Starting a small business is exciting, but it can also be daunting. Before you hit the ground running with your newest venture, it’s important that you have a plan and the resources to make it successful. Defining your business and forming and implementing a plan are just a couple of the first steps to starting and maintaining a healthy small business.
How to Decide on the Type of Business
Deciding what type of business to start requires taking into account many different variables, including, but not limited to, one’s skills and abilities, passions, demand for the product or service, and the startup cost. Taking stock of what you’re skilled in and where your passions lie may be a good starting point to determine what type of business one would enjoy owning and operating. After all, it’s much more rewarding to do a job you love, excel at, and which people need, than just a job that you’re able to make a living doing. A type of business also refers to the business format one chooses to establish.
There are four types of business setups: a sole proprietorship, a partnership, a corporation, and a limited liability company (LLCs). Each type of business format comes with its own set of advantages and disadvantages; so it’s important that one researches their options. Here are a couple key points about each to be considered:
Sole Proprietorships
- This is the simplest form of business ownership; you are the one owner and make all business decisions.
- As the sole owner, you don’t have the benefit of leaning on a partner or delegating out the responsibilities that fall on you as the owner.
- There is less paperwork required; though you will be responsible for all IRS and tax filings.
- You have unlimited liability; in the event of a lawsuit against your business, you are at risk of losing all assets, both on a business and personal level.
Partnerships
- In a partnership, either a limited partnership or a general partnership, there are two more owners involved in the decision-making process.
- General partnerships have unlimited personal liability, whereas limited partnerships may be liable, but that liability is limited to that amount they put into the business.
- Limited partners, while still partners, do not take part in the day-to-day processes; otherwise they risk having their liability protection revoked.
Corporations
- Unlike sole proprietorships and partnerships, corporations make it possible for a business owner to separate their personal assets from business assets.
- Corporations often have shareholders to whom the company is responsible and they may be involved in major company decisions.
Limited Liability Companies
- This classification holds some of the properties of a partnership and some of a corporation’s.
- Business owners are afforded limited liability
- In regard to taxes, LLCs are treated similarly to proprietorships.
How to Write a Business Plan
Once the idea for a small business has been conceived and it’s deemed there is enough potential to pursue the idea, one needs to form a business plan. Your business plan is a living document that includes many different facets, including your mission statement, processes and procedures that lay out decision-making and operations, and so much more. The document also takes a detailed look at your target audience, who they are, and how to reach them.
How to Finance a Small Business
There are several different ways in which a small business can be financed. A partnership in which all parties contribute financially in equal or differentiating amounts is common. Business owners might also take out loans, either business or personal, to finance their business. Some go as far as to personal mortgage properties in order to obtain startup capital or in times of great financial need. When opening a new small business, consider what, if any, federal, state, or local government tax incentives their might be available to you. These tax breaks aren’t financing in a traditional sense, but dedications received may be put back into the business over time, alleviating some expenses.
Business owners may also choose to approach and present their business plan to potential investors that could provide capital. Investors are not the same as partners; investors put money into a business in the hopes of gaining a return on their investment (ROI). Partners shoulder any monetary loss and ensure that investors receive their ROI; investors do not share in a business’s loss and share no responsibility for the business. In some cases, an investor might require a share of the business, rather than their return on investment. In these cases, the individual may still be considered an investor, rather than a partner, but holds a lasting interest in the wellbeing of the business.
How to Operate Your Small Business
How you operate your small business is very specific to the nature of your business. Your business plan will outline all necessary operations and functions, creating a blueprint from which daily, weekly, monthly, quarterly, semi-annual, and annual operations can be planned out in greater detail. Regardless of the business you’re in there are a few commonalities that cross over most industries. Proper bookkeeping and accounting, staffing, and product or service processes are all aspects of business that are important to the function of any business, regarding the niche they operate in. Covering these very important basics will help to ensure that your business is operated in accordance with all local, state, and federal laws. Proper staffing and product/service procedures will also go a long way in maintaining a level of consistency and customer satisfaction that both attracts new business and keeps repeat customers coming back.
