Eight pillars to know when starting a small business

Starting a business is an exciting time. It can be one of the most rewarding experiences of your life. However, it can also be a bit daunting. Understanding how to start or what to do next can be confusing and overwhelming.

Everyone approaches starting a business in a different way, but most successful companies will use the same general principles. The following crucial points related to starting a business are necessary to get off on the right foot, or they will have a major impact as you build your company.

Validate Your Business Idea

Every business starts with an idea. However, an idea alone does not make a successful company. Instead, you need to take steps to ensure the idea is relevant and in demand in your area.

For example, perhaps you want to sell customized beach towels. That product is more likely to be successful in an area where there is water nearby. It might not do as well in the middle of a land-locked area.

To measure the idea for your area, you might want to consider the following to vet your business idea.

● Determine who your customers might be. Consider your ideal customer. Who is this person? Why do they want your product or service? Think about things like demographics, family life, social circles, employment, background, needs, geography, situations, and income.

● Consider your value. When you start a company, you need to add value to another person’s life to be successful. What problem are you solving by providing your goods or services? What desire or need are you meeting? The value you can add to your customer’s life will drive whether your company will be successful long-term.

● Think about the realities of creating the idea. Some ideas look great on paper, but they do not function well when put into practice. Consider whether the idea is realistic to create or build. Source whatever supplies you need and create mockups or do testing.

● Develop an advantage. Successful companies do something that their competitors do not. They have something that sets them apart from businesses that are providing similar goods and services. That advantage might be the product itself, or it could be how you offer services or pricing.

Spending a great deal of time within this planning stage can really help your business get started on the right foot. You do not want to spend a great deal of time and money on a business that does not fulfill a need for a customer or is not set up in a way that reaches the specific client you are targeting.

Write a Thorough Business Plan

Some companies try to skip the step of creating a business plan because it is time-consuming to create. However, a good business plan can really help a company get started because it forces you to think about the market, the company mission and goals, and many other aspects of the business that you might have considered otherwise. Businesses plans will often include the following information:

● Description of the company, including industry, value, objectives, and the overall business model

● Leadership team details, including whether you will involve other people in the company and what their roles will be

● Market analysis, including developing a target customer or client

● Competitor analysis

● SWOT (strengths, weaknesses, opportunities, and threats) analysis

● Funding and cost analysis

Thorough business plans can serve as a foundation for the entire company. When you feel like you get off track or lose sight of your overall goals, you can look back at the business plan to determine your original purpose and motivation.

Plan Your Finances in Advance

It’s no secret that starting a business will cost money. Most companies require some kind of startup funding, even if the investment is relatively nominal. To start, you need to consider how much money is necessary simply to open the doors. You might want to determine how much you will need to address the following costs:

● Equipment

● Employees

● Licensing and other legal fees

● Office space or physical location

● Inventory

● Supplies (including furniture if you have a physical location)

● Marketing

● Insurance

● Taxes

You might need to consider outside funding sources, such as angel investors or getting a business loan from a friend, family member, or financial institution. Grants are occasionally available from federal and local governments for some industries. Alternatively, going through this type of cost analysis will help you realize how much you may need to save up before moving forward with creating your business.

Many business owners realize they will need some capital to get started, but they sometimes overlook how much cash they will continue to need as they get the company started. A lot of small businesses (and even larger companies) will operate at a loss for the first few years as they become established. Having enough funds to get through this period is critical.

Form a Legal Business Entity

Creating a business entity has a lot of advantages. It legitimizes your business and helps protect your personal assets in case the business does not do well or gets sued. Depending on the industry in which you operate, having a legal entity can significantly cut down on risk.

Not every company will need to create a separate legal entity. However, as most companies grow and build, they often want to form a corporation or limited liability company (LLC). Whether you should use a corporation or LLC will also depend on how many people are involved in your company, your personal goals, and how big you expect your company to become.

