As 2017 comes to an end, countless people will begin to reassess their careers and consider going into business for themselves. Some may stay in their current industry but take steps to start a small business on their own and perhaps take some of their current customers with them. Others will look to pursue a long-time passion or find a franchise opportunity and try something entirely different from what they’ve done before.
Launching a business takes a significant amount of preparation. Step one is to write a business plan. Step two is to secure the financing required to get the company up and running. Step three is simply to go for it; put the plan into action and pursue your business goals. Let’s break it down.
3 Steps to Start a Small Business
1. Write a Business Plan
A business plan provides a roadmap for your company’s success. The document outlines business goals and explains the company’s plans to reach them. Entrepreneurs in search of startup money use the plan to express their vision to potential funders. In this way, the business plan is a crucial element in securing the capital needed to launch and grow a business.
Aspiring entrepreneurs must convince investors – whether they are family and friends or bankers – to fork over their money to finance a new enterprise. For anyone seeking a small business loan to start a company, writing a strong business plan will make the case for funding the business.
The most important part of the business plan is the one-page executive summary that provides a brief overview of the venture. Since it may indeed be the only portion of the plan that a loan underwriter will read, the executive summary must be convincing. It details the need that the business will fill, how the company will endeavor to do it, the primary target market, location, leadership team, and marketing strategy. Naturally, it will outline costs, pricing, anticipated revenues and financial milestones.
The document must describe the products and services that the firm will offer and the company’s competitive advantage. Include the demographics and psychographics of the primary target market, as well as the location where the business will be based. Don’t forget to detail the competitive landscape, including other companies’ strengths and weaknesses. List the strategies that will be used to reach customers and, of course, define the measurements of success.
The plan should provide the names and bios of the executive management team and detail why their experience is relevant to the new venture.
Most importantly, explain the financials of the company: estimate the cost of launching the company and project your revenues for the first year and beyond. Include costs such as rent, utilities, staffing, equipment, inventory, insurance, assorted fees, and advertising/marketing expenses. Present a realistic sales forecast, Profit & Loss (P&L) statement, and balance sheet. A planning app like LivePlan can help with this step. See also these planning resources.
2. Secure Funding
Securing funding is one of the most important steps to start a small business.
Banks are common sources of small business funding, but are not the only ones. Some aspiring business owners invest their life savings to pursue their dreams. Others will turn to family and friends.
Today, thanks to technology, small business owners can acquire capital from a local bank or from an institution located across the country that has online loan applications available. Online lending platforms, such as Biz2Credit, can connect borrowers with other types of lenders, including institutional investors, credit unions, microlenders and other types of non-bank lenders.
Securing a traditional small business loan or an SBA loan is often the best option to find funding. Banks typically offer lower interest rates than non-bank lenders, who charge a premium for the speed by which they approve funding and their willingness to take on risk. An important thing to note is that an SBA loan is not actually funded by the government. Instead, SBA loans are made by a lending partner – usually a bank – that assumes the risk of making the loan because the agency guarantees the loan in case of default.
SBA lending has been quite strong this year. The Small Business Administration recently announced its 2017 fiscal year figures that showed an increase in loan levels through the popular 7(a) and 504 loan programs. The SBA approved more than 68,000 loans through its 7(a) and 504 loan programs in FY17. These programs provided over $30 billion to small businesses.
Use the internet to find online small business lending platforms like Biz2Credit that can connect borrowers with banks, credit unions, institutional investors and microlenders that are ready and willing to lend money.
According to the Biz2Credit Small business Lending Index for October 2017, big banks are approving 25 percent of the loan applications they receive. Meanwhile, smaller banks are granting almost half of their loan requests. This is encouraging news. With an economy that seems to be on solid footing, the outlook for securing small business financing in 2018 looks promising.
3. Launch the Business
Once you’ve secured funding, it’s time to purchase equipment and inventory, hire and train staff, and set up accounts with vendors. Incorporate the business in order to have a formal legal structure that proves to a potential lender that the company is serious. An attorney or service, such as Corpnet.com, LegalZoom.com or Incorporate.com, can help set up an LLC, C-Corp, or S-Corp structure. Incorporating will separate personal assets from business assets and thus protect personal property from business creditors if the company does not thrive.
Register your business with the state and establish a federal employer identification number (EIN) in order to set up bank accounts or open business credit cards. Be sure to obtain the necessary licenses and permits in the industry. Register the website domain so that “cyber-squatters” do not take it. Having a website provides legitimacy. Establish social media accounts on Facebook, Twitter, Instagram and LinkedIn to create buzz. Be sure to link the website to social media.
Many communities have a local chamber of commerce that can set up a ribbon-cutting with the town mayor and other elected officials. Work hard to get the word out about your company and network whenever time allows. Anyone you touch is a potential customer. Then the time comes for your company to perform. If you do it well, a base of repeat customers will develop, and they will become brand evangelists for your company.
Advice is available. For instance, the SBA offers workshops and seminars and has a lot of useful information on its website. SCORE, which has provided free and reduced cost business mentoring and education for more than 50 years, is another great resource. SCORE connects aspiring business owners with retired executives and experienced professionals who serve as mentors and gladly share their experiences.
Remember that business plan you wrote before launching? Don’t forget about it.
Revisit the plan periodically to determine whether you have stayed on course and are reaching milestones. If the company is behind, determine why and then take measures to correct the issues. Take a look at the business plan after each quarter and then tweak the plan both on paper and in practice.
After some time, you may consider expanding. If that’s the case, having an updated business plan will be instrumental in securing or additional financing. Highlight the milestones reached. These might include number of products made and sold, a benchmark sales figure, awards won, and other significant events.
Take these 3 steps to start a small business, and you will soon have the company of your dreams.