Long dreamed of becoming your own boss? Now may be a good time to take the plunge. Today’s tech advances make everything from marketing to invoicing more manageable than ever.
The Small Business Administration and other entrepreneur-focused groups provide a plethora of free resources to support your growth. And with interest rates on loans ticking down, borrowing cash to fund your vision is getting cheaper.
Whether you’re thinking about freelancing, consulting or opening your own restaurant, many of the initial moves you should make as you start a business are similar. By getting an understanding of what’s needed, you can preserve your financial security, avoid unnecessary headaches and set yourself up for success.
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Here are the key steps to go from idea to execution.
Validate your concept
Make sure there’s a demand for your product or service.
“Know the difference between an idea the market wants or needs and an idea that is a personal passion or a hobby,” says Kira Chereé Cobb, founder of Entrepreneur Business Basics, an organization that helps entrepreneurs launch and grow their businesses.
Carolyn Katz, a mentor at SCORE, a nonprofit organization that provides free advice and resources for entrepreneurs, is a proponent of “customer discovery,” which means having open-ended conversations with potential customers.
“Instead of asking, ‘Would you like red socks or blue socks?’ or ‘Would you pay $10 or $12?,’ you ask, ‘How do you feel about your socks?’ ” she says.
Online tools such as Google Forms and SurveyMonkey are helpful for getting feedback. However, Katz recommends in-person discussions when possible. If you’re thinking about opening a food truck, for instance, hang around existing food trucks and chat with customers there.
During your research, don’t rely on friends and family for validation. Focus on those who don’t have a vested interest in your success, not people who will say, “Honey, that’s a great idea,” Katz says.
While you are investigating the viability of your concept, be sure to analyze competitors and track industry trends. One useful approach is a SWOT assessment, which helps you examine the strengths, weaknesses, opportunities and threats related to your idea.
Gavin Escolar, founder of The Chaga Company, used a SWOT analysis soon after discovering the antioxidant and anti-inflammation benefits of Chaga mushrooms during an extended trip to Alaska. Inspired by the health benefits he experienced, Escolar remained in Alaska, selling Chaga-infused foods and beverages in Juneau.
After realizing the harsh Alaskan winter weather wasn’t for him, he decided to return to San Francisco. Using the SWOT framework to evaluate the mushroom-selling potential there, he discovered a promising market. The analysis panned out, and he has been successfully running the company from there since 2018.
He sells his products at farmers markets, fungus fairs, pop-ups and corporate events, as well as online.
Review your personal finances
Even with the best idea, it can take months to make money. “Businesses that are profitable out of the gate are the rare exception,” says Katz, who has a background in banking and venture capital.
With that in mind, it’s critical to build a solid financial cushion — preferably enough to support you for a year — before you launch. At the same time, make sure your personal credit is strong, because you may need to borrow.
“Whether it’s an Office Depot store card or a business Mastercard,” loan issuers will initially rely on an entrepreneur’s personal credit record when reviewing credit applications, says Cobb, who is also an affiliate representative with the Kauffman Foundation’s FastTrac entrepreneurship education program.
Also, review the benefits your employer provides to determine what you’ll need to replace. Start by examining your pay stub or Form W-2 to get a general understanding of your income. Then, add in employer-sponsored benefits such as health care contributions and insurance discounts that you’ll pay if you’re not eligible to join a parent or partner’s plan. In addition, while employers pay a portion of your payroll tax contributions for Social Security and Medicare, self-employed workers must pay the entire 15.3% tax. (However, you can deduct half of self-employment taxes on your tax return.)
Without access to an employer-sponsored 401(k), you’ll also need to set up your own retirement plan, such as a Simplified Employee Pension (SEP) IRA or solo 401(k), to be able to save money pretax. If your employer provides a matching contribution to your workplace plan, you’ll also lose that when you leave.
Keep in mind, too, that while you are employed, you’re typically paid when you’re out for sick days, federal holidays and that annual beach vacation. When you’re running your own business, you won’t get those perks.
Cobb recommends thinking through some scenarios to fully comprehend how your finances will fare if your business doesn’t succeed. Consider testing your concept as a side hustle or part-time work before leaving your job.
Create your business plan
Think of your plan as a blueprint for what you want to achieve. It will outline how you’d like to structure, operate and expand your business. A solid plan helps you stay focused and gives potential partners, lenders and investors a clear view of your vision and business model.
Every plan is unique — there’s no exact formula — but most include an executive summary and mission statement, company description, details on products and services, market analysis, organization structure, operations plan, financial plan, and marketing strategy.
With so many elements, creating a business plan can feel daunting. But help is available. The Small Business Administration and SCORE have detailed templates that guide you through each step.
You can find the SBA template at www.sba.gov/business-guide/plan-your-business/write-your-business-plan; SCORE’s template is available at www.score.org/resource/template/business-plan-template-a-startup-business.
You can also get personalized assistance from advisers at SBA district offices, Small Business Development Centers (SBDCs) and SCORE. (For more on these resources, see the box on the facing page.)