Understand Your Tax Liabilities

Business taxes can be extremely complicated. However, misunderstanding or ignoring tax requirements can have dire consequences. Tax fines and penalties can be thousands of dollars and can sometimes cause huge financial damage to a company that does not plan properly.

Tax liabilities for the company can occasionally carry over to individual owners as well. For instance, failing to pay some employee taxes can end up costing business owners personally, even if the company is incorporated or an LLC.

Taxes that your company may face might include:

● General income tax

● Excise taxes for the sale of certain goods or services

● Employee taxes

● General sales tax

● Local taxes imposed on specific industries or activities

● Property tax

As a business owner, you might also need to consider self-employment tax. If you form a new legal entity, you might need to have a separate tax for the entity and then personal tax considerations on top of those corporate taxes.

Having an experienced tax professional in your corner can be invaluable. A knowledgeable CPA or accountant can not only help you keep and maintain your books and records, but they can help you meet your tax requirements in your local area as well. In many circumstances, the cost of retaining a professional far outweighs the risks of making an error in your tax obligations.

Insure Your Business

Insurance can be costly, but the decrease in risk it offers to business owners is substantial. If something terrible happens, such as a natural disaster or lawsuit, business insurance can step in to address those issues in many cases. If insurance were not available for these things, a small business might not be able to withstand that type of financial hit. Essentially, proper insurance can help a company stay afloat in many cases.

Businesses will often need several types of insurance, many of which may be available from the same company.

● General Liability. This type of coverage provides a defense against lawsuits because of property damage or personal injuries. Some policies also cover non-physical claims like advertising errors, defamation, and more.

● Property Insurance: Just like homeowners’ or renters’ insurance, business property insurance provides coverage for physical buildings. It might also cover equipment and fixtures as well.

● Umbrella Policies: An umbrella insurance policy is an excess insurance policy that operates as a second line of defense for very large claims.

● Auto Insurance: If your company owns vehicles, you also need to have auto insurance for each car or truck. Most general liability policies will not cover autos, or they offer that type of coverage as an add-on.

● Workers’ Compensation: If you have employees, you also likely need to get a workers’ compensation policy that will cover injuries that occur on the job.

● Professional Liability (Malpractice): If your company offers professional services, such as in the accounting, legal, medical, or financial advising fields, you might also want to consider professional liability insurance. This type of insurance will provide coverage if you make a mistake in the services you offer.

An insurance broker will be able to help you determine what kind of insurance is appropriate for your business. Some industries do not need much insurance, while other industries require significant coverage because of the increased risk of the work involved. For example, a welding company will usually need more workers’ compensation insurance compared to a bookkeeping company.

Start Working on Your Brand

Developing your brand is a huge part of getting your company off the ground. A business’s brand is what clients see when you advertise, provide products or services, and more. Virtually every interaction with your company says something about your business’s brand.

You can develop your brand through your marketing efforts. Examples might include:

● Merchandise

● Social media

● Website

● Letterhead and products

Even your products and services can reflect your brand. For example, perhaps you started a cleaning company. Part of your brand is to ensure that your customer gets a complete clean with a personal touch. Maybe your team leaves a note and small gift (like a candy or promotional cleaning product) after every clean, along with an inquiry about how they did. Those little touches can significantly add to the customer’s experience and build your reputation and brand.

Create a Marketing Plan

Marketing looks different for every type of business. Some companies rely heavily on word of mouth, while others market aggressively across several platforms. Developing a marketing plan allows you to think through where your target customers are and how you will reach them. Once you have developed a plan, you can put it into action.

Once you have your first few sales or clients, be sure to provide excellent service so those clients can pass along favorable reviews to others. Remember—your reputation is the backbone of your business, and a good reputation will help a company thrive for years to come.

Get Started with Your Small Business

Getting your small business off the ground will take considerable time and effort, but it will be worth it. Careful planning and use of the tools and professionals available to you will help you along this journey. Putting your heart and soul into a company is often necessary for success, and making these efforts now, before you open your doors, will create a solid foundation for growth.

Source: africa.businessinsider.com

Cc: Bi.Africa