Doing what you love, on your own terms, while making your own income and setting your own hours . . . yep, the idea of starting your own small business sounds pretty great. Instead of job searching, you can make the most of your talents, passion and mission right away by offering people services and products through your business.
But when you start thinking about all the nitty-gritty details, your dream of starting a business can quickly feel overwhelming.
That’s okay! Take a deep breath. People start successful businesses all the time. And if you’re willing to put in the work, you’ll be next. These six steps will show you how to take your career into your own hands by starting your own small business.
How to Start a Business in 6 Steps
We’re going to look at six steps to start a business:
1. Determine your why.
Before we get tactical about starting a business, the first question you need to answer is, Why am I doing this? Think of your why as the engine that’ll keep your small business moving forward on days when it gets hard.
Stop doing business as usual! Lead your team, grow your business and create a world-class culture with EntreLeadership Elite. Start your free trial now.
Trust me, it will get hard. Data from the Bureau of Labor Statistics shows that about 50% of small businesses fail by their fifth year.1 Yeah—kind of depressing. But on the other hand, that means 50% of small businesses are still successful by their fifth year.
So, what separates the owners who make it from the owners who don’t? Knowing their why.
Bottom line: Running your own small business is a roller-coaster ride. You need to love what you’re doing (and truly believe in it) if you’re going to survive the ups and downs.
2. Create a business plan.
Once you have your why, it’s time to start planning. Don’t worry—you can start small by answering these questions:
What product or service will you offer?
As you’re creating your product or service, ask yourself: What problem am I solving? Successful businesses solve specific problems. Are you starting a meal prep service to help busy working professionals? Or making handcrafted baby blankets for people looking for a memorable gift? If you want to make great products and services that sell, you have to focus on making your customers’ lives better.
What schedule will you work?
A perk of being a business owner is having a flexible schedule, but you also need to be realistic about what’s best for your business. For example, if you’re opening a bagel shop, you probably won’t be very successful if you sleep until noon and open up in the evening. But if you’re selling handmade goods in an online Etsy shop, then go ahead and hit the snooze button.
What’s your business budget?
Creating a business budget will help you avoid major financial mistakes and give you peace of mind. Chances are your business won’t make money right out of the gate, so the last thing you want is to dig yourself into a financial hole spending money you don’t have.
How much will you charge?
Setting the right price is critical to your overall success. Do some market research to set prices that are reasonable for your customers and still profitable for you.
What will your policies be?
You need policies for both standard and unexpected events—like shipping, returns and cancellations. Set these policies before launch day so you can protect yourself and your business. And make sure to communicate those policies to your customers in clear, straightforward language (whether that’s in person, on your website or through email).
3. Make it official.
Don’t beat around the bush when you’re ready to launch your business. It’s time to make this thing official! Here’s what you’ll need to do:
Get a business license.
Consider a business license your permission to “pass go.” A business license costs around $15, depending on where you live—and it makes your business official. A quick Google search for your state’s licensing information will show you how to register your business.
Choose your business entity.
Choosing your business entity is just deciding the type of business you’ll run. Here are your options:
- Sole Proprietorship: This is a small business run by one person, and it’s simple and inexpensive to set up. You report your business financial records on your personal tax return. The downside is you are personally liable if the business is sued. I recommend this option if your business is simple and low risk, like freelance writing or design.
- Partnership: This is a business you start with someone else or a group of other people. As a general rule, I don’t recommend partnerships. There’s too much risk involved when your business is built on relationships with other people.
- Limited Liability Company (LLC): An LLC is a business that’s legally separate from you. While an LLC isn’t necessary for most small businesses, you should consider one if you have a high-liability company (like teaching horseback riding) or a lot of assets to protect.
- Corporation and S-Corporation: These are more sophisticated business structures for more established companies. If you’re planning to scale significantly, have a conversation with a tax professional about the right time to create a corporation or s-corporation.
Open a business checking account.
Separate your personal and business checking accounts as soon as possible. You’ll spare yourself stress when it comes to accounting and taxes. You can list a business checking account under your name and Social Security number. For example, the account could be named: Jane Doe, DBA Jane Doe Dog Walking (DBA stands for Doing Business As). All cash flow for your business—in and out—should happen through this account.
Get start-up money.
When it comes to start-up money, here’s the most important thing you need to know: Don’t go into debt to start your business. It won’t end well! You might need to take on some extra work in the early days of your business before you launch if it helps you avoid debt. Pay with cash as you go and grow slowly. The risk of debt isn’t worth it.
And while we’re on the subject of money . . .
4. Plan ahead for taxes.
I know tax talk can bore some people to sleep, but when you’re learning how to start a small business, understanding your tax requirements is super important, so don’t skip over it.
Just like employees, all businesses need to file annual tax returns. And as a small-business owner, you’re responsible for paying income taxes (at your own personal income tax rate) and the self-employment tax (a 15.3% tax that covers your share of Medicare and social security taxes).2
Here’s where it gets a little tricky: Legally, if you expect to owe $1,000 or more in taxes in a year, you’re supposed to file and pay your taxes throughout the year. These are called quarterly taxes (or estimated taxes). I recommend setting aside 25–30% of your income from each paycheck so you won’t be blindsided by a huge tax bill when it’s time to pay up. (If you’re late on a payment, you’ll be hit with penalties each month that could go as high as 25% of your unpaid taxes.3 Yikes.)
So, if you bring home $2,000 in net profit from your business (after expenses), you should set aside $500 to $600 of that money in a savings account created specifically to pay your taxes. That should take care of most—if not all—of your tax bill!
Another thing to note: If your small business is going to have any employees, you’re responsible for payroll taxes (aka employment taxes) on your employees’ wages.
As a general rule of thumb, be smart about what you’re doing with your money—and don’t try to outsmart Uncle Sam. Everything you do now can (and probably will) affect you later. Mistakes could cost you, so get yourself a tax professional you can trust.
5. Develop your brand identity and marketing plan.
After you figure out your finances, it’s time to shout about your business from the mountaintops. And how do you do that? You spend time branding and marketing your business.
Work on your brand identity.
Your brand is your business’s personality. As you develop your brand, think about the experience you want your customers to have when they interact with your business. What do you want your business to look like, feel like and sound like? How do you want people to describe your brand?
Everything—the colors on your website, the content, the design of your products and services—should reflect a consistent brand experience for your customers.
Create a marketing plan.
Marketing is simply a conversation you have with potential customers. It’s getting to know them, telling your story, and sharing what you have to offer. Here are a few basic marketing assets to create:
- Social media accounts
- Email list
- In-person events and promotions
- Free content to promote your business
Marketing doesn’t have to be expensive—it just takes intentionality and consistency. Keep in mind that people buy from people they know, like and trust. Marketing is your opportunity to get people to know, like and trust you.
6. Remember that starting a business takes time.
Starting a business isn’t easy, and it’s hard to keep it up and running while you’re in the trenches. But here’s the thing: You don’t have to be on this journey alone. With the right training, planning and support, you can create a successful business.
For more coaching on how to run your own small business or find your career sweet spot, tune in to The Ken Coleman Show. You’ll learn practical advice that will help you discover the role you were born to play—and map out a plan to get you there!