The following is a guest post from ZenBusiness. If you would like to have a guest post published on this blog, please contact me directly at famousashleygrant @ gmail dot com.
A staggering 4.3 million quit their jobs in August this year, according to new reports.
Whilst this could be seen as indicative of Americans sensing both opportunity and better pay elsewhere, Gregory P Smith, an expert at business formation providers, ZenBusiness, believes poor management is the main reason someone would hand their notice in.
With more than 4.4 million new businesses created in the U.S during 2020, entrepreneurship is perenially on the horizon. Therefore, Smith has put together a seven-step plan on how you can cut ties with the big boss, and become your own boss today.
Step 1: Develop your business strategy
Once you have a solid business idea in your mind, it’s time to do some strategic planning. Doing research upfront will help you plan the details of your business. Establishing those details will help you avoid some costly mistakes and start seeing success quickly.
It is important to conduct some solid research into your target market and competitors. There are several ways you can conduct your research;
- Online: These resources help find your competitors. Look at their online presence, advertising, and product pricing. Conduct keyword searches to find your customers. Narrow your search down to the right location and find the most popular terms in your area.
- Surveys: You can conduct surveys online or in person. Use your survey to find your customer and get their demographic information, what they buy from your competitors, and how they feel about the experience. Make sure you carefully craft your questions to get the best information possible.
- Focus Groups: You will need to recruit between 10 and 20 people to participate (remember, recruitment is easier with some form of compensation or remuneration for people’s time). Make sure you have plenty of questions to determine if your product will be useful, who they currently get the product from, how they feel about the experience etc.
Step 2- Create a business plan
Spending a good amount of time to create a business plan doesn’t just help you find investors; it helps you find and keep to your path through each phase of opening, running, and growing a business.
When creating your plan, there are some key elements you will need to include;
A company description is important as it will help you provide details about your business, why consumers need your business, and who your consumers are. Here you can also include advantages and strengths you have over competitors.
Market analysis helps you establish what your competitors do, why it works or not work, and hot to avoid the ones that don’t.
Having a business structure and management will help you describe your plan to form a corporation, LLC, or sole proprietorship. If there are multiple people involved in your business, you should include each person’s role and responsibility.
A marketing and sales plan is key here and should be highly individualized for your specific business. Here you cant talk about how you will bring customers in keeping them coming back and repeat purchasing.
One of the most important elements to establish is your financial needs and projections, and here you can discuss the funding needed to start and operate your business and what it will be used for. Following this, establish your financial projections to show that your business can be successful.
Step 3- Determine your start-up costs
Knowing your startup costs will allow you to prepare and avoid unexpected expenses that can cause early damage to your business.
Your costs will be different depending on if you have an online presence or a brick-and-mortar space. The types of goods or services you offer will also impact your expenses.
It is important to use something like Google sheets or Excel to map out all of your expenses so you can see exactly where they will be going, allowing you to make any necessary changes as you go.
No matter what type of business, these are the most common types of expenses you need to prepare for:
- Equipment and supplies
- Website design
- Fees for filing, licenses, and permits
- Marketing services/materials
- Utility costs
- Professional services like a lawyer or accountant
Step 4- Raise startup capital
Once you have determined how much funding you need, you will need to determine how you will put that funding together. Here are three basic ways to fund your business startup, including self-funding, investors, and loans:
- Self-funding: Choosing to self-fund your business means you will be using your own resources and/or those close to you. The advantage of self-funding is having full control over your business. The downside is that you are taking on all the risks. If you choose to self-fund, plan out how much you are willing to invest and, if you are thinking about using retirement income, make sure you consult with a financial adviser.
- Obtaining outside investment. Investors will provide funding for your business in exchange for a share of the ownership and, sometimes, a role within the organization.
To find investors you can firstly research potential investors or a venture capital firm. Once you have your list, let them review your business plan.
Investors want to make sure your business fits with their priorities. They will also want your organizational chart, products, and financial statement. If they are interested, you will work with them on the agreement’s terms before receiving the investment.
You can also get a loan from a bank or credit union. A loan, like self-investing, will allow you to maintain control over your company. If you decide to go this route for funding, it is helpful to put together your business plan, expense sheet, and financial projections.
These documents need to be looked at over the next five years. Approach several banks about the loan, then compare and contrast the offers to get the best deal for your business.
Step 5- Choose a business structure
Deciding on the type of structure of your business is an important decision and you need to look at the pros and cons of each option before selecting one.
The structure you choose will determine your tax liabilities, how you organize and run your business and the amount of liability protection available to the owners.
There are six main structures to choose from and ZenBusiness have weighed the pros and the cons of each one.
