2. Do the Research
Even the most brilliant-seeming idea won’t be enough to sustain a successful business if there’s no market for your offering. That’s why market research is a step you can’t afford to skip.
Small business market research can involve several elements. In the startup phase, your primary research focus will be determining the viability of your business idea: Does your business fill a need? Are you providing a solution that people are willing to spend money on?
Here are a few ways to determine if your idea is workable:
Conduct keyword research. You can use free keyword research tools to see how often people search for keywords related to your business idea. Google, for example, offers its free
Keyword Planner, and several SEO companies, such as
Moz,
Semrush and
Ahrefs, provide free versions of their keyword tools.
Explore search results. Search results are another good way to see whether there’s demand for your new business idea. Paid search results, in particular, suggest there’s a market that other businesses are already trying to reach.
Check out the competition. Unless you’re working with a truly unique business idea, a lack of competition likely means there’s no market for the need you’re addressing. On the other hand, too much competition means you could have a more difficult time standing out from the crowd.
Crafting a business plan is well worth the time investment. In addition to providing a roadmap for your business’s goals and objectives, investors and bankers often want to see your business plan when evaluating your applications for funding. Your business plan also forms the foundation for all your future
strategic plans.
- Executive summary
- Company details
- Products/services description
- Market analysis and strategy
- Organization and management
- Financial plan
Choosing a business structure for your new business is an important decision that will affect many aspects of your business operations. These are some common business structures:
Sole proprietorships. Sole proprietorships are the
simplest way to start a business. They have very few registration or annual reporting requirements, making them the most affordable type of business structure to start and maintain. One disadvantage of a sole proprietorship is unlimited liability. This means sole proprietors are on the hook personally for their business’s debts or if someone sues the business.
Partnerships. While partnerships aren’t as simple to form as sole proprietorships, they also don’t have as many legal requirements as other, more formal, types of business structures. In a partnership, you share the business’s profits and losses with your partner(s) according to the terms of your partnership agreement. And like a sole proprietorship, a drawback is unlimited liability: Partners are jointly liable for the business’s debts and for any legal actions brought against the business.
Limited liability companies (LLCs). LLCs are state-created legal entities that offer a number of unique advantages over other forms of business structures. Like corporations, LLCs provide its owners (called members) with limited liability, so you can protect your personal assets from your business’s liabilities. But while an LLC is less costly to set up than a corporation, it’s more expensive than sole proprietorships and partnerships because it has more stringent regulatory requirements.
C corporation (C corp). Compared to other forms of business structure, C corps are more costly to set up and maintain because they’re subject to more rules and regulations. For example, in addition to registration and annual filing requirements, a C corp needs to pass bylaws and elect a board of directors. There are advantages, though. Because a C corp is regarded as a separate legal entity, it provides limited liability. Its share structure also makes the transfer of ownership relatively easy.
S corporation (S corp). An S corp is a C corp that has elected to be taxed as a pass-through entity under
Subchapter S of the Internal Revenue Code. Rather than paying corporate income tax, an S corp can pass through its profits and losses to its shareholders, who then report these amounts on their tax returns. To qualify for the S corp election, a corporation must meet
specific requirements set out by the IRS.
Once you’ve decided on a business structure, it’s time to make it all legal by completing some or all of the steps below:
Formal registration. Depending on your choice of business structure, you may have to file paperwork to register your business with your state. Registration requirements vary from state to state, so check your state’s rules and regulations to see what the process entails for your situation.
DBA. If you want to run your business under a name that’s different from the business’s legal name, you may need to
register a “Doing Business As” title (DBA). Again, the requirements will vary depending on your state.
Tax numbers. You will likely need to
obtain an Employer Identification Number or EIN (also known as a Federal Tax Identification Number) if you own a business or organization. However, even if you aren’t required to have an EIN, there are several advantages to applying for one. For example, most banks require businesses to have an EIN in order to open a business bank account. Check your state’s tax regulations, too, to see if you need to obtain a state tax number. Generally, you’ll need an EIN if you are:
- Hiring employees
- Operating a partnership or corporation
- Paying sales and excise taxes
- Changing your business structures or ownership
- Administering certain trusts, retirement plans and estates
Licenses and permits. Depending on your business and where you’re located, you may need to obtain licenses or permits. The U.S. Small Business Administration provides a
handy list of federal licenses and permits along with contact information for the issuing agencies. You will also need to check state and municipal license and permit requirements for your area.
