A blog series that focuses on challenges and opportunities faces by aspiring entrepreneurs and small business owners.
Starting a business is an exciting and ambitious endeavor, particularly for young entrepreneurs who are full of fresh ideas and eager to make their mark. However, the path to success is often filled with unique challenges, from limited financial resources to a lack of experience. This guide provides a comprehensive roadmap to help you navigate the startup journey. By understanding the essential steps and leveraging the right resources, you can build a thriving business that stands the test of time.
Identify a Business Idea
The first step in starting a business is identifying a viable business idea. This involves more than just a flash of inspiration; it requires a deep understanding of the market and the problems that need solving.
According to the Bureau of Labor Statistics, 20% of businesses close in their first year, and only 50% make it through year five. One of the keys to a successful business is making sure there is a place for you in the market before you go all-in on your investment and launch.
Begin by conducting thorough market research to identify gaps in the market. This could involve analyzing industry trends, studying competitors and understanding consumer behavior. Use tools like Google Trends; industry reports; and strengths, weaknesses, opportunities and threats (SWOT) analysis to gather the data you need.
Engaging with your target audience early on is critical. You can also conduct surveys and interviews with potential customers to validate your business idea. Ask them about their pain points, what solutions they currently use and what improvements they would like to see. This feedback is invaluable in refining your idea and ensuring that it resonates with your target market.
Creating a Business Plan
A business plan is more than just a document; it's a strategic blueprint that outlines your company’s path to success. Here are the inputs needed to write a comprehensive business plan:
Executive Summary: Start with a brief overview of your idea, including your mission statement, vision and the problem or need your business aims to solve. This section should capture the essence of your startup in a concise manner, making it clear why your idea is worth pursuing.
Business Description: Provide a detailed description of your business, including its legal structure, industry and the products or services you plan to offer. Explain what sets your company apart from others in the market and how you plan to achieve a competitive advantage.
Market Analysis: Dive deeper into your market research by analyzing your target market, including demographics, psychographics and buying behavior. Identify your main competitors and assess their strengths and weaknesses. This analysis will help you develop strategies to capture market share and differentiate your business.
Organization and Management: Outline your business’s organizational structure, including the roles and responsibilities of key team members. If you’re the sole founder, explain how you plan to manage different aspects of the company. If you have co-founders or a management team, highlight their qualifications and how their expertise will contribute to the business’s success.
Products and Services: Describe in detail the products or services you will offer. Explain the benefits they provide to customers and how they meet the needs identified in your market research. Include information about the product life cycle, intellectual property and plans for future product development.
Marketing and Sales Strategy: Develop a comprehensive marketing and sales strategy that outlines how you plan to attract and retain customers. This could include digital marketing tactics, social media engagement, content marketing and sales funnels. Your strategy should align with your target market’s preferences and behaviors.
Financial Projections: Create detailed financial projections, including income statements, cash flow statements and balance sheets for the next three to five years. Include a break-even analysis to show when your business is expected to become profitable. These projections are crucial for securing financing and demonstrating the viability of your business.
To help you get started, there are business plan templates available through Small Business Administration (SBA) resources, including the Small Business Development Centersopens in a new window and SCORE.opens in a new window Small Business Development Centers, located nationwide, have individuals available to help you create your business plan.
Determine a Business Structure
Selecting a business structure can be one of the more complex decisions you will make when starting a new business. The structure not only determines your tax liability; it can also have an impact on your ability to raise capital.
Here’s a breakdown of the most common business structures:
Sole Proprietorship: The simplest and most common structure, a sole proprietorship is owned and operated by one person. While it’s easy to set up, the owner is personally liable for all business debts and obligations.
Partnership: A partnership involves two or more people who share ownership of the business. It’s important to have a partnership agreement that outlines each partner’s roles, responsibilities and share of profits. Like with a sole proprietorship, partners are personally liable for business debts.
Limited Liability Company (LLC): An LLC offers the benefits of limited liability, meaning your personal assets are protected from business debts. It also provides flexibility in management and taxation, as it can be taxed as a sole proprietorship, partnership or corporation.
Corporation: A corporation is a separate legal entity from its owners and provides the strongest protection against personal liability. However, it’s more complex to set up and must comply with more regulations. Corporations can raise capital through the sale of stock, making them an attractive option for larger businesses.
S Corporation: An S corporation is a special type of corporation that allows profits to pass through to the owners’ personal income without being subject to corporate taxes. This structure is beneficial for small businesses that want the liability protection of a corporation but the tax benefits of a partnership.
Nonprofit Organization: If your business has a charitable, educational or religious purpose, you might consider forming a nonprofit organization. Nonprofits can apply for tax-exempt status, meaning they don’t pay federal income taxes on profits related to their exempt purpose.
Secure Financing
Funding your business in the startup phase can be challenging. Thankfully, there are a lot of options to consider. To determine the right funding path, look at your estimated startup costs.
What will you need to operate your business?
