Making the decision to launch your own small business is a huge undertaking—but as a small-business owner, you’ll be in popular company. Small businesses make up 99.9 percent of all United States business, according to 2017 data from the U.S. Small Business Administration (SBA), and employ 57.9 million Americans. The size of a business—which determines, among other things, what kinds of financial aid and loans your business is eligible for—is governed either by the number of employees or the money generated doing business. A retail bakery, for example, can have up to 500 employees and still be considered small by the SBA. The SBA also has tools to determine whether your business qualifies as a small business.
Small businesses were responsible for the creation of 1.4 million new jobs in 2017, according to the SBA’s data, and the 2014 census put the percent of U.S. businesses with under 500 employees at 99.7 percent—there’s strength in small numbers.
If you’ve been looking to start your business for a while, you might already have your business plan figured out, your space chosen, and many of the details sorted. Even then, there’s a lot more to do. And while your enthusiasm is crucial for getting your business up and running, there are plenty of pitfalls to look out for in the planning stage—and even the idea stage. Steps to take, and mistakes to look out for, can be found below.
Is there a market for your great idea?
“I think many entrepreneurs and aspiring business owners try to build a business around their skills or their hobbies or interests, rather than studying what the market wants or needs,” warns Marcia Layton Turner, the author of The Unofficial Guide to Starting a Small Business and a former marketing professional and consultant. “I understand why they do this, because there are books like, Do What You Love, The Money Will Follow’ but that’s really not always true. It’s great if you’re the best cake decorator you know, but are people going to be willing to pay you enough to bake and decorate your cakes once you’re doing it as a business, so that you can be profitable?”
Steering yourself towards a practical goal, rather than taking the simpler approach of focusing on your likes and interests, is just one of the tough but important steps involved in creating your small business.
Outline a budget
Many small businesses fail when they don’t ensure that their finances are aligned. It may help to have investors if you can swing it, but if not, a detailed budget is a necessity—and sticking to that budget is also integral, as is outlining one that reaches far enough into the future. “A start-up budget needs to take into account all of your known major expenses for the first year or two,” Turner says. “You should think as far out as you can. I think too few business owners think beyond six months because they assume after six months they’ll have enough customers and enough cash flow. So if you can think out a year or two and then amass all the money that you need, you’re going to have a better chance for survival.”
Decide whether you want to be an LLC, sole proprietorship, cooperative, nonprofit, etc.
Choosing how you want your company to operate legally depends on the direction you want to proceed. For instance, a corporation has very different values than that of a cooperative. Depending on which option you choose, your tax season may be very different. In this case, it’s wise to seek the advice of an attorney or accountant to make sure you settle on the right option. “It’s always smart to consult professionals when you’re not sure what you’re doing,” Turner says. “An attorney should really be your first call to discuss what legal structure makes the most sense for your business.”
Register for taxes
You’ll need to register your newly founded business for state and local taxes. In doing so, you’ll receive a tax identification number. You will also be encouraged to purchase business insurance.
Create a website and social media accounts
A strong and healthy online presence is essential in the business world, and a new small business can’t afford to be left behind from the onset. Making sure your website is user-friendly and cohesive will make or break the relationship your business has with clientele. It also helps to have an active social media presence to develop new clients.
Ensure you have all necessary licenses and documentation
Nothing would feel worse than getting your business organized and ready to start work only to be denied because you didn’t have the correct licenses and documents in place. The advice of a qualified business organizations attorney can help you avoid costly delays.
“Obviously it’s important to do things properly so you’re not losing money and time dealing with regulatory or licensing issues,” says Richard Lieberman, a business organizations attorney with Jennings, Strouss & Salmon. “Lawyers can help you make sure you’ve got the appropriate licenses for your business; they can help you organize your company to make sure you’re taking advantage of tax laws and liability protections; they can help you document arrangements with your business partners and investors, to make sure that your rights and their rights are set forth while you’re happy to do business with each other so that when things change you have those things ironed out—rather than paying litigators to fight over what you’ve built.”
Further, speaking with an attorney in the early stages of your planning can help you protect your intellectual property and hammer out fair payment structures for your employees, which will both help to prevent any lawsuits later on.
Do your research and have all federal, state, and local permits and licenses in order before launching. Along with advice from an attorney, the SBA has information on the forms you’ll need, along with online courses and guides, available on their website.