There’s nothing like being your own boss, whether you’re opening your own business in a field you already work in or venturing out onto an entirely new path. Make sure you start off on the right foot by following all of the necessary steps to set up your business for success. Put these seven items on your to-do list so you don’t miss anything important simply because you didn’t know any better.
Step 1: Create a Business Plan
Having an idea for your business isn’t enough to get started. You also need to create a solid plan outlining your goals, the steps you’re going to take to get there, and an expected timeline.
Choose between one of two formats: a traditional business plan and a lean startup plan. According to the U.S. Small Business Association, a traditional plan is much more detailed, while the lean option focuses on just the key elements of your business.
A traditional business plan is ideal if you plan to apply for any kind of business financing because lenders want to see as much information as possible on how you plan on building your company.
Here’s what it should include:
- Executive summary
- Company description
- Market analysis
- Organization and management
- Service or product line
- Marketing and sales
- Funding request
- Financial projections
With a lean startup business plan, you can limit the content to the following:
- Key partnerships
- Key activities
- Key resources
- Value proposition
- Customer relationships and segments
- Cost structure
- Revenue streams
Even if you don’t plan on applying for any type of business credit, it’s still smart to map out exactly what you plan to do to grow your company so you can hold yourself accountable.
Step 2: Prepare Financially
Next, it’s time to talk money. As a business owner, you need to think about two things: the financial health of your company and the financial health of yourself. Start by creating a projected startup budget for your business, or review this part of your existing business plan. Figure out how you’re going to pay for these initial expenses, either by bootstrapping and paying for them yourself or by finding financing of some sort.
Then think about the ongoing expenses your business will incur as you grow your customer base. If you’re selling a product, you may have to pay for orders from the manufacturer before customers pay their invoices. As a service provider, you may have to pay employees before your first customer cuts you a check. At a minimum, look at a 12-month horizon and identify funding sources in both your best-case and worst-case scenarios.
As you do this, also think of your personal financial health. If you’re funding the startup costs, make sure you still have a personal emergency fund on the side in case things don’t work out. When applying for business financing, read any loan agreement details carefully to see if you’re personally liable for repayment.
Step 3: Pick a Business Structure and Register
The next step in starting a business is choosing the right structure and registering with the appropriate government authority. Here are the most common business entity types along with a brief overview of each one.
- Sole Proprietorship: Ideal for a business owned and operated by a single person, this structure is frequently used by freelancers, real estate agents, and anyone else offering a professional service that they provide as an individual. You are personally responsible for debts and taxes (but you also get all of the business profits).
- Partnership: This structure is designed for business with at least two owners. It’s smart to create a partnership agreement outlining the ownership structure, responsibilities, and other details.
- Limited Liability Corporation (LLC): You can use this structure type with one owner or multiple owners. It limits your liability risk by protecting your personal assets.
- Corporation: This makes the business a separate legal entity that is governed by a board of directors.
If you’re unsure of which business entity is best for your new company, hire a lawyer or accountant to help weigh your options and fill out the appropriate paperwork. It is possible to change it later on, but there might be additional expenses and restrictions in place.
Also, be sure to register your business with your state and/or county. You’ll need to finalize your business name before you take this step.
Step 4: Apply for Required Licenses and Permits
Depending on the business itself, you may be required to apply for certain licenses and permits, which vary based on your industry and state. For example, if you’re becoming a real estate agent, check to see what licensing requirements are enforced by the state. You’ll need to go through training if you haven’t already and likely register with a state board.
If you’re opening a restaurant and plan on serving alcohol, you’ll need to work with your county or city government to receive the right permits. Anytime you work with a bureaucracy, it’s a slow process. Ask how long you’ll have to wait and plan your launch accordingly.
Research your field and network with other industry professionals to make sure you’re following all of the right protocols. You can also reach out to a trade association in your field to ask questions on any necessary permits or licenses for your industry.
Step 5: Hire a Team
No matter what business you open, you might consider implementing a team to help you achieve your goals. This could be in the form of full-time employees or contractors. Even as a sole proprietor, you may decide to outsource some responsibilities, such as bookkeeping, administrative work, or social media marketing.
Be sure to have contracts in place outlining payment expectations and the scope of work involved. This simple step can protect both parties. Also consider requiring a non-disclosure agreement if the work entails confidential information or if you’re in a competitive environment.
For a full-fledged business operation that needs an actual team in place, make sure you account for the time it takes to hire people, plus the growing pains any new team may experience when first working together.
If you don’t have any hiring experience, do some research to educate yourself. From IRS paperwork to payroll, there’s a lot involved in both finding the right people and managing them once they’re on board. Consider making your first hire a human resources professional who can walk you through the process to make sure you aren’t forgetting any important details. The SBA also offers a step-by-step guide to point you in the right direction.
Step 6: Open a Business Account
As you prepare for your business launch, get your financial management tools in order. Start by opening a business bank account. Regardless of your structure, it’s wise to separate your personal and professional money so you can track your profits and losses. It also makes it easy to track your expense deductions when tax season rolls around.
Many banks charge a fee for business banking so shop around for the best deal. You’ll also need either your social security number or your employer identification number (EIN), as well as a copy of your business license.
The next financial tool to put in place is accounting software. As a sole proprietor, it can help track your billable and non-billable hours, plus paid versus unpaid invoices. If you’re a large business, accounting software helps you manage employee payrolls, inventory, and more. For more complex arrangements, consider hiring an accountant to outsource some of these responsibilities.
Step 7: Start Making Money!
The final and most exciting step in starting your own business is actually making money. You should already have some type of marketing plan in place as part of your business plan. Once you begin actually doing the work, tweak any systems that aren’t working in your favor, whether it’s your invoicing process or anything else.
Also, implement frequent checkpoints on your finances to see how you’re faring. Individual service providers should make sure their pricing fits the time spent on all business activities, from actual client work to all of the administrative and marketing extras.
If you’re selling one or more products, check your profit margins as you start spending on business expenses as well. Evaluate what’s selling well and what’s lagging behind. With any type of business, you should also track your finances by season to anticipate busy and slow periods in the future.
Whether you’re on the verge of opening your doors for business or are contemplating if it’s worth the plunge, you can get a strong sense of what it takes to launch by following these seven steps. At the end of the day, every small business owner needs the drive to push through all of these essentials. With passion and perseverance, you can realize the dream of becoming your own boss doing exactly what you love every day. It may not always be easy, but it will always be yours, as long as you keep working hard.