Entrepreneurs starting out face a myriad of challenges touching on every facet of the business from budgeting and staffing to tax compliance. The idea of starting a business can also be intimidating at first because there are many unknowns. However, putting in place a properly working framework can help dispel the fears and set the business on a successful path.
According to the small business financial resource, Fundera; here are 6 steps to starting a business on a high note:
- Choose the right business idea
- Write a practicable business plan
- Register the business
- Acquire the necessary funding
- Get the right team
- Implement prudent financial management
When you are analyzing the business ideas to implement, it helps to choose something you’re skilled at doing. The other important considerations include the viability of the product or service you want to provide and the number of resources you have at your disposal. You can always find out more about the market through research. The findings should center on areas like the target market, competition, marketing strategies and how the business will make money.
The information gathered during the research can be pieced together to create a business plan. The next step is to register the business. The process entails obtaining a business license, registering the business name and selecting the right legal structure. Some of the business structures to consider include sole proprietorship, business partnership, limited liability company (LLC) and corporation, among other legally approved business listings.
Do not forget to register the business locally and have a tax identification number to comply with the IRS tax provisions. With regard to staffing, a new business just needs a skeleton staff to get off the ground. Depending on the type of business, you can hire or outsource freelancers and contractors to keep the costs low. The other important thing is business funding. Besides personal savings, small business owners can obtain funding from the following two sources:
Small business loan sources
- Equipment financing
- Small business lending (SBA)
- Invoice financing
- Business lines of credit
- Term loans
Alternative business funding sources
- Family and friends
- Angel investors
- Venture capital firms
The top 7 money mistakes new entrepreneurs are prone to make
A growing number of people are quitting the 9 to 5 grind to become independent entrepreneurs. Money is at the center of any successful transition and future business performance. According to the hugely popular entrepreneur lifestyle magazine, Life By Design, below are 7 common money mistakes new business owners make and how they can be overcome.
1. Not having an all-inclusive budget
When you plan to start a business, you need to set some money aside to cover unexpected expenses. This money can also be used to cover mundane issues like non-budgeted marketing and transportation. Experts suggest allocating at least 10% of the business budget for this cause.
2. Failure to pay yourself first
As a strategy to prevent total burnout, entrepreneurs are advised to pay themselves first before plowing any money back into the business. You can start small and raise the pay-off with time. This highly effective work and reward strategy is very much in line with the tenets of starting a business, which is enjoying the freedom and the proceeds of your efforts.
3. Failure to track spending
Spending should always be kept in check in order to assess how money is spent and allocated. The assessment of spending will also help the business owner establish the level of profitability and taxes due when closing the books.
4. Putting everything on credit
As a new business owner, you may be tempted to have everything go on credit. If left unchecked, overbearing credit can jeopardize business survival. The solution is to control your credit prudently. The other strategy is to build your credit so it’s slowly moving up.
5. Mixing business and personal issues
Entrepreneurs who mix business with pleasure often pay a huge price for the indiscretion. The consequences range from cash flow problems to loss of profit margins. Self-discipline is necessary when running a business. To this end, business matters must be separated from personal issues.
6. Lack of insurance coverage
Although most upcoming entrepreneurs overlook this fact, it is important to obtain the appropriate insurance coverage to protect your business against foreseeable and unforeseeable events. The most important coverage is liability insurance that will insulate your business against property damage and even bodily harm. Unless you are working from home, the traditional homeowners and renters insurance will not cover any damages visited on your business.
7. Overlooking cost and tax implications
Once the cash begins to flow in your business, try not to lose sight of the taxman. The money needed for tax purposes should be set aside to ensure the business runs without any hiccups. The most effective way to do this is to make sure tax considerations are figured into your pricing catalog. If you are unsure of what to do, get in touch with a tax expert for guidance.