For many people, starting their own business would be a dream come true. Deciding what to sell and how to market it, bringing on your very own team, and even setting your own hours all have a huge draw.
That leads thousands of entrepreneurs to start their own businesses each year. Before getting started, though, it’s critical that you know exactly what steps to take when building your own enterprise. Starting a business may sound like fun, but before you can enjoy the fruits of your labor, you’ll have to work hard — and smart.
In this post, Mint will walk you through the basic steps every aspiring business owner should take when getting started. Here’s a list of the topics we’ll cover:
- Building your idea
- Writing a business plan
- Legal requirements for starting a business
- Funding your business
- Growing your business
- How to start a business: key points to remember
If you’ve already gotten started, use the links above to jump ahead. If you need a comprehensive guide, read from start to finish; and be sure to bookmark sections with resources you’ll need to come back to often.
Note: If you’re struggling with unemployment, or your business has run into hard times due to the COVID-19 pandemic and economic downturn, Mint has put together a live list of the best money resources currently available.
We’ll start with the first step to starting a business that every aspiring small business owner, startup founder, or entrepreneur must make: building an innovative new idea.
Building your idea
Before knowing how to start a business, it’s smart to know what your business will actually be. Your business idea is the central pillar of your enterprise. It’s your idea for a solution, product, or service that people genuinely want and will pay you money to obtain — enough money for you to turn a profit.
During this phase, you’ll have to spend serious time brainstorming the various ideas that you have and intend to monetize. Maybe it’s a novel social media service innovatively connecting customers over the internet. Maybe you invented the most convenient kitchen appliance since the can opener. Or maybe it’s something as trusty and timeless as a local hardware store.
No matter what it is, it’s important to spend time seriously thinking about how you’ll monetize the idea you hope to bring to life. Your business’s early success will likely depend on your ability to quickly turn a profit. So, what can you do to ensure that your idea will be profitable? You can start by investing time and a little cash in market research.
Researching the market
Market research is a way to test the viability of your idea. In conducting market research, you should aim to answer questions like: is there a likely customer or client base for my idea? Is the market saturated — i.e. are there already too many businesses in my industry? What will set me apart from the competition?
There are two basic categories of research questions to ask when conducting market research on your business idea:
- Qualitative research: This includes questions about your business’s goals, your branding, and what problem you aim to solve for customers.
- Quantitative research: This line of research focuses on the math-y side of things, including questions on the size of your intended market, and how much profit you can expect to make in the industry you’re breaking into.
How well you can expect your business to perform on the market will be part of what determines the viability of your business idea. However, in addition to an awesome idea people actually want to engage with, you’ll also need a solid plan for running your business.
Writing a business plan
Knowing how to start your own business means being aware of the risks. Only about 50% of small businesses survive the first 5 years. Why do they fail? Everything from mismanagement and poor investment to simply not having a strong enough idea or not getting the word out about their products.
A business plan is your strategy to be in the 50% of businesses that survive. In it, you’ll include features like your business idea, the results of your market research, and how you plan on executing on your idea. You’ll also include information on what the management and worker structure for your business will be, how you’ll handle internal finances, and whether you have any plans to scale your business.
- Resource: You can use Credit Karma’s step-by-step guide to writing a business plan if you need a little extra guidance walking you through the process.
A business plan is an asset for two critical reasons:
- You’ll use your business plan to make sure you’re staying on-track as your business develops. For example, you can include benchmarks in your plan, then measure your actual progress against them to determine how successful your business has been, and whether anything needs to change in order to get you where you need to be.
- Your business plan will help prove the value of your enterprise to investors and lenders. For instance, if you happen to land a meeting with someone interested in partnering with you or investing a large sum of money in your business early on, you’ll use your business plan to prove to them that their effort and investments will provide profitable returns for them.
Once you have your idea, you’ve researched it and fleshed it out, and you’ve put together a rock-solid business plan, you’ll need to start thinking about the legal hurdles associated with starting your own business.
Legal requirements for starting a business
First, it’s important to note that every line of business has its own set of laws to consider when starting out. If you plan on selling CBD or other cannabis products, contracting with gig workers to perform tasks, or using toxic chemicals to manufacture goods — just to name a few examples — you’ll have to do extensive research on the particular legal restrictions in your industry.
No matter what industry you plan on breaking into with your business, it’s important to consult with legal professionals who are experts in that industry to ensure everything is above-board. It’s also smart to review state-specific legislation regarding your industry during this phase, too.
