Steps to Start a Small Business - SkyNewswire.com

Steps to Start a Small Business - SkyNewswire.com


Steps to Start a Small Business - SkyNewswire.com

Posted: 29 Apr 2020 09:22 PM PDT

There are more than 28 million small businesses in the United States, making up a whopping 99.7 percent of all U.S. businesses, according to the Small Business Administration. When you consider some of the most popular reasons to start a business, including having a unique business idea, designing a career that has the flexibility to grow with you, working toward financial independence, and investing in yourself — it's no wonder that small businesses are everywhere.

Small business

But not every small business is positioned for success. In fact, only about two-thirds of businesses with employees survive at least two years, and about half survive five years. So you may be in for a real challenge when you decide to take the plunge, ditch your day job, and become a business owner. The stage is often set in the beginning, so making sure you follow all of the necessary steps when starting your business can set the foundation for success.

Here are 10 steps that are required to start a business successfully. Take one step at a time, and you'll be on your way to successful small business ownership.

Step 1: Do Your Research

Most likely you have already identified a business idea, so now it's time to balance it with a little reality. Does your idea have the potential to succeed? You will need to run your business idea through a validation process before you go any further.

In order for a small business to be successful, it must solve a problem, fulfill a need or offer something the market wants.

There are a number of ways you can identify this need, including research, focus groups, and even trial and error. As you explore the market, some of the questions you should answer include:

  • Is there a need for your anticipated products/services?
  • Who needs it?
  • Are there other companies offering similar products/services now?
  • What is the competition like?
  • How will your business fit into the market?

Don't forget to ask yourself some questions, too, about starting a business before you take the plunge.

Step 2: Make a Plan

You need a plan in order to make your business idea a reality. A business plan is a blueprint that will guide your business from the start-up phase through establishment and eventually business growth, and it is a must-have for all new businesses.

The good news is that there are different types of business plans for different types of businesses.

If you intend to seek financial support from an investor or financial institution, a traditional business plan is a must. This type of business plan is generally long and thorough and has a common set of sections that investors and banks look for when they are validating your idea.

If you don't anticipate seeking financial support, a simple one-page business plan can give you clarity about what you hope to achieve and how you plan to do it. In fact, you can even create a working business plan on the back of a napkin, and improve it over time. Some kind of plan in writing is always better than nothing.

Step 3: Plan Your Finances

Starting a small business doesn't have to require a lot of money, but it will involve some initial investment as well as the ability to cover ongoing expenses before you are turning a profit. Put together a spreadsheet that estimates the one-time startup costs for your business (licenses and permits, equipment, legal fees, insurance, branding, market research, inventory, trademarking, grand opening events, property leases, etc.), as well as what you anticipate you will need to keep your business running for at least 12 months (rent, utilities, marketing and advertising, production, supplies, travel expenses, employee salaries, your own salary, etc.).

Those numbers combined is the initial investment you will need.

Now that you have a rough number in mind, there are a number of ways you can fund your small business, including:

You can also attempt to get your business off the ground by bootstrapping, using as little capital as necessary to start your business. You may find that a combination of the paths listed above work best. The goal here, though, is to work through the options and create a plan for setting up the capital you need to get your business off the ground.

Step 4: Choose a Business Structure

Your small business can be a sole proprietorship, a partnership, a limited liability company (LLC) or a corporation. The business entity you choose will impact many factors from your business name, to your liability, to how you file your taxes.

You may choose an initial business structure, and then reevaluate and change your structure as your business grows and needs change.

Depending on the complexity of your business, it may be worth investing in a consultation from an attorney or CPA to ensure you are making the right structure choice for your business.

Step 5: Pick and Register Your Business Name

Your business name plays a role in almost every aspect of your business, so you want it to be a good one. Make sure you think through all of the potential implications as you explore your options and choose your business name.

Once you have chosen a name for your business, you will need to check if it's trademarked or currently in use. Then, you will need to register it. A sole proprietor must register their business name with either their state or county clerk. Corporations, LLCs, or limited partnerships typically register their business name when the formation paperwork is filed.

Don't forget to register your domain name once you have selected your business name. Try these options if your ideal domain name is taken.

Step 6: Get Licenses and Permits

Paperwork is a part of the process when you start your own business.

