What You Need to Start a Business
UPDATED: February 7, 2020
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To start a business, you should first have a solid understanding of the particular type of business you intend to start, a written business plan, and enough funds to cover your costs until the business becomes profitable. Jumping into a business without some level of effective pre-planning can result in financial headache for small business owners.
Choosing the Best Type of Business to Start
Start with your current training and skill set. Many entrepreneurs have used their experience and training from prior employment to offer specialized services or products. Alternatively, some colleges offer training programs, which include general business classes and specialized courses in certain fields. Some franchises also offer training before or during the start-up of a business. A good understanding of the economics of the business you are starting will increase your chances of success.
Developing a Business Plan
After choosing the type of business you would like to start, you will have to develop a business plan. Hobbies that generate income involve activities considered to be a hobby that occasionally produce income, but it is not necessary to create a business plan because the focus is more on your hobby. But if you are starting a regular business, you will need to create a comprehensive plan as to how, when, and where you intend to start the business and who you want involved.
Poor planning is one of the biggest roadblocks for small businesses. For example, failing to identify who will do what functions and how much each partner will be allowed to withdraw on a regular basis are details that can cause hardships and misunderstandings for a business. If you need assistance drafting a business plan, contact your local community college or small business administration; they will usually offer courses on how to write an effective business plan.
Calculating a Budget for Your New Business
The next step in the process of starting a business is budgeting. Your business plan should include an accurate budget for start-up costs and subsequent operational expenses. Do not manipulate or falsify these numbers. Know what your expenses are so that you can effectively plan and budget. Depending on the type of business and where you are located, you may qualify for private and state funding sources through minority grants, small business loans, or economic development incentive packages. If you do not have access to external funding sources, take the time to visit with an accountant regarding financial planning options and strategies.
Choosing a Business Structure
State laws enable you to create a legal entity, which is a separate identity from you or any partners, under which you can transact business without the risk of exposing your assets to any personal liability that might arise out of your business affairs. Types of business entities include sole proprietorships, partnerships, limited liability companies (LLC), and corporations.
The type of business structure you choose can help you minimize taxes, avoid legal problems, and reduce your exposure to personal liability. Setting up the wrong type of structure for your needs or failing to file the proper state or federal documents can affect your tax status or limited liability status.
Consulting with an Accountant and Business Lawyer
Before starting a business, it is often a good idea to speak to an accountant and a business lawyer so that you understand the tax and legal issues involved. If you are a business startup looking for financing, you will want to have intellectual property rights already protected. A corporate or business attorney can also review your business plan to see which type of business entity is best for your situation and long-term financial goals.