7 Factors to Take Into Account When Starting a Small Business
As you prepare to start your new business venture, there are so many variables to take into account that it can quickly get overwhelming. Even if you’ve started a business before, each element requires time and energy, and there are only so many hours in a day.
Fortunately, we’re here to help. We’ve compiled a list of the top seven factors to take into account when starting a small business. No matter how experienced you are, these components require as much attention to detail as possible.
Do Your Research
Market research is essential if you want your new company to thrive. So many small businesses fail because the owners don’t understand their business model well enough to ensure success. Some core elements to include in your research phase are:
- Customer Demographics – Who will your products or services appeal to the most, and what are you doing to appeal to them? What problems will your products solve and how easy is it for customers to reach their goals?
- Competition – What other businesses are selling what you’re selling? What can you do differently to stand out against the crowd? If you and a competitor are trying to appeal to the same customer, why should that person choose your brand? Also, what kind of marketing and sales tactics are your competitors using, and how can you differentiate your business?
- Market Demand – How many people want or need what you have to sell? While it’s often best to appeal to a specific niche, you also have to make sure you can maintain steady sales over the long term. Some areas may be oversaturated with competing businesses, so you’re facing an even greater struggle than you would if you chose a market where demand is high and supply is low.
Create a Comprehensive Business Model
Creating a business model document is an excellent way to help you focus your attention and stay on target. Also, this document is necessary if you want to secure funding from traditional lenders like a bank or credit union.
The core components of a business model include many of the same elements we discussed in the research phase, such as:
- Customer Base – Who are you selling to? Why do they want what you have to offer?
- Unique Value Proposition – What sets you apart from the competition?
- Market Demand – Is there sufficient demand for your products or services in your target area?
- Resources – What assets do you have already (i.e., funds, experience, tools) and what do you need to start your business? If you’re requesting funding, how much do you need, and what will you spend it on? (pro tip: never include your salary in a loan request)
- Profit Projections – How much do you plan to make in your first year, and what kind of growth potential can you expect year after year?
- Management – Are you the sole business owner or are you starting an enterprise with other partners? If you have other partners, what are their duties and responsibilities? Also, how are profits divided among the owners?
- Organization – How will your business be structured? Will you have managers and employees from the start, or only after you reach specific milestones? How will your business change and adapt to growing demand and profitability?
By addressing each of these elements, you can be sure that you’re setting yourself on the right path forward. If you encounter any snags, now is the time to address them before pulling the trigger.
Determine Your Business Entity Type
As we mentioned, your business model should include the number of owners and partners as well as your potential company structure. Knowing these elements will help you choose the correct entity type. A business entity is necessary for registering your company with both the IRS and your state government.
Here’s a quick overview of the types of entities you can form:
- Sole Proprietorship – In this instance, you and the business are one and the same. So, you’re liable for company debts and you can’t hire any employees.
- Partnership – This entity relies on a partnership agreement that outlines the duties and profits for each partner involved. If one partner leaves the company, you have to dissolve the old agreement and draft a new one.
- LLC – This option works best for most small businesses because it limits your liability and offers a lot of flexibility. You can start an LLC by yourself or with partners, and you can organize your business however you like.
- Corporation – A corporation has rights like a person, so this option works best if you want your company to stand on its own outside of your involvement. However, corporations can also get taxed on their income, so you have to pay taxes twice (including your personal income).
Plan Your Finances
Unless you’re independently wealthy, you’ll likely need to secure financing for your new business. Most entrepreneurs apply for a bank loan, but it can be hard to get approval.
One method is to work with the Small Business Administration (SBA), which can act as a cosigner on your loan. So, you can get approved much faster and secure more funding than you would be able to by yourself.
That said, SBA loans can be hard to get, so you may search for alternative financing options. For example, you may seek out funding from investors, who will own an equity stake in your business. In this case, you’re not paying back a loan, but instead sharing profits based on each stake.
There are pros and cons to each method, so be sure to pay attention to them before making a final decision. Also, keep in mind that you don’t have to say yes to the first person who is willing to fund your venture. It’s always best to get multiple options so you can be sure you’re getting the best deal.
Secure Your Suppliers
Whether you’re selling products or services, you’ll have to work with various vendors and suppliers. As the saying goes, a chain is only as strong as its weakest link, so it’s crucial to work with high-quality suppliers every step of the way.
As a rule, looking for cheap vendors means you’ll get cheap materials, leading to cheap products and dissatisfied customers. Also, discount vendors often don’t offer flexible financing options, such as extended payment terms.
Overall, don’t think of vendors as fixed businesses. Instead, think of them as partners in your enterprise. So, you want to develop relationships and strengthen them over time. This way, your vendors are invested in your success.
Find Great Workers
The supply chain isn’t the only chain you have to worry about when running a small business. The chain of command can also make or break your bottom line.
Realistically, as a new small business owner, you’ll need to wear many hats and perform many duties. However, as you hire employees and supervisors, you want to focus on both short-term and long-term goals.
For example, you may need workers ASAP to help fulfill orders and ensure prompt customer service. However, you also want to retain the best employees to help your company grow and thrive in the future.
Overall, it’s best to look at employees as investments, not costs. The more you invest in high-quality talent, the better your return (i.e., workers who go above and beyond).
Don’t Forget About Marketing
For many small businesses, marketing is something of an afterthought. With so many operational expenses and duties to worry about, marketing seems like a luxury.
However, that type of thinking could be setting yourself up for failure. Advertising is just as essential as any other aspect of your business. You could even say it’s more valuable because it can bring more traffic to your site or storefront.
When developing a marketing plan, be sure to include these elements:
- Goals – What do you want to achieve with your advertising? Do you want to increase your sales or build brand awareness? Be sure to attach numbers to each goal so you can tell if you’re reaching them or not.
- Channels – Digital marketing encompasses a wide array of platforms, including email, social media, PPC ads, and more. As a rule, the more channels you’re promoting on, the faster you can build an audience. But there are pros and cons to each channel, so only focus on the ones that will move the needle the most.
- Analysis – Marketing needs to be adaptable to survive. If you’re not hitting your goals, you need to understand why and make adjustments to fix the problem. The only way to tell what’s working and what isn’t is to use analytical software. These programs can give you hard data and actionable insights.
As you can see, starting a new business is a multi-faceted project, but with the right knowledge and preparation, you can succeed. Now that you have these seven factors in mind, you can address them one by one and see how well they push your business to the next stage.
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