Starting a new business? You’d do well to remember the “Five P’s”: Proper planning prevents poor performance (there’s a sixth, but we’re keeping this family-friendly). Poor planning may mean your business growing much slower than it might otherwise, or even failing prematurely; it will almost certainly make it more difficult to obtain the financing to grow your business later. Alliant Business Systems helps you identify the steps you should take now so you won’t be behind the eight ball later.
You may have a good — even great — business idea. But will your local market sustain it? Do you know what to charge for your goods or services? Do you know where your competitors are succeeding, or where your predecessors have failed? The better your market research, as Entrepreneur points out, the better you will understand your prospects, their needs, and their pain points. That lets you refine your offering, right down to your business and product names, before you bring it to market.
Write a Business Plan
Why write a business plan? For the moment, let’s leave aside the fact that potential lenders and creditors often ask for your business plan as part of their application process. For now, it’s sufficient to know that your business plan is the acid test for the research you’ve been doing. It lists your business history and goals, but also provides an overview of your products and services, your suppliers, and your client base. It’s a snapshot of where you’ve been, where you are, where you’re going, and how you plan to get there.
Determine a Business Location
If you’re working solo, you may be able to operate from a home office. However, other businesses will have different requirements — studio space, manufacturing and distribution, or a suite of offices among them — that necessitate literally setting up shop. Your market research should include a survey of available spaces.
Determine Your Capital Needs
Now that you know the who, what, where, when, and why of your business, you’re in a much better position to determine your financial needs, and where that initial financing will come from. While you may be tempted to finance everything on your credit cards or cash out your 401(k), it’s important to keep personal and business finances separate. Explore your options carefully.
Choose a Business Structure
There are numerous business entities available, including the corporation, partnership, S Corp, Limited Liability Corporation (LLC), and others. Each structure has different requirements, regulations, and tax structures, and each offers certain protections. Rather than guessing, this is a step best discussed with an experienced accountant, and a lawyer who specializes in corporate law in the state(s) in which you will operate.
Obtain Federal and State Tax IDs
You have a social security number that you’ve used for everything from your student loans to your auto lease. Your business has its own SSN, better known as an EIN (Employer Identification Number) that’s needed for a business bank account, financing, and tax purposes. If you’re selling a product, you also need a sales tax permit in most jurisdictions.
Address Industry-Specific Requirements
Certain professions and businesses have licensing requirements that will vary by state, and even between towns and cities within a state. In addition to licenses and permits, your business should also carry any applicable insurance, including liability, business insurance, medical, and workman’s compensation.
Open a Business Bank Account
Have we mentioned the importance of separating personal from business credit? We’ll mention it again. Open a business bank account under your EIN. It’s a vital first step to building business credit. What’s more, not only will it help you handle day-to-day expenses, it’s also a necessity for tax and legal reasons.
Build Business Credit
Once your business is up and running, you will begin seeing opportunities for growth. Those opportunities will often require more cash than you have on hand, so building up good business credit is a must. You can start simply, with something as small as a line of credit from a vendor (just make sure they report to the business credit bureaus) and branch out from there. Be diligent with on-time payments and business credit monitoring, and before you know it the financing you need to grow your business will be within reach.
Whether you’re building your business and want to start off on the right foot, or growing an existing business and want to get back on the right track, it’s worth revisiting these steps from time to time to make sure everything is in order. Ongoing market research and periodic tweaks to your business plan are especially helpful. For assistance, contact Alliant Financial Services and request a business credit consultation.