Top 7 Considerations You Don’t Think of When Starting a Small Business
Starting a business is exciting because you get to work for yourself, pursue your ideas, and reap the rewards of your efforts. However, the process can also be complex. Starting a business involves a lot of complicated processes. You need to address legal compliance issues, accounting practices, and hiring challenges. These details can start to seem overwhelming.
Here are seven considerations that entrepreneurs might forget in the exciting early days of their business venture.
A market feasibility study focuses on deciding whether or not there is a market for the product or service you would like to launch. Some questions you might ask when determining market feasibility include the following:
- Who is my potential customer?
- What are their buying patterns?
- Are there other products on the market similar to mine?
- How are they performing?
- What is the competitive edge for my product or service?
A standard piece of advice given to entrepreneurs trying to create a product or service is to build something that they need themselves but can’t find. Many of the most successful products and businesses have come about due to the founder trying to solve their own problem. It is often likely that other people have the same issue.
Even if the idea does not take off, you at least solve a problem for at least one person: yourself.
Whatever your idea, a market feasibility study is essential. There are few things more demoralizing for entrepreneurs than working hard to build a product, only to discover that no one wants or needs it.
The goal of every business is to earn a profit. You need to assess the financial viability of your idea to see if it can make more money than it costs to set up and run your company.
The first step is to make sure you have enough startup capital. This process involves evaluating all your initial costs to figure out how much money you need. That startup capital may come out of your own pocket, or you may prefer to approach investors or banks. When approaching others or applying for a loan, you need a comprehensive business plan highlighting the value proposition to investors.
Choosing between debt (bank loans) and equity (investor money) when starting a business boils down to two factors: how much ownership you are willing to give up and how capable your company is of making recurring payments to pay back a debt. If your business is initially more likely to struggle with cash flow, then it’s a good idea to go for equity capital. That will give you more room and time to pay back investors. On the other hand, if you want to own 100% of your business no matter what, then debt capital is the better option.
Another financial consideration is emergency funding. If the worst happens, you need to keep the doors open and continue your operation for several months until you can address whatever emergencies caused the issue.
Legal and Risk Management Issues
After financial considerations, you need to consider legal and risk management strategies. Starting a business involves meeting many regulatory and legal requirements, as well as protecting yourself from liabilities.
The first step is to see if you need a license for your business. These requirements can vary by industry and location. Some of the permits you should look into include:
- A business license
- A fire department permit
- Sign permit
- County permits
- State licenses for specialized businesses
- Federal licenses
- Health department permits
- A sales tax license
Getting a legal consultant is paramount here. A skilled lawyer will assess the type of business you are planning and advise you on the different licenses and permits you need.
You should also consider what kind of business entity to register. A sole proprietorship will allow you to operate under your own name, but it will make you personally liable for all of your business’s obligations. An LLC or C corporation will allow you to separate yourself from your business’s liabilities and potentially sell ownership shares to outside investors. During the setup process, you need to be sure to do a thorough search of your intended business name at both the state and federal level.
Another important legal consideration you need to make is liability protection. Insurance can offer protection when something unexpected happens. It is vital to preemptively protect yourself by getting insurance for various risks, such as:
- Disability: This coverage is critical if your business can’t run without you being around to manage it.
- Product liability: This coverage will protect you if someone gets injured as a result of your product.
- Workers’ compensation: This insurance covers your business in the event an employee gets injured on the job. This protection is one of the benefits that employees expect from their employers.
- Fires, accidents, and natural disasters: This coverage will offer compensation so that you can restart business operations after a disaster.
These are the types of protections that will allow you to continue operating even if something bad happens.
Another consideration is whether you are ready for all the challenges that running a business will bring. Many people go into business because of the allure that comes with determining their own work hours, having an unlimited potential income, and making a positive impact in the world.
It is important to ask some critical questions and provide yourself with honest answers to determine if you are, indeed, ready to start a business. These questions might include:
- Am I disciplined enough to manage my time and complete tasks I set for myself?
- Do I have good communication and negotiation skills?
- Can I work well under pressure?
- Am I patient when things are not going my way?
- Can I be consistent with something I know is right, even if it doesn’t immediately yield results?
- Am I a good people manager?
- Am I a good money manager?
The goal of this exercise is to decide if you are really ready to start a business.
A business plan is a document in which you detail how you intend to start and run your business. A business plan will cover financial projections, management, marketing, product strategies, and your overall financial goal.
Some of the benefits of a business plan include:
- It gives you have something to show potential investors.
- It forces you to articulate your business idea, which reveals potential weaknesses.
- It acts as a road map for your business and helps you make sound decisions based on defined strategies and principles.
A good business plan will clarify your vision for others. It will also give you a sense of direction when making vital decisions.
Accounting helps you keep track of the money flowing into and out of your company. Ultimately, it enables you to see whether your business is making a profit. A good accounting system will allow you to organize and visualize financial data at any time.
More importantly, accounting helps you remain compliant with regulatory requirements, such as preparing accurate tax returns and paying sales taxes. Not only does an accountant ensure you follow the law, but they also make certain that you get the tax benefits due to you. You can either outsource your accounting functions or hire an in-house accountant to take care of everything.
An in-house accountant is an excellent long-term solution. Ideally, your company will grow enough to need such a professional on staff. However, outsourcing makes more sense when you’re starting because you will only pay for the services when you need them.
As a business owner, you are likely to work with many different suppliers and strategic partners. The right suppliers and partners can help your business provide more products to your customers, render higher-quality services, and get good deals on purchase costs.
The wrong partners, on the other hand, can cost you your customers and your bottom line by giving you materials and services that lead to a subpar customer experience.
A business needs to form good relationships with established and reputable suppliers when starting. They may be a little pricier than less-established ones, but they give you the peace of mind that comes with knowing you are getting quality products and services from a time-tested company.
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