Business ownership is on the rise, with budding entrepreneurs taking the leap every day. In 2023 alone, a record 5.5 million new business applications were filed, according to the U.S. Census Bureau. This surge in entrepreneurship is driven partly by the expanding opportunities available through online platforms and gig work, which make it easier to establish a business.
If you’re thinking about starting a new company, there are some essential steps you must take and a few critical mistakes to avoid.
12 things to do before starting a business
Starting a business is a big undertaking that requires ample preparation. Take these key steps before you begin your business venture.
1. Identify a creative idea.
Think of a business idea as the seed of your company. You need that before you can begin adding fertilizer, watering and growing complementary plants. What unique service can you provide? What gap in the marketplace can you fill? Consider these cheap business ideas for inspiration.
2. Write a business plan.
Creating a business plan displays a genuine level of commitment, and it requires you to answer essential — and sometimes challenging — questions at the start of the development process. A business plan is also the first thing any potential investor will request. It will give them a detailed overview of your proposed business venture, your level of industry expertise, and your understanding of the opportunity, financial requirements and potential upside. [Read related article: How to Find and Attract Business Investors]
Bottom Line
Identifying a solid idea for your new company and writing a business plan are the essential first steps in the process of starting a business.
3. Choose a legal structure.
It’s important to select the proper legal structure for your business at the outset because it’s not easy to change it later. Each type of legal entity comes with specific requirements and restrictions, and only certain types of corporations may meet your particular business needs. If you need help, a corporate attorney or experienced business accountant can offer timely and accurate advice for creating the proper legal structure for your proposed company.
4. Get your business registration, licenses and tax identification.
Once your business structure is in place, you need to register your business and obtain the correct licenses, taxpayer identification number and employer identification number (EIN). There are various resources to assist with establishing business names, filing incorporation paperwork, obtaining necessary licenses and registrations with your local municipality, and getting your federal tax information squared away.
Aside from the IRS for federal tax matters, regional corporation commissions (typically at the county level) can assist new business owners with meeting the regulatory requirements for each locale. If you’re planning on hiring staff, you’ll also need to apply for a federal tax ID or an EIN. Having an EIN will protect you and your identity, allow you to file business taxes separately from your personal taxes and help establish credit for your business.
5. Know your competition and the marketplace.
There’s nothing wrong with a little competition; it allows business owners to innovate and evolve their products and services continuously. Knowing your business’s market, what your competition is doing and how your company fits into this landscape are important parts of establishing and running your business.
Including this information in your business plan will showcase your thorough knowledge of the industry for your proposed company. Without this information, no serious investor will rise to the occasion, and it will be hard to stand out in the marketplace. Know your industry, understand your competition and determine how your business will become a differentiator in the market.
6. Finance your business.
Unless you’re an accountant, have a degree in finance or are a sophisticated investor, you’ll need some help nailing down this part of your prelaunch planning. Investors will want to know how much money your company will have to begin with and how much it will need in the future.
Regardless of where your revenue will come from, list it in your business plan. Will you use your credit cards and home equity to start? Will you need a loan to get started? Are you willing to give up a percentage of your ownership in exchange for cash? Will you have sales the day you open? These are important questions to address.
Find out the best business loan and financing options so you can make an educated decision on how to finance your new business.
There are many investors out there, and they’ve seen it all. Investors typically want to know three things:
- How much?
- For how long?
- What is the exit strategy?
If you answer these three questions to an investor’s satisfaction, you’ll likely strike a deal. [Read related article: How to Know an Investor Is Offering You a Good Deal]
Identify and secure a location.
Whether it’s a home office or an entire building, you need to know where your business will be located before you launch it. Prior to your first day of operations, you’ll want to have the following in place:
- Phone and internet service
- Business directory listings
- Utilities
- A lease or purchase agreement for your workspace
If you haven’t identified or secured a location for your business before meeting with investors, don’t fret. Investors, bankers and legal counsel generally don’t see the lack of a specific location early on as a dealbreaker or red flag.
