Things to Consider Before Starting a Small Business
Are you thinking about starting your own business, but are unsure of what all is involved in the process? Before your venture gets off the ground, let’s explore some topics you should consider.
Research the market
Market research helps you make informed decisions and could keep you from stumbling into mistakes that could impact your business. This step is one of the most important parts of starting a business, as it helps you answer questions like:
- Does my business idea appeal to consumers?
- How many people would be interested in my product or service?
- How much are potential customers willing to spend?
- What are competitors charging for a similar product or service?
Choose a name
Be sure to choose a name that best describes your business. Keep it short, easy to spell and pronounce and memorable. Your market research may direct you to a word or theme you can refine to create your business name.
You’ll also need to register your name for legal protection. There are four possible ways of doing so:
- Trademark offers federal protection.
- Entity name offers state-level protection.
- Domain name reserves your website address.
Doing Business As (DBA) doesn’t offer protection but may be required by law.
Each serve their own purpose, and the ones that are legally required vary depending on your location and business structure.
Select a location
Many small businesses are home-based, where much of the work is conducted inside the residence, though certain activities may take place in other locations. It’s no secret that working from home is one of the major advantages of being an entrepreneur, but is your business suited for this environment? Some businesses are easier to operate as a home-based business, like those in technology, professional, scientific and technical services, more so than others such as retail.
If you need an independent location, your market research will help. See where others in your industry are located. You want a place that isn’t saturated with competition yet has an ample supply of potential customers. Also, make sure the spot you choose is easily accessible. An inconvenient parking lot (or none at all) can be bad for business.
Determine a legal structure
The type of business you create determines how much you pay in taxes, how much paperwork your business has, how you raise money and your personal liabilities. Below are the various options available:
- Sole proprietorship: This is the simplest structure and a good option for those working alone. Your business expenses and income are included on your personal tax return; however, you’re personally responsible for your company’s liabilities. Finding a lender for a business loan may be difficult as a sole proprietorship.
- Partnership: There are two types of partnerships: general and limited. All owners in a general partnership are responsible for the company’s obligations, including its debts. A limited partnership has both general and limited partners. The general partners owns the business and assume all liability, while the limited partners have no control of the company and act simply as investors.
- Corporation (C corporation): If you’re willing to subject your business to more regulations and taxes in exchange for complete liability protection (meaning your personal assets won’t be threatened if your business runs into financial or legal trouble), consider making your business a corporation.
- S corporation: Small-business owners should find the idea of an S corporation appealing, as it offers the same liability protections as a C corporation, but without the double taxes. In fact, filing might be a bit easier as income only becomes taxable when it’s received, and expenses become deductible after they’re paid.
- Limited liability company: An LLC is similar to an S corporation, but you can have an unlimited number of shareholders. This structure has become incredibly popular in recent years.
- Limited liability partnership: This structure is similar to a limited partnership; however, the general partners have limited rather than full liability.
Write your business plan
A business plan is a comprehensive overview of how you intend to organize, manage and grow your new company. You’ll use this plan not only as a personal guidebook, but also as a way to acquire funding from lenders or investors.
A good business plan should include the following information:
- Executive summary
- Company description
- Market analysis
- Legal structure
- Organizational chart
- Product or service information
- Sales and marketing strategies
- Financial projections
- Funding requests
If you want to get your business up and running quickly or the concept is relatively simple, you can use a lean startup format. The Small Business Administration recommends the Business Model Canvas, which includes:
- Key partnerships
- Key activities
- Key resources
- Value proposition
- Customer relationships
- Customer segments
- Cost structure
- Revenue streams
Register your business
This step adds certain tax benefits, legal benefits and personal liability protections. It’s also really simple and usually only requires you to register the name of your business with both local and state governments. That said, it may not be required - that’s determined by your location and business structure.
In addition, registering with the U.S. Patent and Trademark office can protect your business, brand or product name.
Your market research and business plan will help you estimate how much funding you will need. You can get your business up and running with:
- Self-funding: You can use savings accounts, support from family and friends, or your retirement accounts to get your business off the ground. Be careful with the last option, as early withdrawal may subject you to penalties or force you to retire later than planned.
- Investors: These firms usually target high-growth companies, offering venture capital in exchange for an ownership share in the company.
- Small business loans: Banks and other lenders allow you to finance your business while maintaining complete ownership. Banks generally want a business plan, expense information and financial projections to ensure that a loan to you is a good investment on their part.
Open a business bank account
A business bank account offers additional protection over your company’s finances. Customers will make payments directly to your company instead of you, and you’ll pay vendors under your business’ name. You may also be able to access credit, which can come in handy.
Start your small business with Trustmark
No matter what financial business needs you may have, Trustmark is here to help. We’re a Preferred SBA Lender, helping you get the funds you need to start your business as quickly as possible. We also offer various cash management services, including online banking, remote deposit, merchant card services and more. Talk with a Trustmark associate today to learn more about how we can help you get your business started.