Figure out the funding
There are numerous avenues to consider for financing your business, including self-funding (also known as bootstrapping), small-business loans or microloans, venture capital, grants, lines of credit, crowdfunding, hitting up family and friends, or a combination of these funding sources.
The SBA has a range of loan programs, but it doesn’t lend directly. Instead, it works with institutions willing to extend credit to start-ups because the SBA guarantees a portion of the loan.
Whether it’s an SBA-backed loan or a crowdfunding campaign, remember that what worked for a friend’s or colleague’s venture doesn’t mean it’s the right approach for you. The best kind of funding is very specific to the company and the situation, Katz says.
The Chaga Company’s Escolar got a $3,000 loan from his mother to launch his business in San Francisco, and he agreed to pay interest if he didn’t reimburse her within six months. He was able to pay her back in full before that condition kicked in.
Entrepreneur Arnyce Foster-Hernandez, who recently opened Featuring, a café that sells coffee, tea, pastries, natural fruit juices, and other items in the Harlem area of New York City, initially looked into securing a loan but says the process was time-consuming and disheartening. Instead, she self-funded, using $70,000 of her and her husband’s savings to open the café, and now relies on a business line of credit as needed.
In September, the Federal Reserve cut interest rates for the first time in more than four years, giving small businesses that rely on SBA loans a financial boost. Some 80% of SBA loans are tied to the prime rate, which means about 200,000 small businesses were set to see reduced loan payments starting in early October, according to the White House. While rates on SBA loans are negotiated between the borrower and the lender, the SBA caps rates based on the size of the loan. Currently, the caps range from 11% to 14.5%.
Despite falling rates, some lenders may remain cautious as they balance new loan requests with challenges such as outstanding loans from businesses that survived the COVID-19 pandemic but are now struggling financially, says Katz. Those institutions are trying to make new loans work while cleaning up old loans, which can leave them overstretched and more hesitant to lend.
A well-prepared business plan with detailed financial projections can strengthen your application. To explore your loan options, you can use the SBA’s Lender Match tool at https://lending.sba.gov/lender-match, which connects businesses with nearly 1,000 SBA-approved lenders. Those not matched to lenders are connected to a network of free advisers who can help prepare them for future approval.
Organize your business finances
To avoid legal and financial complications — and simplify record-keeping — separate your personal and business finances. That means using a dedicated bank account and credit card for your business.
You’ll also need a system to track income and expenses, such as QuickBooks or FreshBooks software, or even a well-organized spreadsheet. Cobb recommends working with a bookkeeper early, as an experienced professional can provide invaluable guidance on areas such as paying yourself, tracking profit and loss, and categorizing expenses correctly. “Instead of waiting until you have a lot of money, start with one in the first six months,” she says. “They can help you set up your finances the right way from the very beginning.”
An accountant is another expert to work with as soon as possible. A CPA can explain which expenses are deductible and help you take advantage of tax breaks. An accountant can also guide you through calculating estimated quarterly tax payments, so you’re not caught off-guard at tax time or penalized for underpayment.
“You have to be really cognizant of taxes,” says Aditi Dussault, associate administrator for the SBA’s Office of Entrepreneurial Development. “I know people who start as sole proprietors, don’t pay their taxes quarterly, and then are shocked at how much money they owe the government when they actually file.”
To find an accountant or bookkeeper, ask for recommendations from trusted sources, such as a financial adviser, your bank, or local small-business organizations. Check with peers, mentors, or members of your networking groups for suggestions, too.
Select a business name
Choosing a name for your business can be just as meaningful as naming your child — yet it comes with much more legwork. It’s fine if there are three other Emmas in your kid’s fifth-grade class. But in business, you want a unique moniker.
After brainstorming your name shortlist, run each contender through your state’s business-name directory, which is often found on the website for your state’s secretary of state, to see whether it is already taken. Also, search the U.S. Patent and Trademark Office website at www.uspto.gov to see whether anyone else has claimed the trademark.
Plug the name into Google and other search engines to see what pops up. If you plan to launch a website, see whether a domain name is available to match your preferred name. If the name you want is available, you can buy it through a domain registration company, such as GoDaddy.com. Check popular social media sites to see whether your business name is available as a username. If it is, nab it.
Decide on a business structure
Your business’s structure can affect everything from taxes to liability, so it’s essential to go about this with care and, often, some expert advice. Many entrepreneurs start as sole proprietors, but that could make you personally liable for the debts and obligations of the business, Dussault says. Operating as a limited liability company (LLC), such as a single-member LLC, can better protect your personal assets.
You can file for an LLC by completing the necessary documents on your own, using an online do-it-yourself service such as LegalZoom, or you can seek the assistance of a lawyer, accountant, or member of your local SBDC. Other structures include partnerships, S Corporations, and C Corporations. Ownership rules, liability, taxes, and filing requirements for each can vary by state.
Also, on the paperwork front, you’ll need to get the proper insurance, licenses, and permits for your business.
Build a support network
Most new business owners don’t realize how lonely working for yourself can be. “Friends and family don’t want to hear how you spent the last four days trying to figure out your point-of-sale system,” Katz says. “And you can’t really talk about the frustration of running the business to your staff or customers. So you need a support system.”
