Launching a business is one of the most difficult steps anyone can take. A business founder has to go through many stressful processes. This explains why most people shy away from entrepreneurship. However, while setting up a business can be a daunting venture, it is nonetheless achievable.
However, to successfully launch a business, you must have access to relevant information, understand the potential challenges, and know how to address these challenges. Thus, in this article, we will discuss some of the fundamental things you should know about starting a business. Let’s dive right in!
One of the biggest mistakes you can make is setting up a business without having an in-depth understanding of your industry. Regardless of how excellent your business idea is, a poor understanding of your industry’s dynamics can result in failure. Thus, it is important to conduct extensive research on the existing barriers in the industry.
Such barriers could include high capital expenditure, a challenging regulatory environment, and available substitutes. It is also essential to be aware of your competitors and the value they currently offer. This way, you can work on differentiating your business to attract more customers.
Another reason to conduct research is to understand your target market. You want to identify the demographic that forms a large portion of your potential customer base. This way, you can tailor your products or services to appeal to them better. Market research would also help to gauge the size of your market as well as potential demand.
Perhaps the most difficult part of launching a business is securing funds. More times than not, your savings won’t be sufficient to establish a business. This necessitates looking towards alternative funding routes. It is, however, important to critically examine the different funding channels, as your funding source could considerably impact your business down the lane.
Here are some of the major options you can consider for funding:
Business grants are a great source of funding if you want to start a business. Unlike loans, they don’t have to be paid back. Similarly, they don’t dilute the ownership of your business, as is usually the case with equity. However, grants are also some of the more difficult sources of funds to secure. This is because they are highly competitive and often come with several conditions your business must satisfy to qualify.
Nevertheless, grants might be a feasible option if you can identify ones that fit your unique situation. There are many government and corporate grants for small business owners who are women or part of a minority group. If you fall into these categories, you might have a good chance of securing a grant.
Loans are a common option for business owners. It is worth mentioning that the amount available to you through loans is generally dependent on your creditworthiness.
A commercial bank is a good place to start if you are looking for a loan. However, bank loans can be a bit more difficult to secure. Alternatively, you can explore business loans from other lenders. For instance, you can apply to the US Small Business Administration (SBA) for a loan.
However, if you have a low credit score, it might be challenging to get a loan from traditional sources. Not to worry, there are other platforms you can leverage. For instance, you can explore CreditNinja for low credit.
Overall, it is essential to only take out a loan you can handle. Otherwise, repayments and interest expenses may end up sinking your business.
This has become a popular funding option over the past couple of years. You can start an equity crowdfunding campaign. This way, you raise adequate funds for your business through smaller contributions from many people. There are several platforms you can leverage for crowdfunding.
Notably, you should have a great business plan and promotional strategy if you want to launch a successful crowdfunding campaign. A good promotional strategy helps you reach more people and a great business plan helps convince those people.
One other option for funding is to seek out investors. If your business is a promising one in a lucrative industry, you might be able to attract investors that can provide the required funding. Investors typically provide a significant lump sum in exchange for some ownership of the business.
Essentially, if you successfully secure investors, you become accountable to them. Thus, if you choose this option, you must understand that critical business decisions won’t be solely up to you.
It is crucial to pay attention to your business structure options. Whatever legal structure you choose would significantly affect your taxation, funding and liability. Thus, it is essential that you are well informed about the different legal structures and which best suits your business. It is advisable to consult with experts when making this decision. Here are some common business structures:
This structure gives you complete control over your business. Your business is automatically considered a sole proprietorship if you fail to adopt any other legal structure. Notably, in a sole proprietorship, the business is not a separate entity from the owner. This means you will be personally liable for business debts.
A partnership is a business structure used when two or more people own a business. The two primary types are limited partnership (LP) and limited liability partnership (LLP). In an LP, there is a general partner who has unlimited liability, while other partners have limited liability.
Naturally, the general partner has more control over the business than the limited partners. In an LLP, however, every partner has limited liability.
As the name suggests, an LLP limits your personal liability for company obligations. The laws governing LLCs may vary from state to state, so it is crucial to pay attention to the legal requirements. LLCs are generally a good choice if your business has medium to high risk, as they protect the personal assets of the owners.
There are different forms of corporate legal structures that you can adopt for your business. Generally, corporations are considered standalone legal entities separate from their owners.
This means a corporation can sue and be sued. Another distinguishing feature of corporations is that they pay taxes on their profits. Corporations also have to follow stricter rules regarding reporting, record-keeping, etc.
Once you’ve made all the preliminary decisions regarding your business, you initiate the process of registering your business and acquiring the necessary licenses or permits. Registering is especially crucial if you opt for any business structure apart from a sole proprietorship. Failure to register when due could result in unnecessary liability later on.
It is also essential to register with the necessary tax agencies to obtain a tax ID and an employer identification number (where applicable). In addition, for some industries, your business may be required to obtain specific licenses and permits to operate legally.
Starting a business is no doubt a big decision, one that is difficult to execute. Therefore, it is necessary to have a good understanding of the steps you will take. This way, you can have a much smoother process.