What You Need to Know Starting a Small Business in 2018
As another year winds down, many people, particularly those who are unsatisfied in their careers, begin to assess whether now is the time to begin working for themselves. Some may choose to go out on their own in their current industry. Others may take the opportunity to pursue a long-time passion. Yet others may simply want a change of lifestyle and try something totally different from what they have been doing.
Whatever the case, starting a new small business in 2018 will require a large amount of preparation. It begins with writing a business plan, securing financing to do it, and then putting the plan into action.
- Write a business plan
A well written business plan provides a roadmap of your company plans to do and how it will get to profitability. Unless you are planning to self-fund a venture, the business plan becomes a crucial document in helping you secure the funding needed to launch and grow a business.
Startup businesses must convince bankers, investors, or family and friends to risk their money by funding a new venture. If you need to obtain a small business loan to start the company, creating a solid business plan will help make the case to a potential lender to provide the financing.
Include a one-page executive summary that lists the most important aspects of the business. It may, in fact, be the only part of the business plan that a potential funder will even bother to read. Thus, it is critical for the summary to be convincing. The summary should explain the need in the marketplace that the business will fill, how the company plans to fill that need, the target market, location, management team, marketing plan, and financial benchmarks.
The overall document should list the products and services that the firm will provide and what the company’s competitive advantage is. In describing the target market, explain the demographics, location and mindset of the primary customers. Next, outline the strategies that will be used to reach those customers and the measurements of success.
The plan should list the key management team that will guide the venture and detail why they are the right people to lead the organization. (This section should include bios.) Lastly, cover the financials of the business: how much money you anticipate bringing in and the amount of money that must be spent to do it. Outline costs including rent, equipment, inventory, employee hiring, insurance, utilities, and assorted fees. Present a realistic sales forecast, Profit & Loss (P&L) statement, and balance sheet.
- Secure funding
There are many sources of small business funding. Many aspiring entrepreneurs have put money away for a number of years in order to pursue their dreams of small business ownership. If they have saved enough, they can self-fund their efforts.
Others put their business purchases on credit cards. This is not an optimum way of doing things because credit cards usually have high interest rates associated with them. Yes, they are relatively easy to attain, but using credit cards to fund a business venture can be expensive.
Securing a traditional small business loan or an SBA loan is a common way to obtain funding. An SBA loan is not made by the government, rather it is made by a lending institution – usually a bank – that assumes the risk of making the loan because of government guarantees in case of default.
SBA lending has been robust in 2017. The agency recently announced its 2017 fiscal year lending figures, which showed an increase in loan levels through the popular 7(a) and 504 loan programs, as well as increases in lending to women, veterans and emerging communities. In total, SBA approved over 68,000 loans in the 7(a) and 504 loan programs in FY17. These programs provided over $30 billion to small businesses.
Use the internet to utilize small business lending platforms that can connect borrowers with banks, credit unions, institutional investors and micro-lenders who are ready to lend money. According to the most recent Biz2Credit Small business Lending Index (October 2017 figures), big banks are approving one-in-four loan applications, while smaller banks are granting nearly 50 percent of their loan requests. This is encouraging news for budding entrepreneurs. With an economy that seems to be on solid footing, the outlook for securing small business financing in 2018 looks promising.
- Launch the business
Be sure to incorporate the business to create a formal legal structure that proves to a potential lender that the business is serious. An accountant or service, such as LegalZoom, can help set up an LLC, C-Corp, or S-Corp structure. The business entity will help separate personal assets from business assets, thereby protecting your home and other valuable possessions from business creditors should things go wrong.
Register your business with the state, establish a federal employer identification number (EIN) in order to be able to open bank accounts or credit cards. Secure necessary licenses, and permits and register for a website domain. Having a website provides legitimacy. Being active on social media such as Twitter, Facebook, Yelp and Instagram to help build buzz.
Join the local chamber of commerce to setup a ribbon-cutting event with members and local officials. Begin networking and spreading the word quickly about your new venture. Put substantial effort into getting the word out so that crowds will turn out for your opening day.
After all this has happened, it is time for your company to deliver on its business promises. If you do your job well, repeat customers will keep coming back and the company will be well on its way to profitability.
If you need help, SCORE, which has served as America’s premier source of free business mentoring and education for over 50 years, has plenty of resources available. SCORE matches entrepreneurs with retired business executives who serve as mentors. Additionally, the organization provides training courses at its local offices, webinars and online courses. These services are available for free or at reduced rates.