How to Start a Business

However, there is a process that every new business owner must go through to start their business.

Getting Started

I will assume you have read the Entrepreneurship module and determined that you have the Characteristics of an Entrepreneur. If not, I suggest you do that now—you may decide you do not want to become an entrepreneur.

So, assuming you are still passionate about your idea, and you do want to learn how to start a business—let's proceed.

You cannot read a business magazine today without being told how you are supposed to start a business—especially how successful entrepreneurs started their businesses.

According to most of this information; you need a revolutionary blockbuster idea, a huge untapped market, ethereal goals, experienced staff, a knock-your-socks-off PowerPoint presentation of your business plan, and mountains of money—usually from Venture Capitalists. Obviously, this doesn't help most people learn how to start a business.

The above may be good advice for anyone trying to become another Google or Microsoft, but it only applies to a very small number of people who want to learn how to start a business. Of the over 32 million active businesses in the U.S. today, about 22 million of them have no employees, and most of those never will. Of those companies with employees, the vast majority has fewer than 20 employees.

As you can see, most of the small businesses are actually "smaller" businesses. That is why this report is primarily for those people who are just starting out—people who really want to learn the basics of how to start a business

Well, where do you start? Like most projects, you begin with planning out what you want to do. I call this "pre-venture planning".

Pre-venture Planning

Usually, success or failure is determined long before the business is started. That’s because most people trying to start a business do not perform adequate pre-venture planning—they may think they do, but they really don’t.

What you do before you get into the details of actually starting your business are much more important than anything else you do before you hang out your “open for business” sign. If you learn nothing else about how to start a business, you need to cast this in stone.

Very few small business startups need to jump through the hoops of writing a business plan, as presented in today’s business media.

Academia, business writers, and the few who have started high tech businesses continually try to convince us that every business startup needs to develop and write a business plan first—not true!

"I have always found that plans are useless, but planning is indispensable." --Dwight D. Eisenhower

At the same time, there are some basic tenets in starting a business that must be adhered to if you don’t want to become one of the five million businesses that “close” each year. Following is a list of activities you will need to address as you learn how to start a business:

1. Define Your Business
   You need to have a sound idea. Your business idea does not need to be revolutionary, but it does need to be sound. It must fulfill a need, or a strong want. More importantly, it needs to reflect your passion. If you are not passionate about your business idea, you seriously reduce your chances of success.

   If you do not have a business idea, read the first report in this section, Small Business Ideas. Also, make sure you clearly understand precisely what your business will do for your customers.

2. Identify Your Target Market
   Who, precisely, will buy your product or service?. Test your market. Take surveys, hand out samples, and research why your competitors are successful. Don’t hide your ideas under a bushel—talk it up with everyone. No one is likely to steal your idea.

   Just remember that "anticipation" is always greater than "realization," so make sure your business idea fulfills a proven need, not just something you think might sell.

3. Plan Your Business
   As I said earlier, this does not mean writing a formal business plan. Business Plans are like the daily newspaper, and useful for about the same length of time. But "Planning" is a necessary part of your own pre-venture thinking.

   I have provided an entire module on the subject of planning, titled, the Small Business Plan. This is a fairly exhaustive section on small business planning and should be read before starting any actual planning on your business.

   When learning how to start a business, this is where most new entrepreneurs go off the tracks. Actually, planning your business is one of the most enjoyable aspects of starting a business.

4. Regulations.
   You will need to investigate these before you get too deep into your planning. For the type of business you are planning, what are the regulations involved? (Every business has regulations of some kind to contend with.) For instance, if you want a home business, what do your CC&R’s say about having a home business?

   Do you need a business license? What about collecting and paying sales taxes? If you will be working with any kind of food product, what are your state, county, and city regulations pertaining to your products and the way they are handled?

   There is no business that does not fall under the umbrella of some form of government regulation. Check them out early.

Now it is time to begin preparing for your business startup.

Startup Preparation

Now that you have a folder full of cocktail napkins…or a wall covered with sheets from a flip chart…or a whiteboard full of your planning scribbles...it is time to get into the nitty-gritty of how to start a business. You will begin taking some action steps even though you are far from your actual startup. There are important things to do and if they are to be done right they must be done before you actually start your business. Here is where I would suggest starting:

1. Organize Your Advisory Group
   A new entrepreneur should not start a new business without help. There are many successful business people around who would be delighted to act as one of your advisors. This could include your banker, accountant, insurance agent, the busiest person in town, the most successful person in town—or it could be a member of your networking group.

   Normally, you should not include your close friends unless they are extremely successful business people. Neither should you include any investors in this group—they may serve on your Board of Directors, but not in your advisor group. Advisors should not have any "financial" stake in your business.

