While no two businesses are exactly the same, there are 10 steps entrepreneurs and potential business owners must take prior to opening the doors of their new company.
1. Write a business plan.
Experts agree writing a business plan is the first real step any entrepreneur or prospective business owner should take. Not only does this show a true level of commitment, it also forces real and tangible answers to important, and sometimes challenging, questions. A business plan is also the first thing any potential investor is going to request. This gives them a full understanding of the business venture being proposed, the owner's level of expertise and understanding of the opportunity, and the financial requirements and potential upside.
2. Choose a legal structure.
How a company is incorporated is important, and not always an easy thing to change after the fact. While not overly complex to understand, each type of legal entity comes with certain requirements and restrictions. Certain types of corporations may not be available or appropriate for your type of business. If you need help, a corporate attorney or experienced business accountant can offer timely and accurate advice on the exact legal structure of your proposed company.
3. Get your business registration, licenses, and tax identification.
There are various resources to assist with various things like business names, filing incorporation paperwork, obtaining necessary licenses and registrations with your local municipality, and getting your federal tax information squared away. Aside from the Internal Revenue Service (IRS) for federal tax matters, local corporation commissions (typically at the county level) can assist any new business owner in meeting the regulatory requirements for each locale around the country.
4. Know your competition and marketplace.
There's nothing wrong with a little competition. In fact, it's what gives business owners the opportunity to come out with a better product or service. Knowing your marketplace, what your competition is doing, and how you're going to compete and win customers is a critically important step in the business setup process. Including this information is your business plan, will show your mastery of the type of business you're proposing to start. Without this information, no serious investor will rise to the occasion. Know your marketplace, know your competition, and know how your company is going to be different
5. Finance your business.
Unless you're an accountant, have a degree in finances, or are a sophisticated investor, chances are you'll need some help nailing down this part of your pre-business planning. Investors are going to want to know how much money your company has to start and how much it's going to need in the future. No matter where your revenue will come from, list it. Will you use your credit cards and home equity to start? Will you have sales the day you open your door and will you need a loan you can service as debt? Are you willing to give up a percentage of your ownership in exchange for cash?
No matter how you propose to finance and fund your business, share that information in your business plan. There are a myriad of investors out there and they've seen it all. Don't assume no one will invest just because you aren't also bringing some capital to the table. Investors typically want to know three things:
- How much?
- For how long?
- What is the exit strategy?
Answer these three things to an investor's satisfaction and you're very likely to strike a deal.
6. Identify and secure a location.
Whether it's your home office or an entire building in an industrial park, the logistics of your proposed business location must be firmed up before starting your business. This includes managing things like choosing phone and internet service providers, business directory listings, utilities, and of course the lease or purchase agreement totally in place the day you go into business. It is actually acceptable to have the type of building you'll need identified in the early stages of creating your new business. Investors, bankers, and legal counsel generally don't see the lack of a specific location, early on, as a deal breaker or red flag.
7. Get proper insurance.
Types of insurance to consider include healthcare, vehicle, directors and officers, liability, performance bonds, travel (to include AD&D), and life. It's important you understand any local regulations that might require your specific type of business to carry certain types of insurance. If you're a carpenter or a plumber, as an example, you'll need liability insurance, which you might not need in other industries.
8. Obtain legal counsel.
Whether you are proposing to have in-house counsel or will hire appropriate counsel when needed, it's important for your business to have access to a lawyer. You may need a lawyer who specializes in corporate, tax, intellectual property, labor, trial, or international law.
Wherever regulatory requirements demand compliance, using a lawyer to review and sign-off on this part of your business will save you time, money, and potentially your company and intellectual property in the long run. Don't skimp on legal counsel.
9. Use local and national business resources.
Local, county, and national resources exist to ensure your company is compliant, that you've chosen the correct legal structure, the name you've selected is available, and how to secure loans and other types of money that is available to entrepreneurs. Your local corporation commission, the Small Business Administration, and the IRS are all useful resources at every planning stage.
10. Review everything.
Last but not least, go through it all one more time. Not only is this an excellent way to fully familiarize yourself with your proposed new company, it's a great way to identify in omissions or areas that need to be modified. A second set of eyes is always preferable.
Investing heavily in the planning phase of your new business will pay real dividends when the time comes to meet with investors, securing a location, and opening your doors for business. Dig in deep, make a great impression with your level of preparation, and start your business off on the right foot.