There are many things to think about when starting a small business. Maybe you have a great idea that you know will take off and become wildly successful. Or perhaps you’ve been doing a side gig that you’re ready to take full time. Either way, there are several steps you should take to get your business off on the right foot. The first step is to determine if your idea can become a viable business. You’ll need to define your business and your customer base, then do some market research.
1. Defining your business
Ask yourself, what is my product or service? Define its features as specifically as you can. Rather than saying, “My business is a housecleaning service,” you might say, “I clean the interiors of houses, including bathrooms, kitchens, bedrooms and living spaces. I vacuum, dust, clean sinks and fixtures, shampoo rugs and clean walls and baseboards.” Next, you need to determine why someone would pay money for your product or service. What are the benefits? For a housecleaning business, the benefits would be that your customers will have a clean and comfortable house to live in, and will have more time to spend with their families.
2. Look at the competition
There are two kinds of competition – direct competition and share-of-wallet competition. Direct competition includes other companies that provide the same product or service that you do. For these competitors, look at their business model and see how you can improve on it. Look at their pricing and their service delivery. If you can, go ‘undercover’ to a competitor to see how their business works. Look at their online reviews to see what people like and don’t like about them. Even if your product or service is truly unique, you still have competition. Unless your potential customer is a gazillionaire, they have to make choices about how they spend their money, so even a unique product competes for the customer’s discretionary income. Think about the things people might spend their money on instead of your product or service. In the case of the housecleaning business, people may choose the clean their homes themselves and use the money they save to go on a family vacation, for example.
Decide on the structure you want your business to have. If you know you will be working alone, and have no plans to hire any employees, a sole proprietorship may be the simplest structure to use. Two or more owners may choose to form a partnership. A sole proprietorship and a general partnership are pass-through entities, meaning that any income from the business passes through to the owners. The business itself pays no taxes, but the owners do. A corporation is a separate entity, so it pays taxes on the income earned. When the corporation pays wages, those are taxable again to the employee. This double-taxation discourages a lot of people from forming a corporation, but this structure can provide some protection from liability for the owners. Consult a tax accountant for advice on the best structure for your business. You should get an Employer Identification Number from the IRS. If your business is located in New York, South Carolina or Massachusetts, you also need to register with the state. Check with your local municipality to see if you need a local license or permit to do business. If you have invented a product that you plan to market, consider obtaining a patent for it. This will prevent others from copying your design and profiting from your idea. You can learn more about patents from the US Patent and Trademark Office. Nearly every business needs insurance. The type and amount will depend on the type of business you have, but general liability insurance will protect you in the event you are sued for negligence, bodily injury, property damage, discrimination, or any number of other things. Some startups will try to save money by foregoing insurance, but that can be very unwise. A lawsuit can be expensive, even if you are found not to be at fault. found not to be at fault. With this in mind the cost of business insurance pays itself back many times when it protects you if anything like this should occur.”
4. Getting the word out
Now that you know what you need to do in order to start your business, you need to let potential customers know about it. That’s where a marketing plan comes in. Since you’ve done your market research, you know who your customer is and who your competition is. Use this information when you create your marketing plan. Many people think that marketing and advertising are the same thing. In fact, marketing encompasses advertising, but it’s much more. It also includes things like pricing, packaging and distribution. It’s the end-to-end process that gets your product from your warehouse into the customer’s hands. People need to know about your product before they can buy it, and that’s where advertising comes in. Advertising used to be the single biggest expense related to a new business, but now you can get the word out about your product or service for next to nothing. Start with a web site that’s optimized for search and mobile. Add social media and focus on increasing your followers. Once your online presence is up and running, do some homegrown public relations. Start with your local media by sending an email to the editor of your town or city newspaper. They’re often looking for stories to fill their pages, and if something newsworthy lands on their desk, they’re usually more than happy to print it. ‘Newsworthy’ is the operative phrase here. You can’t just promote your business; what you’re saying needs to be considered news.
Pricing is critical, because it can mean the difference between a successful business and one that closes its doors after a year. There are two ways to set your price. The first is to look at competing products and determine what the market will bear, and then figuring out how to provide your product and service so that you can sell it at the market price and still make a profit. The other way is cost-plus pricing, where you add up how much it costs you to make your product, then add on a profit, and that determines your price. Your marketing strategy can also be a factor in your pricing. If you plan to market your product as a luxury brand, you can charge more per unit if you’re willing to sell fewer units. If you opt for a mass market strategy, you’ll price your product lower and make it up with volume.
6. Packaging and Distribution
Packaging is a function of marketing because you should design your packaging to help you sell product, particularly if you’re selling at retail. But there are ‘packaging’ decisions to be made even if you’re selling a service, such as whether to break out certain features into add-on purchases. Distribution determines how you physically get your offering to your customers. You may deliver it directly, in the case of a service. Or, you may ship a product direct, or go through wholesalers to get into retail. Your distribution method will impact your pricing and your margins, so consider this carefully.
This may sound like a lot to do before you even open your doors. But planning in advance and considering all of these things will give your business the best chance of success.
Protect Your Business
Protect the business you’ve worked so hard to build. Get a fast, free quote and your business could be covered today.
Encore entrepreneurs – those who start their first business after the age of 50 – have some advantages over their younger counterparts. The single biggest advantage, according to the 2021 Hiscox Encore Entrepreneur Report, is confidence.
Throughout history, women have had to work harder for opportunities at entrepreneurship, however, this hasn’t stopped them from forging ahead and starting their own businesses. Check out 5 Lessons from women entrepreneurs throughout history.
There are some advantages to being classified as a small business. To help you find out if your business meets the standards to qualify as small, read these guidelines from the Small Business Administration (SBA).
We’re here to help.
We provide tailored insurance for the specific risks you face, so you can take the right risks to grow your business.