Taking the Plunge
The first step of anything new is the hardest; it’s not uncommon for self-doubt to creep in or for obstacles to feel insurmountable. Starting a business is no different. Even if you’re incredibly passionate about your prospective business, it can feel overwhelming to imagine making it happen. The only thing you can do is prepare as best as possible and take the plunge. This post was originally on MyBasic LLC and is shared with their permission.
What you’re about to do is brave. Many people spend their entire lives wishing they could follow their dreams, and you’re doing it. Once you have decided to go for it, the hardest part is over. Now, don’t think there won’t be hardships ahead, but having the courage to face those challenges is the key to success. Congratulations, you’ve decided to follow your dreams, but what next? You have some big decisions ahead, but you don’t have to do it all alone. Here are some of the key considerations you’ll need to think about when first starting out:
Type of Business
When you’re first starting out, you’ll have to decide what type of business you want to be. You may know of some of the common options, such as a Limited Liability Company (LLC), sole proprietorship, or corporation. There are many types you can choose from, and all have different implications for everything from daily operations and taxes to liability and leadership structure. If you already know what route you’re going in terms of the type of business you’ll be filing, that’s fantastic! If not, here’s a breakdown of the major types of their pros and cons:
A Sole Proprietorship gives you complete ownership and control of your business. In fact, even if you don’t properly register, but you are doing business activities, you are considered a sole proprietorship. Think of this as the “default” option until you select another path.
Pros: This is a great option if you’re looking to slowly test your business idea before plunging into something more formal, like an LLC.
Cons: your business assets are not separate from your personal assets. This can have expensive tax consequences and, even more importantly, you’ll be personally liable for your business. If someone wants to sue your business and come after your assets, they’ll also be able to come after all your personal assets.
A partnership is a simple way for two or more people to own a business together. Each owner still has profits passed through to their tax returns, depending on how much of the company they own. When it comes to liability, there are two types of partnerships that exist, a Limited Partnership and a Limited Liability Partnership.
- A Limited Partnership happens when one person takes on the liability of the business, while the other partners do not have any personal liability at stake. The partner that absorbs the liability generally has more ownership in the business which is detailed in the partnership agreement.
- A Limited Liability Partnership provides liability protection to all owners and protects each partner from debts against the partnership. Simply put, owners will not be responsible for the actions of their partners.
Pros: Partnerships can offer liability protection, but they also offer a more structured support team for the business. Having multiple people on your operations team and being ready to help with business strategy can be a major benefit for a new business.
Cons: Ownership is shared amongst partners, and you will not have the final say in everything. Depending on the type of partnership at play, one partner may have more power (but also more risk) than the others.
Limited Liability Company (LLC)
An LLC is the best of both worlds when looking at partnerships and corporations; it offers liability protection to business owners while allowing profits to be free of corporate tax rules.
Pros: LLCs are a great option for medium or high-risk businesses with one or more owners that want to avoid personal liability risk. LLCs are also taxed less than corporations.
Cons: LLCs are generally filed within each state and have limited life, meaning that if partners leave or join the LLC, it may have to be dissolved and re-filed entirely.
There are multiple types of corporations, but at a high level, corporations act as an individual entity that is taxed on its own and offers the highest liability protection to its owners. Corporations have shareholders that own stake in the company and are a great way to raise business capital.
Pros: There is limited liability for all owners involved and raising funds to grow a corporation is much easier than raising funds as a sole proprietor or partnership since it’s more attractive to investors to own a portion of the company.
Cons: Corporations are taxed at high rates and, depending on the type of corporation, can even be double taxed when dividends are paid to shareholders.
All types of businesses can be successful, and one may be a better fit for your needs than the other, so be sure to consider all implications of each before choosing your route. Once you have selected the type of business and filed all the paperwork to make it official, you’re on to the fun parts of running your company!
The location of your business is critical; you’ll need to consider your target market, state and local zoning laws, business expenses, and more when deciding where to locate your business. If you want a storefront for your business, you’ll need to look into real estate and decide whether you’d like to buy or lease a place.
Not only does your location have expense implications, but it also impacts your profits and business’s potential success. When choosing a location, you’ll want to ensure you’re in a place that will welcome new customers and pique the interest of potential clients. It’s a good idea to research the previous renters or owners of the location to see if the prior businesses did well in that location. If they didn’t, try to understand why that was the case. All these considerations may seem extensive, but you’ll be glad you thought through everything when choosing your business location.
Depending on the type and size of your business, you may need to hire additional employees to support your endeavor. It could be cashiers for a store, customer service operators, or simply just an extra set of hands to help with the day-to-day. Whatever number of employees you need, you’ll need to consider whether you want to hire them as employees or as 1099 contractors.
