online application is a free service of the Internal Revenue Service.
You should also check with your state to see if you need a state number or charter.
If you follow the steps outlined in this article, you will have an edge in ensuring that your business idea becomes a great business. It’s vital to stay on top of the regulatory requirements at a federal and state level. It’s also vital to be brutally honest in your research. Welcome information that suggests your idea won’t work. For your idea to truly excel, you need to let it be challenged.