Successfully starting a small business requires answering as many questions as possible before you open your doors rather than tackling problems after you've already launched. Researching the marketplace, writing a business plan and securing adequate capital are the basic steps to take when you start any small business.
Research the Marketplace
Determine who your competition is by looking at companies that offer the same product, service or benefit you do. Visit their stores and websites and buy their products, if possible. Talk to potential customers about what they want from a company or product like yours, and what they think of your competitors. Look at the pricing in your marketplace to help guide you as you make your financial projections. Examine where your competitors are selling and advertising. Create a demographic profile of your best target customer using age, race, ethnicity, gender, marital or parental status and other characteristics.
Talk to the vendors and suppliers who will sell you materials and equipment, and the retailers or other distribution providers who will help sell your product. Explain your business concept to them and get advice regarding what they’ve seen in the marketplace you need to address.
Find out what legal steps you need to take, such as getting a local business permit, obtaining a state license, passing health department requirements, incorporating, getting a sales tax license or buying liability insurance.
Write a Business Plan
Visit the website of the U.S. Small Business Administration to learn what goes into a business plan and how to write one. You will need to provide an overview of your product or service, an analysis of your marketplace, a marketing plan and financial figures. Look for a SCORE chapter in your area so you can get free advice from retired executives on the first draft of your plan. You can also ask business friends and associates for advice.
Create a budget, dividing it into sections that list your pre-launch startup expenses and your post-launch operating costs. The budget should include the direct costs to make your product and the overhead costs to run the business. It also should show a break-even point and the profit potential. Create a first-year budget and a three-year budget. It often takes more than one year for a business to become profitable and pay back its initial startup costs.
Create a marketing plan that provides details on the following: your product, pricing strategy, distribution strategy, advertising strategy, public relations, promotions and social media. Don’t work on your marketing communications until you’ve determined your unique selling benefit, target customer, distribution channels and your brand or image in the marketplace.
Get your personal credit in the best shape possible. Start by visiting AnnualCreditReport.com to get free copies of your three personal credit reports. If you apply for a business loan or credit card, lenders will evaluate your personal credit. Follow the steps required by Experian, Equifax or TransUnion, outlined on their websites, to challenge any incorrect information on your credit reports.
Review the budget you created to determine how much money you need to launch and operate your business until you are profitable. Calculate how much personal money and credit you have available and how much money you’ll need to raise from other sources. Decide how much of your company you are willing to give up in exchange for money from an investor. Contact your local bank to find out how to apply for a small-business loan or credit card.
Make your pitch to partners, friends and family or silent investors if you are seeking that type of money. Use your business plan to demonstrate that you have done your homework, have objective data that shows your concept is likely to work, and can project your income and expenses with hard numbers. Bankers and investors will often want to see your business plan and budget, according to Inc. magazine.
Meet with an attorney before you sign any legally binding documents to ensure you make no mistakes that can damage your company or you personally.
- Meet with an attorney before you sign any legally binding documents to ensure you make no mistakes that can damage your company or you personally.
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