In addition to whatever industry-specific legal constraints there are to be aware of, there are also legal requirements that any business will have to satisfy when first getting started.
Naming your business
Naming your business is an important part of starting your business for a few reasons. It’s the name you’ll operate under and what you’ll call yourself, of course, and it’s also something that factors into your marketing strategy, but you might not realize that it’s legally important too.
There are already millions of businesses out there, each of which has a name and legal ownership of that name. Be sure that you choose a unique name that belongs solely to your business. You’ll then use that name for the next step.
Registering your business
Depending on the type of business you’re starting and the state and county you plan on operating from, registration requirements can vary significantly. It might be as easy as registering your business’s name with local governments — or you might not even need to register at all.
If you have a physical presence in a state, including working with clients, selling products or services, or hiring employees, you’ll typically need to register with the state government. LLCs, non-profits, and a few other business types need to ensure they work with a registration agent, a point of contact that helps keep legal documents in order.
During this stage, you’ll also need to register to get state and federal tax ID numbers. These are basically social security numbers but for businesses, and you’ll use yours when doing taxes or working with state or federal governments. Most cities and states also require that you obtain a business license as well as relevant permits for some industries. Some industries also require federal permits to operate legally.
- Resources: For an in-depth look at registering your business, you can review the information on SBA.gov. They also have information on business ID numbers and licenses and permits.
Funding your business
Your next step, once you’ve satisfied all the necessary legal requirements, is to figure out your source of startup funding. Funding can be one of the most difficult aspects of starting a business because getting started can actually be pretty expensive.
In fact, the Minority Business Development Agency estimates that the average cost of starting a business from scratch is $30,000. Some businesses can be much cheaper, especially lower-cost options like starting a freelance business online. Some can be more expensive, like starting a brick-and-mortar based store that sells expensive items, like jewelry or furniture.
Here are just a few of the costs you’ll need to calculate when figuring out how much money you’ll need to get your business up and running:
- Inventory: Your initial stock of products or the goods necessary to provide your business’s services.
- Rent: If you plan on opening a business with a physical location, you’ll need money to finance your rent, along with a down payment.
- Insurance: Businesses need insurance to protect against criminals and disasters. Be sure to add it to your checklist.
- Website: Even if you do have a physical shop, you’ll still want to maintain a web presence.
- Employee pay: If you’re hiring on extra help, factor in their hourly wages or salaries when building your small business budget.
- Marketing: We’ll focus a bit more on marketing further down; it’s smart to keep a bit of money on hand to advertise your grand opening.
- Incidentals: There are also tons of unforeseen costs that can pop up as you get started. Maybe nobody remembered to buy a stapler; or maybe the office air conditioning gives out. Keep some cash on hand to cover these expenses too.
Considering the way that these costs can quickly add up, it’s no wonder why many hopeful small business owners are unable to bankroll the entire startup on their own. That’s where other sources of funding can be helpful.
Securing funding when you have no money
If you have little or no money for startup costs, don’t worry. Your business-ownership dreams aren’t ruined yet. There are ways for those who are short on funds to acquire funding. There are three ways that you might be able to secure startup costs:
Securing money from investors through seed funding or venture capital is the top prize for most startups, and is best suited for those who see their business expanding significantly during its first few years. The local hardware store is probably not going to attract many VC’s — unless they’re completely innovating and disrupting the hardware store industry.
Highly scalable web-based companies, like the classic examples of Facebook and Twitter, are prime candidates for seed funding from investors, and eventually venture capitalist help. When an investor offers you money, it’s not a loan. Instead, they maintain an equity stake (basically, part ownership) in your company — which means that as your business becomes more profitable, their personal profits increase too.
Small business loans
Another common option, often better suited for standard small businesses, is the small business loan. Small business loans are basically exactly what they sound like: you can apply for a lump sum or line of credit that you can use to cover the costs of opening a business before you start turning a profit.
Then, like any other loan, you’ll have to pay the money back with interest. The exact terms of the loan can vary significantly based on factors like the size of the loan, the lending agency or bank, and your business credit score.
Small business loans come in all shapes and sizes, but some of the most competitively priced are SBA loans. These are loans that are insured by the Small Business Administration and financed by traditional lenders. They offer lower interest rates, making them highly desirable — which means they also have stricter terms.
- Resources: If you’re unfamiliar with business credit, be sure to read through Credit Karma’s guide to business credit scores first. You also can read a comprehensive guide to SBA loans on the Turbo blog.
