Starting a business is on the rise, with budding entrepreneurs taking off every day. According to the U.S. Census Bureau, a record 5.5 million new business applications were filed in 2023 alone. The surge in business startups is driven in part by the expanding opportunities available through online platforms and gig work, making it easier to start a business.
If you’re thinking about starting a new company, there are some important steps you must take and some crucial mistakes to avoid.
12 things to do before starting a business
Starting a business is a big undertaking that requires ample preparation. Take these important steps before starting your business:
1. Identify a creative idea.
Think of your business idea as the seed of your company. You need it before you can fertilize, water and grow complementary plants. What unique service can you offer? What gap in the market can you fill? Consider these inexpensive business ideas for inspiration.
2. Write a business plan.
Developing a business plan shows serious commitment and answers important (and sometimes difficult) questions at the beginning of the development process. A business plan is also the first thing potential investors will ask for. It provides them with a detailed overview of your proposed business, your level of industry expertise, your understanding of the opportunity, financial requirements, and potential returns. [Read related article: How to Find and Attract Business Investors]
Identifying a solid idea for your new company and creating a business plan are important first steps in the process of starting a business.
3. Select your legal structure.
It is important to choose the right legal structure for your business at the beginning. It is not easy to change it later. Each legal entity has specific requirements and limitations, and only certain types of legal entities can meet certain business needs. If you need help, please ask a corporate lawyer or an experienced business accountant for timely and accurate advice on creating a suitable legal structure for your proposed company.
4. Obtain business registration, licenses, and taxpayer identification numbers.
Once your business structure is in place, you'll need to register your business and obtain the appropriate licenses, taxpayer identification number, and employer identification number (EIN). There are a variety of resources available to help you establish a business name, file incorporation papers, obtain necessary licenses and registrations with local governments, organize your federal tax information, and more.
In addition to the IRS for federal taxes, local corporation boards (usually at the county level) help new business owners meet local regulatory requirements. If you plan to hire employees, you'll also need to apply for a Federal Taxpayer Identification Number (EIN). Getting an EIN protects you and your identity, allows you to file business taxes separately from your personal taxes, and helps establish goodwill for your business.
5. Know your competitors and your market.
There's nothing wrong with a little competition. It allows business owners to continually innovate and evolve their products and services. Knowing your market, what your competitors are doing, and how you fit into this market is a key element in establishing and running a business.
Including this information in your business plan demonstrates thorough knowledge of your proposed company's industry. Without this information, serious investors will not respond and it will be difficult to stand out in the market. Know your industry, understand your competition, and determine how your business will be a differentiator in the market.
6. Raise business capital.
Unless you're an accountant, have a degree in finance, or are a seasoned investor, you'll need help clarifying this part of your pre-launch plan. Investors will want to know how much funding your company has initially and how much funding you'll need in the future.
Whatever your source of income, write it into your business plan. Will you use credit cards or home equity to start your business? Do you need a loan to start your business? Are you willing to give up some ownership in exchange for cash? Will you make sales the day you open? These are important questions to address.
There are a lot of investors out there, and they've been through it all. There are typically three things investors want to know:
- how much?
- for how long?
- What is your exit strategy?
If these three questions are answered to the investor’s satisfaction, the deal is more likely to close. [Read related article: How to Know an Investor Is Offering You a Good Deal]
Identify and secure the location.
Before you start your business, you need to know where you're going to set up shop, whether that's a home office or an entire building. Before your first day in business, you need to have the following in place:
- Telephone and Internet Services
- Business Directory Listings
- utility
- Workspace lease or purchase agreement
If you haven't identified or secured a location for your business before meeting with investors, don't worry. Investors, bankers, and legal advisors generally don't view not having a specific location early on as a deal-breaker or red flag.
8. Obtain proper insurance.
Choosing the right business insurance for your company is not a decision to be taken lightly. There are several types of insurance to consider, including health insurance, auto insurance, directors and officers insurance, liability insurance, performance bond insurance, travel insurance (including accidental death and dismemberment), and life insurance.
In addition to understanding the differences in the options available, it's also important to identify local regulations that may mandate that you carry a certain type of insurance for your type of business. For example, if you're starting a carpentry or plumbing company, you'll need liability insurance, which typically isn't required for businesses in other industries. Learn what other things to consider when choosing business insurance.
9. Hire legal counsel.
Whether you have in-house counsel or hire one as needed, your business should have access to legal advice. You may need representation from legal professionals who specialize in corporate, tax, intellectual property, labor, and international law. If you are required to comply with regulatory requirements, having a lawyer review and approve this part of your business can save you time and money and protect you from potential legal repercussions.
10. Establish a web presence.
In addition to having a physical location for your business, you'll also need to establish a virtual presence. Start by registering a domain name that matches the name of your business so you're ready to build a website when you need it.
When you're ready to develop your website, research your options to ensure you choose the best website builder that can meet your immediate needs and support any features you may need in the future, such as online ordering capabilities. Enlist the help of a search engine optimization expert to ensure your website design and content are fully optimized. You may also want to consider the cost of starting an online business when deciding what type of company to start.
11. Leverage local and national business resources.
There are many local, county, and national resources available to help you verify the availability of your business name, ensure that your chosen legal structure is correct and complies with local ordinances, and advise you on the various business loan options and other funding available to entrepreneurs. Throughout the planning process, you can also consult resources provided by your local Corporation Commission, the Small Business Administration, and the IRS.
12. Create a marketing plan.
Creating a marketing plan that complements your overall business plan will ensure the success of your new business. Even if you're planning a brick-and-mortar business, a fully optimized website should be at the heart of your marketing plan.
5 things to avoid when starting a business
Understanding common startup pitfalls can increase your chances of success at launch and beyond. Here are five mistakes to avoid when starting a business.
Do it all yourself
Running a business without help is a waste. Instead, leverage the community to connect with other business-minded professionals who can offer advice, insight, and feedback to keep you on track. Consider outsourcing time-consuming or technical tasks, like accounting or IT support, to free up time to focus on growing your business.
Hire employees early
Every business needs people to run, but hiring employees too quickly can lead to failure. Take your time when hiring to find the right people who fit your company culture. Look for employees who can fill skill gaps and add a fresh perspective to your business.
Irresponsible spending
To ensure you have enough cash to keep your engines going, startups need to manage their finances wisely. Create long-term budgets to curb unnecessary spending, track your finances, and prioritize your most important purchases. Otherwise, you could run out of money sooner than expected and have no money left to cover operating expenses, payroll, and other costs.
Hurry up to release
Being first to market is not the key to success if your product or service is not yet fully developed. So, don't rush when launching your business. Take advantage of your competitors' progress by learning from their mistakes and improving your own products and services. If your competitors have already captured the market's attention, use this attention to promote your newer and better products and services.
Miscalculating the demands
Many entrepreneurs underestimate how difficult it is to own a business and end up feeling overwhelmed by the responsibilities and demands of owning one, which can result in the quality of the products and services they provide to their customers suffering.
To avoid over-promising, set realistic expectations and be upfront about your availability. Letting clients know your availability shows you are trustworthy and in demand, and that you know your limitations to ensure high-quality work.
