How to Start a Small Business: 5 Tips for Success

Note, however, that the first and most important step you should take before launching your business is to speak with an experienced attorney, accountant and banker who can advise you on the rules, requirements and best practices that may impact your business’s performance.

Additionally, we recommend that you read the U.S. Small Business Administration’s business guide to learn more about what to expect in starting and running your own business.

5 tips for starting a successful small business

Every small business owner has a different set of skills, abilities, interests and knowledge that function as differentiators and growth accelerators for their business in the marketplace.

Once you’ve conceived of an idea that you believe can turn into a profitable business, the first and greatest step you’ll need to take is finding ways to capitalize on your strengths while minimizing your weaknesses and blind spots.

No business owner is an expert at everything. For this reason, you should view these tips in the context of how they relate to your expertise in each area.

Don’t be afraid to learn new skills or take on new responsibilities, but also become comfortable seeking help from business partners, mentors, contractors or employees if you find yourself stuck.

Being a successful business owner is about learning humility and delegating tasks to the right people so you can focus on the areas of your business where you can have the greatest impact.

1. Focus on solving a problem

Regardless of why you want to start a business, it’s important to align your idea with the realities of your situation and to recognize that building a successful business is a marathon, not a sprint.

Instead of planning a huge, nationwide rollout for your brand or tackling a widespread problem, test the waters first by focusing on a specific, small problem that’s well within your reach.

For example, in the food industry it’s common for aspiring entrepreneurs to begin with selling their food locally through smaller venues, such as a food truck or farmer’s market, before opening their first brick-and-mortar location. The primary benefit of this strategy is that they can test their offering through a minimal investment while simultaneously gathering information about the market demand for their product.

No matter your business idea, it’s important to narrow your scope and find a niche that aligns with both your interests and capabilities as a business owner.

Even if you plan to expand down the road, you’d be surprised at how much traction you can get by simply solving a single, common problem for your customers at a rate that matches the value you provide.

2. Perform market research to ensure your idea is profitable

Once you’ve settled on an idea, the next step should be to perform market research to determine if your idea has enough demand and the potential to be profitable.

Put simply, market research helps you mitigate risk because it lets you know (1) whether there’s a market for your product or service, (2) whether an existing business is adequately serving that market, and (3) whether your idea can take over or disrupt the current market in a way that leads to profits.

Start with a set of questions to determine your business’s ability to be profitable. For example:

• How much money is the average customer likely to pay for my goods or services?
• How many customers should I forecast in a given week, month or year? Should I expect a seasonal demand or a drop in customers?
• How much will it cost to open the business and keep it running? What does the supply chain look like in my target area?
• Are there any other businesses in the area or industry that may funnel customers away from my business?
• How long will it take for my business to become profitable given the above assumptions? Can I secure enough funding to make it that long? What does my exit strategy look like?

You can often answer these questions by performing primary research through surveys or interviews with members of your target market, followed by secondary market research using sources such as census information or online information brokers.

Once you have preliminary answers to these questions (or others relevant to your business), you can begin to draft a business plan that lays out your strategy for ensuring your business’s success.

3. Provide structure to your idea with a detailed business plan

A business plan is like a roadmap that charts your strategy for starting and growing your business.

Its primary purpose is to explain your idea and strategy to potential investors and financial institutions so they can make decisions about investing in or lending money to your business.

A secondary benefit of your business plan is that it provides a simple, controlled place for refining your business idea over time.

Business plans are dynamic documents, and you should constantly refine and update this plan to match your current information and assumptions as you start on your entrepreneurial journey.

While there are many ways to create a business plan, they generally focus on succinctly explaining your:

• Offering and solution to a clearly defined problem
• Proposed business structure and key operational information (such as organization and structure, mission and goals, etc.)
• Marketing strategy for attracting and converting customers, and how you will finance your operation

4. Choose a business structure that minimizes your liability and reduces your tax burden

A business structure is like a template that defines how you will set up and run your business. It will explain how and when you pay taxes on your profits, as well as the different laws, regulations and best practices that apply to your business.

While there are several ways to structure and operate your business, the most common are a sole proprietorship (or partnership), a limited liability company (LLC) or a corporation:

• Sole proprietorship (or partnership) — Anyone who sells goods or services qualifies as a sole proprietorship from the moment they complete their first transaction (making it the “default” type of legal structure). Sole proprietorships, or partnerships if more than one person is involved, are defined by the lack of legal and financial separation between the owner and the business itself, meaning the owner is personally responsible for any liabilities incurred while doing business (such as debts or lawsuits filed against the business).
• Limited liability company (LLC) — An LLC is a legal structure that limits the risk that, if something goes wrong with your business, it will affect your personal finances. Put simply, an LLC blends the tax efficiencies and limited legal and financial liability features of a corporation with the flexibility of a sole proprietorship or partnership to create a structural balance that generally mitigates risk, reduces your tax burden and offers enough flexibility to help you manage and grow your business efficiently.
• Corporation — A corporation is a business structure that largely trades flexibility for a clear set of rules and best practices to gain various tax benefits and the ability to better appeal to investors by issuing shares and otherwise following a stricter set of financial and legal regulations. The process of becoming a corporation, or incorporation, is favored by businesses that want to grow quickly through investors, as well as owners who want to pursue very specific tax and equity-building strategies.

While several other business structures may be worth pursuing, such as a cooperative or nonprofit, most businesses organize themselves under one of the three structures listed above.

5. Open a business bank account and determine a source of funding

All businesses need a certain amount of funding to get off the ground. Generally speaking, entrepreneurs will use either their own money or credit to start the business or pursue some form of external funding:

• Self-fund your business — Depending on the startup costs for your business, you may be able to initially fund it using your personal savings or a personal line of credit. This is common for smaller businesses or businesses that require minimal investment to get started.
• Take out a small business loan — The U.S. Small Business Administration helps entrepreneurs partner with lenders to acquire funding to start their businesses. These loans can be used to open or acquire a business, buy land or equipment, or renovate an existing location. Due to their high amounts, long terms and relatively low rates, these loans are an exceptionally attractive option for entrepreneurs who need capital to get their ventures off the ground.
• Consider venture capital and angel investors — Finally, if you need even more funding to acquire an existing business or accelerate your growth, it may be worth looking at venture capital firms, angel investors or other alternative options. Generally, this path will involve these investors “buying in” to your business for a share of the overall ownership.

Once you’ve established where your funding will come from, it’s critical to open a bank account specifically for your business.

Having a clear distinction between your personal and business assets is important for ensuring you will not be held financially liable for your business’s debts. Additionally, business checking and savings accounts often come with a variety of perks custom-tailored to help you effectively manage your funds.

For these reasons, and more, you should always establish new checking, savings and credit accounts for your business as you begin to accumulate funds to get your business off the ground. Failing to do so could open you up to unnecessary risk as your business grows.

Work with a local banker to make your venture a success

Running a successful business doesn’t have to be complicated. In fact, by making informed decisions about your legal structure and finances early in the process, it can make your life significantly easier down the road.

Often, the best first step once you’ve refined your idea through market research and organized it into a business plan is to speak with an attorney, an accountant and a banker who can help set up the legal and financial structures you’ll need to safely get your new venture set in motion.

By working with local professionals who have a deep knowledge of the relevant laws and best practices, you can position your new business for success both at the start of your entrepreneurial journey and in the future as you scale your business over time.

To learn more about the different financial services and solutions we make available to businesses, from checking and savings accounts to loans, cash management and health savings accounts (HSAs), please schedule a meeting with one of our local representatives, or give us a call at 800-236-8866.