   The important thing is that you get them together to listen to what, how and when you want to start your business. Solicit comments and, especially, questions to help you begin to solidify your planning. Remember, these are not your investors, they are your advisors…they already know how to start a business, and they can be candid with you because they have no financial stake in your business.

   This could be the most important step of all in your startup preparation. Don’t look at this as a daunting task...it is much easier than you think.

2. Gather Your Money.
   It does take some money to start any business, no matter how bare bones your startup…and you do need to have your seed money lined up before you actually start your business. It won't matter how much you know about how to start a business if you have no money to start it.

   Do you know how much you need? I would suggest you refer to your "business plannjng" (no matter how humble) and perform this exercise with your proforma financial statements: Cut your projected sales revenue in half and increase your planned expenses by 50%.

   Now how much money do you need to reach breakeven (cash revenue equals cash paid out)? Certain Venture Capitalists often do this when they analyze a formal business plan.

   Most small businesses are started using (1) personal funds (savings, severance, credit cards, etc.), (2) money from friends, or (3) money from family. If you need more startup money than this, you will need to involve outside investors.

   Be very cautious about spending too much time trying to line up more money than you really need. Also, unless you plan to start big, don’t waste your time with Venture Capitalists.
   
   Equally as important, do not plan on borrowing money from a bank—they are not "investors." That is why I have prepared an entire section on Small Business Financing. Just be sure you know where your money is coming from before you start spending any.

3. Arrange for Bookkeeping
   This is something you need to do before you spend your first dollar. Unfortunately, this is also something that most small business entrepreneurs put off far too long, and often the accounting is never brought up to date.

   Whether you do it yourself, or initially outsource it, I recommend that you set your bookkeeping up early during your planning—at least before you open your business bank account. This topic should appear early on your "How to Start a Business Checklist. I suggest you read the module; Small Business Accounting in this web site.

4. Establish Your Business
   As you get closer to starting your business, you need to think about formalizing your business. When you do this, of course, depends on what kind of business you are starting, but here are a few things you should be looking at before you start planning your actual start up or launch:
   
   
   • Select a Name for Your Business. This is something you probably started early in your planning, and it sounds simple enough…but the problems businesses have encountered with this issue are legion. As you are picking a name, be sure to research any and all potential sources of business names to make sure you don't infringe.

     The Internet, your local Librarian, and your legal advisor can all help you with this issue. Nothing could cripple your fledgling business faster than infringing on an existing business name. The same holds true for naming your product(s) or service(s).

   • Register Your Business Name. If you are going to start your business as a sole proprietorship, you will want to register your new business name as a fictitious name or, in some states, a DBA (doing business as) name. This is usually done at the county level, but the requirement may be different from state to state.

     In most cases you will need to do this in order to open a bank account in the name of your business. If you incorporate, the filing of your corporate papers will take care of this, although you will likely need a board resolution to open a bank account to satisfy the bank.

   • Federal Tax Identification. Also known as an Employer Identification Number (EIN). This identification number is now generally required by all businesses. The only exception might be someone with a "hobby" business and no employees, and who files their business taxes on a Schedule C of their regular 1040 Tax Return.

     Acquiring this number is quick and can be done by phone, online, fax, or mail. For more information, check out this IRS web site . I strongly suggest you obtain this number as soon as you register your business name.

   • Open a Business Bank Account. You will likely want to do this about the same time you set up your bookkeeping and get your EIN number. There will be minor expenses for permits, licenses, etc. that should be paid for from your business account. You may also want to start developing your website at this time.
   • Domain Name. You will undoubtedly be building one or more web sites for your business, so be sure to acquire a domain name as early as possible. It is not expensive, but can be very important.
   • Copyrights and Trademarks. Be sure you have your written work copyrighted and any special identifier of your business or products, or service, trademarked. This is most important if you have a lot of original works, or if you intend to grow significantly in the future.
   • Acquire Permits and Licenses. As you get closer to actually starting your business, you will need to apply for all the permits and licenses you identified in your search under "Regulations." Don't try to start your business without these, because you cannot escape the taxman, and the penalties can be brutal.
   
   
   
5. Develop Your Marketing Materials
   Depending on your business, you will want to have your marketing and PR materials and programs well in place before you start your business. This is one area you do not want to get behind on.
6. Begin—Now!
   Economic peaks and economic valleys make little difference when starting a business, as long as you perform your pre-venture preparation and planning properly. Real entrepreneurs can start a business anytime—today might be just right for you.

Most importantly, I would like you to give some serious thought on the following basic formula: Start small, start simply, start now…but above all, be extraordinary!


Video from the Tom Peters "Little Big Things Video Series"