Starting a new business is never an easy task. It takes a lot of planning and plenty of hard work, and even then, there is no guarantee the business will be successful. However, your new venture is a lot more likely to succeed when you begin the process with three important steps.
Evaluate Your Idea
Even if you have an outstanding idea, it probably won’t be successful if you don’t have a solid plan in place. Begin by deciding whether you truly enjoy the industry in which you hope to open a business. Even a billion-dollar idea will fail if you aren’t truly interested in or invested in the industry. Maybe you enjoy the industry, but aren’t particularly knowledgeable in it. Never start a business in an area you aren’t experienced in. Learn it inside out first, then begin building the plan to start your company.
You also must do a break-even analysis. This analysis includes an estimate of the overhead, sales revenue and other potential financial aspects of your company. It will help you to determine whether your startup would be profitable or become destined to be one of the many small businesses that fold within five years of opening. As you complete your analysis, consider finances from all angles. For example, you should be aware that businesses such as bars and childcare centers are considered bigger risks and are usually required to carry a larger amount of liability insurance.
Know Where Financing Is Coming From
Of the many businesses that fail within the first five years, most of them do so because they did not have adequate financial backing. Don’t let that be you. Know where your company’s financing is coming from not only for immediate costs, but also for any costs it will or might incur over a set period of time. In a perfect world, you would have enough savings to get your business off the ground on your own. The world is not perfect though, which is why there are so many other options for securing small business financing. Some business owners choose to ask friends and family for help, and others decide to go the route of the traditional bank loan. Some use credit cards, secure private investors or go through the Small Business Association (SBA). There are quite a few ways to secure financing for your business, each with its own pros and cons. Thoroughly research any type of financing you are considering to ensure you choose the one that best meets your company’s needs.
Understand Federal, State and Local Laws
In addition to federal business laws, your company must also adhere to any state or local business laws. Business laws will vary from state to state and from city to city, but each locale usually has a basic formula you must follow. You will need a state business license so the IRS can track you for tax purposes. If you must charge sales tax to your customers, you will need a sales tax license. Occupations such as doctors, private investigators, barbers and many others require you to have an occupational license. If you are not sure if your business will require one, check with your local licensing authorities. If you sell alcohol, firearms or another regulated product, you must have a license to do so. You will probably be required to carry unemployment insurance if you have employees. Finally, you will need to follow local laws regarding business name registration, zoning and building permits, and health and environmental permits.
No new business is fail-proof. Even seasoned business owners have to close a startup sometimes, but having a solid plan regarding your company, its finances and the laws it needs to follow can help you stay on track.
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