Mentors, peers, and coaches can provide needed counsel and emotional support. Although putting yourself out there can be awkward and intimidating, building a business network is crucial for success, as it can help you find potential partnerships, land new customers and develop ideas for business growth.
There are plenty of ways to build your network, from attending chamber of commerce mixers to joining LinkedIn groups in your industry. You’ll need to proactively connect with others in person, via e-mail, and on social media. “Get comfortable with being uncomfortable,” Cobb says.
There’s also a wide range of specialized support groups, Dussault notes, such as communities for women, veterans, LGBTQ people, and Asian American entrepreneurs. “You can get very specific” to find a community that suits you and your needs, she says.
While connecting with new mentors and advisers can be invaluable, networking with fellow entrepreneurs can help you to find resources, such as competent, affordable legal and bookkeeping services.
“So many people feel as if they have to do it on their own in order to be a real entrepreneur. And that is not true,” Dussault says. “You want to protect your secret sauce and not give out that recipe, but trading notes on advisers and other resources can help accelerate your growth.”
Thanks to relatively easy-to-use design platforms such as Canva, DIY web platforms such as Wix and Squarespace, and the ability of artificial intelligence to create everything from logos to social media posts, there is an abundance of marketing resources for today’s entrepreneurs. The trick is to focus on what works best for you and your goals.
“You need to have a strategy that’s organic to you and that works with your business and with your style,” says Katz.
When Escolar decided to launch his Chaga mushroom company in San Francisco, he sought out his target audience, which led him to the local Mycological Society of San Francisco Fungus Fair. His products sold out, validating his idea.
“I’ve been a small business ever since,” he says.
In addition to those in-person sales, Escolar has a website that offers everything from Chaga-infused chocolate to tea. He’s also active on Facebook and Instagram.
Although not every owner needs to be on social media, some sort of digital presence is crucial. You don’t have to be a digital marketing guru or spend thousands of dollars to get your message out there, says café owner Foster-Hernandez.
“You can Google ‘How do I market my business on social media?’ and you will find all of these free resources that will guide you step by step,” she says.
Foster-Hernandez set up free business accounts on Instagram, Facebook, and TikTok. In addition, she took advantage of free business tools, such as listing her business on Google Maps and Apple Maps so that her café comes up during a search. She’s learning about Google ads and experimenting with boosting social media content through paid promotions.
“A lot of marketing is fairly simple if you just have patience with yourself,” she says.
Adapt and grow
From the moment your business idea first comes to you until your very last day running your business, you’ll need to continually pivot to respond to market trends, customer desires, new opportunities, and your own professional and personal goals. You’ll likely outgrow certain clients, need to make staff changes, and revise and revamp your marketing. It’s all part of the entrepreneurial journey.
“It’s okay to pivot,” says Cobb. “You might need to change a client, shift your service offerings or realize what you initially wanted to do isn’t what you want now.”
It’s much better to find the courage to change course than to stick with a concept that no longer works.
“A lot of businesses hold on to this first dream, but then they go down with the ship because the idea may have been good at the moment, but it’s not what the market wants in another five years,” she says, citing the collapse of video rental store Blockbuster after digital competitors entered the market.
Dussault echoes this advice, saying it’s often best to cut your losses early rather than hang on. Sticking with a failing idea just because you’ve invested a lot of money and time in it can ultimately cost you more in the long run.
“You’re going to make mistakes, and you’ll never be fully prepared for every type of failure,” Dussault says. “Having self-compassion is really important. Forgive yourself and move on.”
Celebrate your successes
Being an entrepreneur is often one of the toughest career paths you can take. Late nights and early mornings are common. On any given day, you can juggle the roles of administrative assistant, sales executive, marketing manager, and CEO.
With so much at stake, it’s crucial to recognize and honor all the wins. “As business owners, we celebrate the major things, like landing a big contract. But we often forget to appreciate the small accomplishments, like filing your taxes on time,” says Escolar.
“Running a small business is a marathon. If you celebrate yourself, it will help you and, ultimately, your business as well, since you are a reflection of your business.”
Don’t go it alone
There’s a wealth of free and low-cost resources for budding small-business owners. Here are a few to get you started.
Small Business Administration (www.sba.gov). The SBA provides a wide range of support, from financial assistance to marketing and sales strategies. Go to www.sba.gov/local-assistance and enter your zip code to find support in your area. Each state has SBA district offices that can assist with planning, starting and expanding a small business. For more info, contact the SBA Answer Desk at 800-827-5722 or answerdesk@sba.gov.
SCORE (www.score.org). Since its founding in 1964, SCORE has assisted millions of entrepreneurs. Originally known as the Service Corps of Retired Executives, it provides one-on-one mentoring, along with workshops and other resources through its network of 10,000 volunteers.
Small Business Development Centers (www.sba.gov/sbdc). SBDCs offer counseling, training, technical assistance and more. There are more than 900 locations across the U.S. — often at colleges and universities.
Note: This item first appeared in Kiplinger Personal Finance Magazine, a monthly, trustworthy source of advice and guidance. Subscribe to help you make more money and keep more of the money you make here.