There are a variety of small business licenses and permits that may apply to your situation, depending on the type of business you are starting and where you are located. You will need to research what licenses and permits apply to your business during the start-up process.

Step 7: Choose Your Accounting System

Small businesses run most effectively when there are systems in place. One of the most important systems for a small business is an accounting system.

Your accounting system is necessary in order to create and manage your budget, set your rates and prices, conduct business with others, and file your taxes. You can set up your accounting system yourself, or hire an accountant to take away some of the guesswork. If you decide to get started on your own, make sure you consider these questions that are vital when choosing accounting software.

Step 8: Set Up Your Business Location

Setting up your place of business is important for the operation of your business, whether you will have a home office, a shared or private office space, or a retail location.

You will need to think about your location, equipment, and overall setup, and make sure your business location works for the type of business you will be doing. You will also need to consider if it makes more sense to buy or lease your commercial space.

Step 9: Get Your Team Ready

If you will be hiring employees, now is the time to start the process. Make sure you take the time to outline the positions you need to fill, and the job responsibilities that are part of each position. The Small Business Administration has an excellent guide to hiring your first employee that is useful for new small business owners.

If you are not hiring employees, but instead outsourcing work to independent contractors, now is the time to work with an attorney to get your independent contractor agreement in place and start your search.

Lastly, if you are a true solopreneur hitting the small business road alone, you may not need employees or contractors, but you will still need your own support team. This team can be comprised of a mentor, small business coach, or even your family, and serves as your go-to resource for advice, motivation and reassurance when the road gets bumpy.

Step 10: Promote Your Small Business

Once your business is up and running, you need to start attracting clients and customers. You'll want to start with the basics by writing a unique selling proposition (USP) and creating a marketing plan. Then, explore as many small business marketing ideas as possible so you can decide how to promote your business most effectively.

Once you have completed these business start-up activities, you will have all of the most important bases covered. Keep in mind that success doesn't happen overnight. But use the plan you've created to consistently work on your business, and you will increase your chances of success.

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6 Ways To Rebuild Your Small Business After COVID-19 - Forbes

Posted: 30 Apr 2020 10:11 AM PDT

The COVID-19 outbreak has wreaked financial havoc around the globe, leaving many small-business owners struggling in its wake. According to the National Federation of Independent Business (NFIB), as of March 30—still early in the crisis—92% of small businesses said they had suffered negative effects as a result of the pandemic. Just 5% of small-business owners said they had experienced no effects at all.

While the short-term outlook for small businesses varies greatly by industry, it's important to consider what recovery mode will look like once the economy begins to return to a state of normalcy—or establishes a new normal. Having an exit strategy in place for after COVID-19 can help you be prepared to hit the ground running and rebuild. If you're not sure what your coronavirus exit plan should include, this guide can help with getting your business back on track.

1. Assess the Financial Damage

The first step in developing a rebuilding plan for COVID-19 is determining just how deeply your small business has been affected.

There are different layers involved, starting with the hard numbers. If you haven't updated your financial statements—such as profit and loss or cash flow statements—recently, it's helpful to do that now. You can then compare them to last year's numbers to see how much your business may be down. And while only a small percentage of business owners say they've benefited from the pandemic, 3% according to the NFIB, it's possible that the damage might not be as bad as you think.

Aside from the hard numbers relating to sales, profits and cash flow, consider other ways in which your business has been affected. For example, if you've had to lay off some or all of your employees, you'll need to factor that into your rebuilding plan. If you've cut your advertising and marketing budget down, or some of your customers have migrated toward competitors, then those are things you'll need to account for as you identify financial resources to help you recover.

2. Take a Second Look at Your Business Plan

Your business model may have worked perfectly fine pre-COVID-19, but coming out of it may mean you have to do some fine-tuning.

Specifically, you may need to consider how your business can pivot to adjust to a new normal. For example, if you previously relied on foot traffic to a brick-and-mortar location for sales, you may need to look at a digital expansion to accommodate the higher numbers of people who are shopping from home.

You're not in this alone, however. In partnership with the Small Business Administration (SBA), SCORE offers small businesses access to mentors who can offer guidance and resources as you look to build—or rebuild—your business after the crisis. Remote mentoring services are available, along with free webinars that address coronavirus-specific issues.

