Steps to start a small business

Starting a small business can be exciting and challenging, but it requires careful planning and execution. It's important to have a well-developed business proposal that meets an untapped need so that your idea can turn into a successful business. This guide offers ten helpful steps to starting a business and move your business idea in the right direction.

1. Decide on a business idea

When you are considering how to start a business, think about your strengths and interests. Brainstorm business ideas you are passionate about. Find inspiration from the current trends or things missing in the market. Ask yourself these questions to help narrow down your business ideas and options.

• What are your passions?
• Is this something you could do forever?
• How do you feel about interacting with people?
• What type of funding do you have?
• How much time do you have to dedicate to this business?
• What skills do you have for this business and what do you lack?

2. Validate your idea by conducting market research

When beginning your research, consider how you will set your business apart from your competitors so that you can feel more confident that your product or service will have a hungry audience.

• Research information about prospective customers and competitors.
• Investigate if your business idea is in demand.
• Find data, conduct surveys and obtain feedback from your target audience.
• Perform a SWOT (strengths, weaknesses, opportunities and threats) analysis.

3. Write a business plan

When thinking about running a small business, a business plan can help you organize your thoughts and clarify your business idea. A typical business plan includes:

• An executive summary, company description, organizational structure and market analysis.
• A description of your service and the benefits of this service.
• A list of your business goals and strategy for ways to achieve them.
• Details of your marketing, financial and operational plans.
• Budget startup cost such as advertising, supplies, licenses, technology, employee salaries, location and insurance.

4. Explore funding options

While it can be tempting to keep all your finances together, especially when there aren’t too many business expenses at the beginning, it may not be as simple down the road. Some costs could be a one-time expense to help get the business up and running, while others are reoccurring costs. As a small business owner, you can seek funding opportunities through investors, loans, grants or explore crowdfunding to raise money. Research the various funding options that best fit your needs:

• Angel investors are typically wealthy individuals who want to invest in your business idea in exchange for ownership equity because they believe it has potential. Typically, there are no monthly repayments involved, but angel investors may desire a decision-making role in your business. An angel investor usually is motivated more by supporting entrepreneurs rather than seeking financial gain unlike a venture capital. Learn more about angel investors to see if this venture would be the right option for you.
• Crowdfunding comes from gathering small amounts of money from a large group of people who aren’t investors because they don’t share ownership or expect a financial return on their money. This funding comes from online campaigns and social networks. Some well-known crowdfunding platforms are GoFundMe and Kickstarter. Platforms such as these could be ideal because it tends to be low risk for business owners, but crowdfunders do sometimes expect some type of gift for their contributions. This gift can be in the form of your business offering a service.
• Self-funding also referred to as bootstrapping, allows you to find your own resources to fund your small business. This form of funding can come from a personal savings account, family, friends or even your 401k. If you decide to withdraw from your 401k, reach out to your financial advisor or plan’s administrator to find out if you will incur any fees or penalties. Self-funding can be one of the fastest ways to finance your business without incurring debt but can also result in losing your savings if your business fails.
• Small Business Administration (SBA) microloan is funded by the SBA for startups, businesses located in lower income neighborhoods and companies owned by women. An SBA microloan offers up to $50,000 for capital, inventory, supplies, equipment and furniture. These lenders generally require some form of collateral and guarantee.
• Small business grants are given to small business owners by government agencies, non-profits and private organizations. A grant may be more desirable to a small business owner because it does not require repayment and is considered free money. Grants require more time because it entails additional research for available options and a written grant proposal. Billions of dollars are given out each year for small business grants. Learn more about the various federal, state or corporate grants like Visa Everywhere Initiative and Walmart,
• Small business loans can be ideal for those without the funds needed to start their own business, but who are interested in maintaining full ownership of the business. Once you have determined the startup costs needed, you can go to a traditional bank, online lender or a credit union to apply for a small business loan. Shop around for the best term options and lowest interest rates available for you. A small business loan is typically paid in a lump sum and the borrower will make monthly payments to the lender.
• Venture Capital, like angel investors, are investment firms that can help fund your business, but may require an ownership share and desire a role in your company. A venture capital is not a loan but invests capital for equity. This form does take a higher risk for higher returns and is a longer investment than your traditional financing. A venture capital is geared more to high-growth companies because of the risk in return if a business does fail.

5. Complete legal requirements and register your business

Before getting your small business up and running, make sure to complete any legal requirements for your business. Below are some common requirements.

• Decide on your business structure. Is your business a sole proprietorship, a partnership or something else? The Internal Revenue Service (IRS) can provide more information on types of business structures.
• Most states require you to apply for one or more licenses, permits or identification numbers. Learn more about the small business requirements for your state.
• Determine a business name and register it.
• If you plan to employ people to help run your small business, you must apply for employee identification numbers through the IRS and familiarize yourself with the employment laws.
• Understand tax obligations and consider hiring an accountant. Determine whether you will use the calendar year or a fiscal year for taxes.
• Apply for insurance to help protect the investments you’ve made — coverage can vary by business.

6. Set up your business finances

• Keep your business and personal finances separate.
• Open a separate bank account for your business.
• If needed, apply for a business credit card with low interest rates.
• Purchase accounting software to help track expenses and revenues or hire an accountant.
• Find the right payment system such as a credit card processor.

7. Find the right business location

• For retail stores, traffic and accessibility are important.
• Consider nearby competition.
• For online businesses, create a user-friendly website with a trusted host.
• Research taxes, regulations and zoning laws before deciding on your business location.

8. Prepare for retirement

• If you're starting a business without any employees, an individual 401k plan may be a good option for you.
• If you are planning to have employees outside of yourself and your spouse, look at the Savings Incentive Match Plan for Employees (SIMPLE IRA) or the Safe Harbor 401k plan. Offering a small business retirement plan can serve as a means for attracting and maintaining employees.
• Include your retirement plan costs in your business financials.
• Consult with a financial advisor on ways to boost your retirement savings.

9. Market your business

• Identify your target audience and use the top channels to reach them.
• Design a marketing plan that speaks to your customer base and sets you apart from competitors.
• Use social media platforms, flyers and local newspapers to help promote your business.
• Offer promotions or loyalty programs to help attract more customers.

10. Create a web presence

• Create a user-friendly website that represents your brand and makes purchasing easy.
• Optimize your website so potential customers can find you using specific keywords through search engines.
• For online business, find e-commerce platforms that best fits your service.
• For an e-commerce business: choose a memorable domain name that aligns with your brand, find dependable e-commerce platforms that meet your business needs and find safe payment gateways to help provide security for your customers.

Once you have decided on your small business idea, consider researching start-up tips to help you get going. It may take time, but patience and perseverance are important when starting a small business. With a detailed plan and dedication, your dreams can become a reality.

Also talk to your State Farm® agent about small business insurance needs.