Also known as a sole tradership or individual entrepreneurship and is a type of enterprise owned and run by one person and in which there is no legal distinction between the owner and the business entity.
Pros of a Sole Proprietorship
- Startup costs are lower
- Taxes are filed on individual returns
- Simpler financials
Cons of a Sole Proprietorship
- High personal liability
- Lack of accounting controls
- More difficult to raise funding
If you have at least two people starting a business together, you can form a partnership. A partnership allows for a company’s profits to be passed through to the owners, which means taxes are reported on the individual tax returns only.
Pros of a Partnership
- Less red tape to start
- Fewer state fees
- Collaborative, easy decision-making
Cons of a Sole Proprietorship
- Varying degrees of personal liability
- Conflicts between partners
- More difficult to raise funding
Limited Liability Company (LLC)
An LLC is set up as its own legal entity, but its profits pass through to the owners or members and are taxed only on their individual tax returns. There are no shareholders and no stock.
Pros of an LLC
- Individual taxation
- Member liability protection
- Less red tape than a corporation
Cons of an LLC
- More fees than a partnership or sole proprietorship
- Does not have all the benefits of a corporation, like selling stock
C corporations are owned by shareholders who elect a board of directors. The board leads the decision-making. C corporations are separate entities from the owners, protecting their liability.
Pros of a C Corporation
- Owners’ personal assets are protected from liability
- Benefits may be deducted as expenses
- Ownership is easily transferred
Cons of a C Corporation
- Requires more funding than other options
- More red tape
- Taxation on both the business and its shareholders
- Slower decision-making as the board has to be involved
An S corporation is different from a C corporation in an important way; taxation. S corporations are taxed more like most LLCs, with the income distributed to its shareholders, who are then taxed individually; the business itself is not taxed.
Pros of an S Corporation
- No double taxation
- Shareholders can reduce their tax liability depending on the amount the company retains in income each year
Cons of an S Corporation
- Must have strict management of cash flow
- Built-in gains tax
B corporations are for-profit companies that are also driven by a mission to benefit the public. Often they have B Corp certification which shows they meet a certain standard of ethical and sustainability responsibilities.
Pros of a B Corporation
- Structured requirements
- B corporations have a strong brand identity and can use their public benefit as a marketing tool
- Investor interest
Cons of a B Corporation
- Accountability standards and scrutiny
- No tax breaks
- More resources needed to incorporate as a B corporation and maintain annual reporting requirements
Step 5- Choose a business name and location
Deciding on your business’s name and location is one of the most important decisions you will make. You want a name that helps you build and then protect your brand and the wrong location can make it difficult to attract customers.
When choosing a business name, you want it to be unique and descriptive. There are a few requirements you will need to meet when selecting a name and you need to make sure you aren’t mimicking another business name too closely.
That can be avoided by researching available names in your state. Visit your Secretary of State’s website and use their searchable database.
When searching for a location, there are a few things to consider. Does the location meet the operational needs of your business and growth strategy? What will the location cost (think about rent, utility, and any other costs you will incur from being in the space)?
Some businesses need to consider things like demographics, for example, retailers will want to consider the kinds of foot traffic and parking that a location affords.
Step 6- Register your business in your state
Before you can officially begin your business, you need to file formation documents with the state where you will do business.
For most states, this will require visiting the Secretary of State website, but before you do, there are a few decisions you need to make.
First, get a registered agent, a person or entity who is the point of contact between your business and the state. They accept legal notices on behalf of your company and make sure you get them on time.
Filing the Articles of Organization, again you can visit your Secretary of State’s website and find the correct form and information on filing fees. Most application will include:
- The name of your business
- The address of your business
- Your registered agent and their contact information
- The start date of your business
Step 7- Register for Federal and State Taxation
Businesses must know and follow the laws around federal, state, and local taxes, therefore to make sure you are collecting and paying the right taxes, start by obtaining your identifying numbers.
The first thing you need is an Employer Identification Number (EIN), which is usually assigned to your business by the IRS (Internal Revenue Service). You can apply for this number online here.
Next, you need to get a State Tax ID Number. What taxes apply to your business and the tax system will vary from state to state, therefore you will need to register with your state.
Different types of businesses may be required to pay different taxes. Some of the most common taxes include:
- Income tax
- Sales tax
- Property tax
- Excise tax
- Industry-specific taxes
- Environmental-impact taxes
- Employment taxes, such as unemployment insurance and employee withholding tax
- Self-employment tax on business shares for sole proprietors, partners, and LLCs
To learn more about the taxes your business is subject to, reach out to your state Department of Revenue or its equivalent.