Analyzing how your overall industry has been affected by the coronavirus pandemic also is helpful. When looking at your competitors and the industry as a whole, pay attention to the trends and focus on finding the opportunities. Being able to find a gap or need that your business can fulfill that's been neglected up until now could be critical to reclaiming and expanding your customer base going forward.

When going over your business plan and business model, get clear on your business's strengths and weaknesses. Then, look at what was working before that may not work as well now and see where you can adjust or improve to remain competitive. Finally, don't forget to revisit your business goals to make sure they're realistic, given the current circumstances. For example, you may have set a target revenue goal for the year that will need to be scaled back now to account for the damper COVID-19 may have put on your Q2 sales.

3. Consider Whether You'll Need Funding to Recover

Unless you had a large amount of cash on hand going into the pandemic, it's likely that you may need some working capital to jump-start your business operations coming out of it.

When it comes to financing your small business during a COVID-19 rebuilding period, there are several options to consider. The SBA is an obvious choice for business loans, and there are a few programs that can help. The Paycheck Protection Program, for example, is designed to provide funding to small businesses that are struggling to retain their employees during the coronavirus pandemic. Economic Injury Disaster Loans also can help with short-term financing if you need money for things other than employee retention. 

The challenge with both of those federally mandated programs, however, is that the funding is limited. It's entirely possible that funding may be depleted before your application for a loan is ever reviewed. For this reason, it's important to consider other sources of small business funding, including:

  • Traditional SBA 7(a) loans and microloans
  • Small business term loans from banks, credit unions and online lenders
  • Business lines of credit
  • Business credit cards
  • Vendor tradelines
  • Accounts receivable financing
  • Merchant cash advances
  • Inventory financing
  • Purchase order financing
  • Equipment financing

Each option can have pros and cons. Accounts receivable financing and merchant cash advance financing, for example, can be convenient, and neither one requires perfect credit to qualify. Either could be useful for funding your business in the short term.

But they both require that you have something to leverage, i.e., outstanding invoices and credit card sales, respectively. If sales are slow or nonexistent, you might have a hard time getting approved. Alternative financing options like these also can have much higher effective annual percentage rates compared to other types of small-business loans and lines of credit.

If you're considering financing to help rebuild, keep in mind that borrowing may be competitive, as lenders want some reassurance that loans can be repaid. Reviewing your business and personal credit scores, as well as your business and personal financials can help you gauge how likely you are to get approved for funding.

4. Revamp Your Budget to Account for New Spending

Coming out of the COVID-19 pandemic, you may have to spend money before you can make money.

For example, you may need to spend money on hiring and training new employees or rehiring ones you had to lay off. Inventory may need to be purchased, and you might have to rev up your advertising budget again to start building fresh buzz.

As part of your coronavirus recovery, you should have a clear idea of what you need to be budgeting for and what you can cut to make the most of the revenue you do have coming in. The goal is to eliminate the monetary waste and get your operating budget as lean as possible so that when the chance to invest in growth comes up, you're able to take advantage of it.

An extreme step you could take during this time is deferring paying yourself a salary or taking a pay cut. Whether this makes sense depends on how well you're able to manage your personal financial obligations, depending on what you have in savings or from a spouse's income if you're married. But skipping out on paychecks in the near term could help your business to get back on its feet faster.

5. Develop a Time Line for Rebuilding

You may have several things you need or want to do to recover following COVID-19, but doing everything at once may not be realistic. What can help is having a time line to follow that prioritizes your most important actions first.

For example, your immediate goal may be securing funding for your business. Once you've done that, you can set a time line for rehiring employees, then restocking inventory and, finally, reopening your doors if your small business closed as a result of the pandemic.

As you take individual steps toward recovery, remember to track your progress. This is particularly important if you've secured capital to fund your business, because you don't want to waste time on activities that aren't delivering a solid return on your investment. In the initial stages of COVID-19 recovery, you may want to check in weekly to see what's working and what's not. Later, you can shift to reviewing your business financials monthly as things begin to stabilize.

6. Create a Contingency Plan for the Next Crisis

While the coronavirus pandemic may seem like a once-in-a-lifetime event, the reality is that an emergency can come along to disrupt your small business at any time. Using what you've learned during the current pandemic to prepare for the next crisis can help you insulate your business from future shocks.

