You have an idea for a new business and you are ready to take the plunge. But you have questions. How do you start a new business? How much will your start-up costs be? What steps do you take to start a new business? Here are some steps to help show you how to start a new business:
The First Steps to Start a New Business
Identify a Product or Service That is Needed in the Marketplace
The list of products and services that are needed in the marketplace is unlimited.
You may have a dream that you’ve had for years about an invention. You may have a new idea about a current, or old, product or service that can be used in a new way. You may have a talent that you want to use to start your business. Any of these ideas will work.
You have to find a niche for your product or service. A niche is a small, but profitable, segment of the market where there is demand for your product. The Small Business Administration has a Small Business Startup Kit that can help you focus on factors you should consider. This is the first step in how to start a new business.
Finding a niche requires market research. Your small business can’t be all things to all people. Even large companies find a niche for their products. Let’s take Wal-Mart, for example. Their niche is bargain-minded customers. You have to analyze your product and figure out what type of customer you should market it to.
The trend is to make your niche small. Instead of marketing to the familiar 18-49 age group, you want to identify a more specific group.
After doing your market research, you should be able to realistically determine the potential of this business. Another important question to answer is whether you will enjoy the business and if you are willing to do the hard work and put in the long hours necessary to achieve success.
Make Sure Your Business Will Work for you
After you find a business that you are passionate about and that you are convinced will work in the market niche you have identified, there are issues you have to consider before you can actually start up the business. Here are some of them:
How much are my start-up costs?
One of the major reasons for business failure is under-capitalization. Many businesses cost less than $20,000 to start, but many cost more. You must have adequate capital to start your business. If you don’t, you will be one of the many small businesses that fail. You can turn to friends and family for initial money for your business. Alternatively, you can try to get bank loans or you can try to raise equity financing from angel investors or venture capitalists.
How long will it take to turn a profit?
It generally takes at least 6-12 months to turn a profit. You need to have another source of income or savings to support you and your family during the start-up phase of your business.
How long will it take to recover my startup costs?
This is an important question. You want to recover your initial investment in as short a time as possible. There is a financial metric you can use to calculate how long it will take called payback period.
How will I pay my living expenses until my business can support me?
You need to have a financial cushion saved to pay your living expenses until your business can support you. The amount is different for everyone. Usually, it should be 6-12 months worth of living expenses.
How much risk is involved in this business?
Risk management will become an important part of your business.
If, after considering all of these issues, you still think you can make a go of the business you have chosen, then you are ready to do the serious work required.
Hire a Lawyer and an Accountant
Time to call in the professionals! You will need the services of an attorney. Why? You need to think about what form of business organization your company will be. You also need to deal with issues like patents, trademarks, and copyrights, as well as naming your business.
There are also business licenses and regulations to consider. A lawyer can help you with this.
An accountant can help you set up your books and record-keeping. They can also serve as business advisors and tax advisors. Even if you want to keep your books yourself and are capable of handling your taxes, you will want to have a relationship with an accountant in case anything complex comes up.
Make your strategic plan, which should include your mission statement, your objectives, and the strategies you will use to achieve your objectives.
Operational planning is more specific than strategic planning. Operational planning involves setting company policies, standards, methods, and procedures. It also includes the details of producing your product or providing your service.
Lots of people say they want to start a business. They even have an idea and have thought through many of the issues in this article. However, they get stuck at the thought of how to finance their business. Businesses literally cannot start up without significant financial planning. It will make your business life much easier if you plan in advance how to get the needed capital and follow your plan.
When you start your business, you have to estimate your income and expenses, make a business budget worksheet, and estimate your initial investment in the business.
Put these plans together into a comprehensive business plan.
Implement the plan.
An old business adage is that businesses do not plan to fail, they just fail to plan!