8. Get proper insurance.
Selecting the right business insurance for your company is not a decision to make lightly. There are several types of insurance to consider, including health, auto, directors and officers, liability, performance bond, travel (including accidental death and dismemberment) and life.
In addition to understanding the differences among the available options, it’s important to identify any local regulations that might require your type of business to carry certain types of insurance. For example, if you’re starting a carpentry or plumbing company, you’ll need liability insurance, which typically isn’t necessary for businesses in other industries. Learn what else you need to keep in mind when choosing business insurance.
9. Obtain legal counsel.
Whether you want to have in-house counsel or hire an attorney as needed, your business needs to have access to legal advice. You may need legal representation specializing in corporate, tax, intellectual property, labor or international law. Wherever regulatory requirements demand compliance, asking a lawyer to review and sign off on this part of your business will save you time and money and protect you from potential legal ramifications.
10. Establish a web presence.
In addition to securing your business’s physical location, you’ll need to establish a virtual presence. First, register a domain name that matches your business’s name so you’re ready to build your website when the time comes.
Once you’re ready to develop your website, research the options to ensure you’re selecting the best website builder that will meet your immediate needs and be able to support your desired functionality in the future, such as online ordering capabilities. Enlist the help of a search engine optimization expert to ensure your website’s design and content are fully optimized. You also may want to consider the cost of starting an online business when deciding which kind of company to start.
FYI
In addition to building a website, you'll need to set up accounts to build a social media presence for your business. A consistent username across all of your preferred social channels will build credibility for your business. Read more about the importance of social media for small businesses.
11. Use local and national business resources.
There are plenty of local, county and national resources to make sure your business name is available, to verify the legal structure you’ve chosen is correct and in compliance with location-specific ordinances, and to advise on the different business loan options and other funds available to entrepreneurs. You can also refer to resources provided by your local corporation commission, the Small Business Administration and the IRS throughout the planning process.
12. Create a marketing plan.
Writing a marketing plan that complements your overall business plan will help ensure your new business’s success. A fully optimized website should be at the center of your marketing plan, even if you’re planning a brick-and-mortar business.
5 things to avoid when opening a business
Understanding common entrepreneurial pitfalls can increase your chances of success at launch and beyond. Here are five mistakes to avoid when you’re starting a business.
Doing everything by yourself
Attempting to run a business without any help is futile. Instead, leverage your community and connect with other business-minded professionals who can offer advice, insights and feedback to keep you on track. Consider outsourcing time-consuming or technical tasks, such as accounting or IT support, to allow time to focus on growing your business.
Hiring employees too soon
While every business needs someone to operate it, bringing on employees too soon can lead to failure. Take your time when hiring, and ensure you find the right people who fit your business culture. Look for employees who can supplement your skill gaps and add new perspectives to your business.
Did You Know?
Using freelancers can be a helpful way to get around employing a full staff too soon, but there are both pros and cons of hiring freelancers.
Spending irresponsibly
Startups must be smart with their finances to ensure they have enough money to keep the engine running. Curb unnecessary spending, keep track of your financials and create a long-term budget to prioritize the most important purchases. Otherwise, you may run out of funding sooner than you expected, leaving no money to cover operating costs, salaries or other expenses.
Rushing to launch
Being the first to market is not the key to success if you haven’t fully developed your product or service, so don’t rush when launching your business. Take advantage of your competitors’ progress by learning from their mistakes to improve your offerings. If they’ve already piqued the market’s interest, use this attention to promote your newer and superior product or service.
Miscalculating the demands
Many entrepreneurs underestimate the challenges of owning a business, leading them to become overwhelmed by its responsibilities and demands. This, in turn, can hurt the quality of the products and services you deliver to customers.
To avoid overpromising, set realistic expectations and be upfront about your availability. Telling clients when you are at capacity shows that you are trusted and in demand and that you recognize your limits to ensure high-quality work.