For instance, building up liquid cash savings may be a priority for your business if you had little or nothing set aside before the COVID-19 outbreak began. You may choose to focus on paying down your debt and trimming nonessential spending to keep your budget in check. Or you may need to find ways to help your staff work more efficiently to cut operating costs.

The pandemic also may have taught you a thing or two about how important it is to be able to adapt and keep your business fluid so you can reasonably weather storms. For example, if your employees didn't have the option to work remotely before, that's something you may want to incorporate in your business model going forward.

The more outside-the-box thinking you can do to prepare for a worst-case scenario, the better. Having a Plan B (and even a Plan C, D, E and F) can help improve your business's odds of surviving—and eventually thriving again—during tough financial times.

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When Does a Small Business File for Bankruptcy? Questions and Answers - The New York Times

Posted: 01 May 2020 03:18 AM PDT

All the forecasts point in the same direction: A wave of small-business bankruptcies is coming.

More than 40 percent of the nation's 30 million small businesses could close permanently in the next six months because of the coronavirus pandemic, according to a poll by the U.S. Chamber of Commerce.

"It's a crisis that will impact our economy for generations," said Amanda Ballantyne, executive director of Main Street Alliance, an advocacy group for small business. "We're going to lose so much of the small-business sector."

Commercial bankruptcies in the first quarter of 2020 ticked up 4 percent from a year earlier, according to data from the American Bankruptcy Institute. But many of those filings were made before the pandemic, when the economy was healthy. Right now, some owners are waiting to find out if they will receive federal stimulus aid before deciding whether to file for bankruptcy protection.

Many of them may just disappear. But for others, a bankruptcy law that took effect in February, the Small Business Restructuring Act, could help them survive the pandemic.

Before that law, if a struggling small business wanted to restructure its debt, its only option was Chapter 11, which is the commercial bankruptcy code. It allows a company to negotiate with creditors for better terms — a process known as debt restructuring — and in some cases dismiss debt. The goal is for the company to get a fresh start.

But the Chapter 11 process is long and expensive, and a recent report by the Brookings Institution found that it is better suited to large firms. The new rules, known as Subchapter 5 because they are part of Chapter 11, give firms with less than $2.73 million in debt the power of reorganization with a few key simplifications. Two main changes: A judge can enforce a restructuring plan even if creditors don't like it, and the owner can continue running the business.

Congress recognized that this tool could be a lifeline to small businesses trying to get through an economic shutdown. So as part of the federal stimulus program, it expanded eligibility to firms with up to $7.5 million in debt. That change means Subchapter 5 could help up to 70 percent of all businesses that might file for bankruptcy, Brookings estimated.

"A number of small businesses who are prone to just giving up could be saved," said Bob Keach, who leads the bankruptcy practice at Bernstein, Shur, Sawyer & Nelson, a law firm in Maine.

A to Z Total Heating and Cooling in suburban Detroit was one of the first companies in the country to file for bankruptcy protection under the new rules. The family-owned firm has been operating for nearly four decades, but business really took off in the past few years. The company struggled to manage the growth.

Its primary problem? Labor. The company's two dozen employees weren't enough to keep up with demand, and Jerry Stetina, A to Z's chief operating officer, said it couldn't find additional workers. That meant the firm got bogged down paying overtime on top of the typical $35 hourly wage — and tapped out cash reserves.

"I know it sounds really crazy, but the process of growing put us in the situation we're in," he said.

Then a mild winter hit Michigan this year, and fewer customers called for new furnaces or repairs. What little work the employees did have was shut down by the coronavirus. But they didn't want to give up: Mr. Stetina could see a strong summer season; A to Z just needed a bridge to get there.

"People will live without heat, but they won't live without air-conditioning," he said. "Our phones are ringing now with questions about A.C. start-ups to get ready for summer." When A to Z exits bankruptcy, the company plans to hire a controller to better handle its finances.

Here are some of the main questions to consider if you are thinking about a bankruptcy filing for your small business.

Business owners must search their hearts and assess their balance sheets.

"The first question to ask is: 'Do the owners want to keep this going?'" said Kimberly Ross Clayson, whose firm, Clayson, Schneider & Miller in Detroit, advises small-business clients.

If your heart isn't in it, call a lawyer to help you wind down operations. But if you still think your business can become viable, a Chapter 11 bankruptcy might be the right call.

