Author: David Carpenter / Source: Lifehack
If you’ve ever thought about starting and running your own business, you’re not alone. Being your own boss, having flexibility with your schedule and keeping more of the financial rewards that come with business ownership are all good reasons to own your own company.
But as you might expect, it’s not all vacations and fat bank accounts. According to the SBA, 2/3 of businesses survive at least 2 years and approximately 50% survive 5 years.[1] So why is the failure rate so high? At least for the businesses that fail early on, lack of, or poor planning can be a major factor.
So how to start a company?
Starting a business from scratch doesn’t have to be hard or complicated, but it does take planning and work. Here are the first and most important 9 steps to take when your are starting a company from scratch.
1. Do an Honest Evaluation of Yourself
Do you work better in a structured or unstructured environment? Does a daily routine reduce your anxiety? What kinds of things are you good at? Does public speaking or making presentations make you nervous? Are you good at accounting and numbers? Can you handle the rejections you’re bound to get when selling or cold calling?
These are all important questions to ask yourself, in fact it’s a good idea to get other peoples opinion about their perception of you in each of these situations.
Whatever the answers you come up with for your evaluation, remember that’s all it is, an evaluation of where you are now. Think of it as a way to identify both your areas of strength and weaknesses.
You maybe good at public speaking which can help when raising money, but bad at accounting which just means that you’ll need to find some kind of help with that area of the business.
2. Evaluate Your Idea
If your business idea involves a new product or service (or even an enhancement to an existing product or service), it needs to be evaluated. This is technically called market research.
There are firms that specialize in doing market research for new products, but if you are on a tight budget, you can do this yourself.
First, if you can build a prototype for people to use, touch and look at that’s the best option. If a prototype is not possible or it’s a service business, then offer a highly descriptive presentation of the business plan complete with it’s unique benefits and how it’s different from the competition.
Then listen! Remember that this is not about others liking your product, this is not your baby that they are talking about. You want honest market research that gives you the best chance for a successful business. Take notes, when someone tells you that they didn’t like a feature or some aspect of your idea tell them ‘Thank you”.
After several rounds of market research with different groups of people, you should see patterns emerging about things that they both liked and didn’t like. Use this information to tweak your product or service and do another round of market research.
Keep in mind that you’ll never come up with a universally loved product, your job is to produce a product or service that appeals to the broadest range of your target market.
3. Make a Business Plan
I know, I know this isn’t the “fun” part of starting your own business, but it is an very important step in creating a successful business!
Basically, you can think of a business plan as an outline or blueprint of your business. A good business plan should have the following elements:
- Executive Summary – This should lay out the businesses product or service and the problem that it solves for the consumer.
- Market Evaluation – This should talk about the market you are serving. Is it an expanding market, and how does your product better fulfill the consumers in that market.
- Market Strategies – How are you going to penetrate the market and sell your product.
- Operational Plan – How will the company run from day to day? Who are the key employees and what are their specific rolls. Do your key players have specific goals set for them in advance?
A final word on making a business plan: while lying is never acceptable especially when you are using the business plan to raise money, it is acceptable to “put your best foot forward”.
Playing up the positives while minimizing the negatives is almost expected in a business plan.
Besides, banks as well as professional investors will both do a more in-depth analysis before investing any money into your idea.
4. Decide on a Business Structure
You have many options here, and discussing them with your accountant or financial adviser is really the only way to know what’s right for you. But just to give you a quick rundown of the types of business entities and their pros and cons we will briefly go through them:
Sole Proprietorship
This is a common way for small businesses to get started.
The pros being:
Relatively low costs to set up (usually a business license and sales tax license).Owners normally do not have to set up a special bank account, they are allowed to use their personal one. Any income earned can be offset by other losses (check with your state!). You as the sole proprietor have complete control over all decision making.
Finally, sole proprietorship’s are relative easy to dissolve.
The cons of using a sole proprietorship include:
You as the sole proprietor can be held personally responsible for the debts and liabilities…
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