If you hire your team members as employees, you’ll need to ensure proper tax payments and insurance coverage to do so, which can end up being costly. While a contractor may save some money in overhead, having an impermanent workforce can be a major disadvantage. With employees, you can train your team to learn new tasks, take on more responsibility, and grow with the business. Since contractors are less likely to stick around for the long haul, it doesn’t usually pay off to invest time in their development or growth.
This will be a good talking piece because in order to start and sustain your business you are going to need money and possibly credit. Look at these two as tools and nothing more. What do money and credit buy you? Control of your time, access to resources and allow you to manipulate time and get further ahead than you could by yourself. If you can’t perform digital marketing successfully on your own or build a website you use your tools to bring in experts who can perform the job. If you want to reach 1,000 people in a short amount of time you can use search engine marketing whether it be on social media or a search engine.
Make establishing and maintaining good credit a top priority of your business and doors will begin to open for you. Good credit shows you understand financial responsibility and that will help you.
So much information is found online these days that it’s nearly impossible to run a successful business without an online presence. Even if you’re not selling products online, a place for potential customers to go learn more about your company and its offerings is critical. People are used to websites being easy to use and quickly accessible, so it’s critical that you optimize your company’s website.
Since it’s rare that business owners are also experts in website design, we recommend outsourcing this process to a professional contractor or third-party company that can ensure an optimized website. If you need to sell items online, that adds a layer of complexity due to payment information being exchanged, so it’s even riskier to try and set this up on your own.
As a business owner, you must always be critical of how your business is operating and identify new areas of opportunity. When you first start out, it’s a good idea to conduct a S.W.O.T. Analysis. A S.W.O.T. Analysis is an assessment of your company’s strengths, weaknesses, opportunities, and threats. This can be an exercise you do by yourself, with your partners, or even with your broader team. It can be helpful to have the brainpower of a few invested individuals. To better understand each portion of the analysis, here’s a deeper dive:
The strengths portion of the analysis is meant to draw out all that you do well. This list can be full of tangible and intangible items like product sales or team camaraderie, nothing is too small to be added. Be honest with yourself and recognize the hard work that you put into your business.
While it can be difficult to pat yourself on the back for all that you do well, it’s even harder to honestly outline all the weaknesses surrounding your business. Perhaps you don’t feel like you have strong enough finance and accounting expertise in your business, or you aren’t doing well against your competitors. While this part of the exercise is less fun, it’s even more critical to understand the gaps in your business so you can make a plan to fix them.
Strengths and weaknesses are often things that you can control, while opportunities are external factors that will help your business succeed. Perhaps there is a gap in the market that you can fill, or there’s a competitor who is shutting down, putting potential clients back on the market. Identifying opportunities early on is foundational for strategizing the growth and success of your business in the future.
External factors that may be a detriment to your success are considered threats. When assessing threats to your business, you’ll want to look at competitors, market trends, supplier issues, and more. Anything that you don’t have full control over that could negatively impact your business is a threat. You can’t mitigate a threat if you aren’t aware of it, so spend some time fleshing this out.
Completing a S.W.O.T. Analysis is critical when starting your business, but you’ll want to do a new one every so often to ensure it doesn’t become obsolete. As your business grows and changes with time, you’ll identify new strengths, weaknesses, opportunities, and threats that need to be addressed. Figure out the cadence that makes sense, perhaps quarterly or annually, and dedicate time to this exercise.
Having proper finance and accounting support in your business is a huge priority, and not having it is the downfall of many businesses. When you first start out, you’ll need to have a detailed understanding of your startup costs, but as your business gets up and running, the financial side of things gets even more complex.
You may need to forecast sales, understand how well items are doing on the market, properly pay your employees, and record information for tax purposes. Trying to do this on your own can be overwhelming and it’s easy to do incorrectly if you’re not familiar with these processes. If you’re not ready to hire a full-time employee, you can find a contractor with the expertise you need to help you get started or double-check your work periodically.
When the going gets tough (and trust us, it will!) you’ll need to stay consistent with your operations. You may need to pivot your marketing strategy or adjust your pricing, but don’t give up because of a bad month, quarter, or even year. If you’re struggling with one aspect of business, bring in an expert to clear the obstacle. Often, the success of a business can be attributed to that time it got through a rough patch and continued to prosper.
Your Dreams are Yours
At the end of the day, no one is going to do this for you. While it feels like a lot to understand and work toward, taking the first step is a must. If you’re brave, willing to learn, and stay consistent, you could have major success on your hands. Don’t let your fears stand in your way of making your dreams a reality!