Initially, Mr. Stetina of A to Z was scared to call a lawyer. He knew the stigma around bankruptcy and was worried what clients might think even though A to Z planned to restructure, not discharge, debt. Once he did call, he said, he wished he had done it earlier.

"A lot of big businesses have been doing it for years, and it's some of the reason that they are in business still," Mr. Stetina said.

Write a business plan for a post-pandemic business world. How will your business operate? Where will revenue come from? What new expenses — for marketing, infrastructure and more — will you incur to help your business pivot? If you can write a business plan that shows a positive balance sheet after bankruptcy, restructuring might work.

"Chapter 11 bankruptcy is designed to fix people's balance sheets," Mr. Keach, the Maine lawyer, said. "It allows you to restructure some debt, eliminate other debt. It doesn't generate revenue for you."

Every business owner's situation is different. But a general rule is: If you can't identify enough future revenue to pay off the debt, borrowing may make matters worse. Some business owners no longer have any personal resources to draw on and may not receive federal stimulus funding.

"Don't borrow blindly and say, 'It will all work out,'" said Ms. Clayson, who is a federal trustee for Subchapter 5 claims. "If you are thinking a credit card is how you will open your doors and bridge yourself to the next stage, then you really need to be thinking about how viable your business is."

If you find yourself considering nonbank lenders with high interest rates, it's time to call a lawyer, she said.

No. If you can pay off your creditors or negotiate a deal with them, you don't need to file for bankruptcy protection. But you will want a lawyer to draft agreements.

Also: Don't forget about withholding taxes. When times are tight, many small-business owners who manage their own payroll dip into that pot of money they set aside at each pay period and use it for other expenses.

"If you have unpaid withholding taxes, the business owner becomes personally liable," Ms. Clayson said.

Think of Chapter 7 as a funeral and Chapter 11 as a do-over.

Chapter 7 is used for both individual and business bankruptcies when the goal is to wipe out debt. The debt can go away, but you may also lose your assets.

If you wanted to restructure your business debt, you would consider a Chapter 11 bankruptcy and, more specifically, Subchapter 5 for small businesses. But you can always try to negotiate with creditors outside of a formal bankruptcy.

"The only reason you need to use Chapter 11 at all is to deal with recalcitrant creditors," Mr. Keach said. "If creditors won't negotiate with you, bankruptcy allows you to cram down a plan of restructuring."

There are other forms of bankruptcy filing: One, Chapter 13, is used for personal reorganizations, when you want to try to keep your assets and renegotiate the terms of your debt. Another, Chapter 12, oversees businesses in farming and fishing.

It depends on what personal guarantees you made. Most small-business owners put up their home or some other asset as collateral for start-up loans. In fact, the Small Business Administration requires that as part of its non-Covid-related lending.

If you used your house as collateral, it's possible you would be forced to sell it as part of a Chapter 7 settlement. Under Chapter 11, you may have more luck.

Possibly, but not necessarily. It depends on whether you are closing the business or trying to restructure, and what liabilities you have.

If you are trying to restructure, the goal is for your lawyer to negotiate with your creditors and create a plan that lets you avoid a personal bankruptcy. But if the creditors don't like the deal, they could come after you for any debts you personally guaranteed. In that case, you might be forced to file for personal bankruptcy.

Here is the main thing to know: Like all bankruptcies, it has a magic power called the "automatic stay." Filing for bankruptcy stops creditors from collecting from you.

"It buys you time," Mr. Keach said.

And time is everything. For example, take a restaurant that was having its best year before the pandemic, but then its revenue disappeared. A Subchapter 5 bankruptcy could help the company by halting creditor collections and allowing owners to renegotiate terms.

"What it might allow is, with a couple of exceptions, a built-in moratorium on rent," Mr. Keach said. "You could propose a plan where you could literally not pay anything toward old debt for four to six months as long as your projections show that you have positive projected income after that."

In exchange, business owners will need to use their net operating income — what's left after the usual expenses like rent, payroll, cost of goods — to pay creditors for the next three to five years.

Yes. Securing funding may be more challenging, but it's not impossible.

"My favorite clients have always been those who are already on to their next idea," Ms. Clayson said. "This is the American way. You can start over. This isn't a black mark."

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