Crowdfunding is a newer option available to small businesses and entrepreneurs. Sites like GoFundMe, Kickstarter, and Patreon make it easier for small businesses, freelancers, and creators to get the funding they need without the hassle of obtaining a loan or hunting for investment funding. For those who are looking for a smaller side-business, crowdfunding can help fuel some of the best passive income ideas.
This is an especially popular option for creatives that make online content — like podcasts, blogs, and YouTube videos — but can also be a great way for inventors and innovators to get funding. If you have a great idea for a new product or service, you might think about making a post on a crowdfunding site to see whether people are interested in your idea.
- Resources: Looking to start small and prove your business concept? You can start an Amazon business for lower cost than a brick and mortar store. Read our guide to starting an Amazon business here.
Growing your business
Once you’ve made it past the first few months and have hopefully started to turn a profit, it’s time to set your sights on where your business will go in the future. The way you grow your business depends on the industry you’re working in: if you’ve started a freelance content creation business, you might seek to expand to more clients; if you’re running a little shop for soaps and candles, you might want to think about hiring extra help.
As you expand, be sure that you continue to abide by whatever laws, regulations, and restrictions are in place. For instance, if you have a small restaurant but are looking to grow into a larger one, you might need to go through the process of obtaining a liquor license, if you choose to serve alcoholic beverages.
Another aspect of expansion to keep in mind are your small business finances. Accounting and bookkeeping, for instance, are two of the most important factors of running a business. Only by carefully looking at your balance sheets will you be able to definitively tell whether an expansion is possible. Often, knowing how to start a company means knowing how to manage your financial picture carefully.
- Resources: For more advice on small business accounting, check out the QuickBooks resource page. And, for tax tips for starting a new business, TurboTax has you covered.
Once you’ve made sure that continued growth is in the books for your business, another factor to consider is your marketing and branding profile.
Marketing and branding
Marketing and branding are two of the most critical pieces of your business model. With likely dozens of businesses in your niche that you may be competing against, clever marketing and user-friendly branding are two features that can help you stand out from the crowd.
Depending on the industry you are in, there are a few different marketing avenues that you can use to get yourself started:
- Email marketing: This is a tried-and-true web marketing strategy. On your website, include a pop-up that asks users to enter their email to receive news about discount codes. Then, once you have their email, you can use it to send out newsletters, updates, and promotional material about your newsletter.
- Social media marketing: Paying for space on someone’s social media feed is a great way to ensure that your message gets exactly to the people most likely to want to hear it. Social media’s algorithms deliver users ads tailor-made for their interests, making it a great way to boost your recognition in the demographic you’re targeting.
- Traditional marketing: If your demographic is a little older, or if you run a small business that caters mostly to locals, you can consider using more traditional modes of advertising — like newspaper ads, local TV spots, and even billboards and bus bench ads.
No matter what marketing channels you use, it’s important to have consistent branding. Branding is essentially the image that your business projects into the world. Your exact branding strategy depends on the type of business you are — an auto mechanic will have very different branding from a donut shop, which will be different from a book store — but the most important thing is that you develop a strategy and keep it consistent.
- Resource: For more about marketing and branding, check out our article on how to write a marketing plan.
Branding involves a few skills like copywriting, graphic design, and strategy — be sure that you invest time in these skills, or hire a professional who can help you with these areas once you’re confident you can afford to.
How to start a business: key points to remember
There’s a lot to keep in mind when learning how to start a business, so be sure to bookmark this page for reference later — and to keep all the linked resources nearby as well. Before you go, here are a few key points to keep in mind as you continue your research into starting your own business:
- Start by conducting qualitative and quantitative market research on your idea. Workshop your concept until it’s something that you’re confident will succeed on the market.
- Write a comprehensive business plan detailing your business and sales strategy, the structure of your business, and how you plan on growing in the future.
- Carefully research legal requirements that apply to your business; acquiring permits, getting registered, and choosing a unique name should all be part of this step.
- Secure funding for your business either by self-funding, taking out a loan, looking for investors, or opting for crowdfunding — be sure to research ahead of time which option best suits your business model.
- Make plans to grow your business, including plans for hiring employees, and increasing your customer and client base through savvy marketing and branding.
Learning how to start your own business is not an easy endeavor, but it can be an incredibly rewarding one. As you work your way through the various steps listed here, remember that this is your business — and that’s an impressive achievement. With careful planning and strategic execution, your business ownership dreams can become a reality.
Looking for more ways to learn about entrepreneurship? Parents might also be interested in our guide to how to teach kids about business.