Tips for Starting Up Your Small Business

Owning a business means freedom and independence for millions of Americans. It will take thoughtful planning and hard work, but you too can own a business. Here are tips for starting up your small business.

Develop a Business Plan

Just don't think about. Don't simply discuss it with your spouse or friends. Before you set out on the road to small business ownership, you need a written business plan. If you're self-funded, it will help ensure you don't waste your money. If you're looking for a loan, all lenders will want to see your business plan. Your business plan should include a description of the business, how you plan on marketing it, your competition, staffing, and operations. You'll need financial data such as loan applications, capital equipment and working capital, a profit/loss analysis, a three-year plan and cash flow. You'll also need tax returns for the last three years, personal financial statements, franchise contracts for franchises, lease or purchase agreements, licenses, resumes and letters of intent from suppliers.

It sounds like a lot of work, and it is. But by developing a sound business plan, you give yourself the best chance for success. This is the most important tip.

Find the Right Location

Your business plan will include the location of your business. Whether it's a storefront, a manufacturing facility, or in your home, you need to be aware of a variety of factors. Zoning laws, location of your competitors, access, rules surrounding home-based businesses and more. The location of your small business, even if it's not retail, will be a key to its success. Rent is always a factor, but so are things like proximity to suppliers and a work force. If you're starting a manufacturing business, can truck traffic reach you quickly and easily?

Get Training

You may know a lot about the small business you want to start. In fact, you may be an expert in your field. But you'll need training on a lot of other aspects of running a business. Management, finance, contracting, operations, all of these require special expertise. As the business owner, you need to become familiar with all aspects of running your business, even if you hire someone to do the actual work for you.

Find Financing

You can self-finance, look for venture capital (most major cities have groups of venture capitalists who meet to hear pitches on new businesses), go to your bank, or turn to the Small Business Administration (SBA). The SBA offers a variety of loan programs, including special loans for businesses that export to foreign countries, operate in rural areas and more. The SBA's Microloan program offers small, short-term loans to small businesses through nonprofit community-based lenders. The maximum loan amount is $50,000. Regardless of where it comes from, you're going to need cash flow. So be sure to give sober, realistic thought to financing. Also, keep in mind that lenders want their money used for specific purposes, so you'll need to keep accurate records.

Determine Your Legal Structure

There are several to choose from: S corporation, limited liability corporation (LLC), sole proprietorship, partnership, non-profit and cooperative. Your legal structure will have significant tax implications. You can expect to pay four kinds of business taxes: income tax, self-employment tax, taxes for employers only, and excise taxes. Consult with your tax professional to determine which is right for you.

Register Business Name

Each state has different requirements, so you'll need to register the legal name of your business with your state. The legal name of your business will be required on tax forms, government documents, loan applications and more. Also, once you have a name, be sure to purchase the domain name for your website from one of the many domain sellers on the Internet.

Employer Responsibilities

If you plan on hiring people, you need to understand the legal steps to take, as well as your responsibilities.  Writing job descriptions, interviewing and managing are just the beginning. There are a lot of legal requirements associated with hiring staff. You'll need an Employer Identification Number (EIN -- available from the Internal Revenue Service). You'll need to set up withholding taxes, file Employee Eligibility Verification (Form I-9), register with your state's new hire reporting program, get worker's compensation insurance, unemployment insurance tax registration and more. Your tax professional can help you with these important steps.

This all sounds like a lot, and it is. Perhaps the most important tip for starting your own business is to find a mentor. Someone with experience in your industry is preferable. Having a trusted source to bounce ideas off of and ask advice will be a great asset to your business.