As the end of 2017 draws closer, aspiring entrepreneurs will reassess their situations and consider taking the big leap. It doesn’t happen overnight. Rather, it is a process. Here are some key things to think about before taking that first step.
Conduct rigorous market research
Write a sound business plan
You can’t get somewhere without knowing what route you will take. That’s where a business plan comes into play. The business plan will outline what the business is, where it is located, who is running it, when it operates and how it will achieve a profit. A well written business plan is a vital step in the process of securing a small business loan.
The most important element of the business plan will be the one-page Executive Summary at the beginning of the document. The summary should detail the name of the business, what product or service it will provide, the competitive landscape in the local market, the differentiator that will set the business apart from its competitors, the management team and each member’s experience in the industry, marketing plan, and financial projections.
Once you figure out what is needed to run the business, draw up a budget so that you can figure out how much money you’ll need to start it. Some people will tap into their life savings to launch a new business. Others will call upon family and friends. Obviously, if you don’t have enough money or willing backers to self-finance the venture, a traditional bank loan or SBA loan may be the way to get the business off the ground. Currently, big banks are approving 25 percent of the small business loan applications that are submitted, while smaller banks are granting slightly less than half of the requests they receive.
Before applying for a loan, check your credit rating. If it’s in the 700 to 800 range, lenders will be more likely to fund your venture than if you have a score of 650 or less. Be prepared to provide tax returns from the previous two or three years. Having a business plan is also an important document. All of this information will help build the case to a potential funder that your venture is a sound one and that you are likely to be able to pay the money back in a timely manner.
Pick a location
Real estate agents always stress location, location, location. Picking the right location for a business is one of the most important decisions an entrepreneur will make. The choice will have a direct impact on your revenues, taxes, legal requirements and cost structures. A busy street is a great location for a restaurant – unless there is no place to park. Having great food and good pricing may not help if customers cannot find a place to park without getting a ticket. If you choose to open a nail salon in a town, be sure that there aren’t already 10 others around. The local market may be saturated. Keep these things in mind when selecting a location. Price should not always be the deciding factor.
Choose a business structure
Creating a formal, legal structure for your business provides legitimacy and has an impact on the amount you pay in taxes. Your attorney can help with the process. There also are a number of firms, such as Incorporate.com, which can assist in the formation of an LLC, C-Corp, S-Corp, or other type of business structure.
Get federal and state tax IDs
Every company should establish a federal employer identification number (EIN). Without it, a business will be unable to open bank accounts or credit card accounts. It’s also necessary for paying taxes, which of course, is part of business ownership.
Apply for required licenses and permits
Be sure that your company has all the necessary licenses and permits to operate in the location you have chosen. For instance, a restaurant could be required to have a vendor’s license from the town.
Once these seven steps are taken, a business is ready to cut the ribbon and ringing up sales. Be sure that you have established a business bank account for deposits and operational expenses and a payroll account. Your local bank will gladly work with you to set up merchant services (credit card processing).
Join the local chamber of commerce, which can be instrumental in supporting the start of a new member organization. An active chamber will be able to set up a ribbon-cutting event with local officials and offer benefits.
Call Scott A. Kunkel, CPA PC today in North Richland Hills at 817-498-1040 to have a chat about your small business.
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