Will you need to purchase inventory or equipment?
Will you need to lease or purchase a storefront or office space?
Answering these questions will help you decide which resources to tap into for funding. Not sure what funding options are available? We’ve compiled a list of funding resources available to young entrepreneurs.
Personal Savings
Many entrepreneurs start by investing their own money into the business. While this option doesn’t involve debt, it also means you’re risking your personal savings.
Family and Friends
Borrowing money from family and friends can be a quick way to get funding, but it’s important to formalize the agreement with clear terms to avoid potential conflicts. As you prepare for these conversations, think about how much money you want to ask for. It’s not a bad idea to start small. Instead of asking for the whole amount you need, maybe ask for enough funding to get you through the first three or four months of business. If you are planning to pay back the financial support you receive, it’s important to explain the potential risk involved and agree on a payment plan.
Small Business Loans
Traditional bank loans are a common way to finance a business, but they can be difficult to obtain for young entrepreneurs with limited credit history. At Northwest Bank, we offer loan options for startups, including SBA loans, which are backed by the government and designed to help new businesses get off the ground.
Small Business Grants
Small business grants are issued by government and nonprofit organizations and do not require repayment. Eligibility requirements are strict and the applicant pool is competitive for small business grants. That said, if you are well qualified for a grant and are selected, it can be a dream come true for your business.
There are many grants available for different types of business and groups of people. Examples include businesses that are:
Woman, veteran or minority-owned
Green and sustainable
Research and development-driven
Rural
Not-for-profit
There are government small business grants available through the Small Business Administration.opens in a new window Another way to find potential grant opportunities is the search tool on Grants.gov.opens in a new window
Investors
Venture capitalists and angel investors can provide significant funding in exchange for equity in your business. This option is ideal for startups with high growth potential, but it often involves giving up some control over the business.
Crowdfunding
Platforms like Kickstarter opens in a new windowand Indiegogo opens in a new windowallow you to raise small amounts of money from a large number of people. Crowdfunding is a great way to test the market and build a community around your product before launching.
Consider Bank Services
The right banking services are an essential part of running a successful business. As a startup, you’ll need to establish a solid financial foundation to manage your business’s cash flow and ensure long-term success. There are many bank services available to small business owners; here are some to consider:
Business Bank Account
Opening a separate business bank account is crucial for keeping your personal and business finances separate. This not only simplifies bookkeeping but also provides a clear financial picture of your business. Look for business checking and savings accounts with features tailored to startups, including low fees, easy online access and integration with accounting software.
Merchant Services
In order to accept credit card payments, you’ll need merchant services. These services enable you to process payments securely and efficiently, both in-person and online. They can also help streamline your payment processing, improve cash flow and enhance the customer experience.
Business Credit Cards
A business credit card can be a valuable tool for managing day-to-day expenses and building your business credit score. In fact, credit cards currently rank as a top source of equity for small business owners. Look for cards that offer rewards, low-interest rates and expense tracking features. Using a business credit card responsibly will help you build credit and access better financing options in the future.
Online Banking Tools
Managing your business finances on the go is essential in today’s fast-paced world. Work with a bank that offers online and mobile banking tools that give you real-time access to your accounts, allowing you to monitor transactions, transfer funds and pay bills from anywhere. These tools should also integrate with your accounting software, making it easier to track your business’s financial health.
Find Your Team of Trusted Advisors
Navigating the complexities of starting and growing a business can be challenging, especially for first-time entrepreneurs. Building a network of trusted advisors is essential for making informed decisions and avoiding costly mistakes. Here are the people you want to include in your inner circle.
Certified Public Accountant (CPA): A CPA can help you with everything from setting up your accounting system to filing taxes and providing financial advice. They can also assist with financial projections, budgeting and ensuring that your business complies with tax laws. Having a CPA on your team can save you time and money so you can focus on growing your business.
Attorney: Legal considerations are a critical aspect of starting a business. An attorney can help you choose the right business structure, draft contracts, protect intellectual property and ensure compliance with regulations. They can also assist with any legal disputes that may arise, providing peace of mind and protecting your business interests.
Commercial Banker: A commercial banker is a valuable resource for managing your business’s financial needs. At Northwest Bank, our commercial bankers are committed to understanding your business and providing personalized solutions that support your growth. Whether you need help with securing financing, managing cash flow or exploring investment opportunities, your commercial banker should help guide you every step of the way.
Business Mentor: Consider finding a mentor who has experience in your industry. A mentor can provide valuable insights, share their experiences and offer advice on how to overcome challenges. Organizations like SCORE opens in a new windowand local business development centers often offer free mentoring services.
Starting a business is a rewarding journey that requires careful planning, dedication and the right support. By following the steps outlined in this guide, asking the right questions and leveraging the expertise of Northwest Bank, you can confidently launch your business and set it on the path to success.
We invite you to connect with one of our commercial bankers to learn more about how we can support your entrepreneurial journey.