Starting a business is wonderful. You may be quitting your 9-5 or creating a “side hustle”. Either way, it’s valuable to do your due diligence before jumping into a new venture.
A small business sounds fun and exciting, but there’s significant behind-the-scenes work. Entrepreneurs pour dozens of hours into minor details before their business idea even gets off the ground. You need to consider stakeholders, risks, cash flow, financing, technology, and more.
This article discusses nine things to consider when starting a business.
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1. Decide on a business structure
Successful businesses start with a legal structure — i.e., how you plan to run your business. You might start as a sole proprietorship if you’re running the venture solo or as a partnership if you have co-founders. The decision to incorporate could come later as you discover a need for it.
There are other structures such as not-for-profits, co-ops, and limited partnerships. However, sole proprietorships, partnerships, and corporations are the most common.
The choice between them usually depends on the nature of your business. You might not see personal trainers or graphic designers ever incorporating unless they scale into a gym or design agency. However, startups and beauty salons often register for incorporation sooner or later.
The decision to incorporate depends on numerous factors, like whether you need employees, how much revenue you earn, and your corporate debts. Discussing with an accountant or lawyer can help you determine whether you should choose a corporation or remain a sole proprietorship or partnership.
Sole proprietorships are generally the most convenient and simple structures. They only involve yourself at the helm and don’t require any official registrations or filings unless you register a business name or require a tax account.
Partnerships are more complicated because they involve another person. You’ll likely need a partnership agreement to dictate each individual’s roles, the division of income and liabilities, and more.
Lastly, a corporation gets more complicated. Corporations require registering with your province or the federal government. It also requires significant paperwork and regular minute book maintenance. Taxes also function differently once a corporation is in the mix because a corporation acts as a separate entity.
Related: Small business checklist
2. Develop a mission, values, and an elevator pitch
The heart of your business is its mission. It sounds cliche, but your future decisions depend on your company’s mission and values.
For example, suppose your mission is to reduce administrative errors for marketing teams. You accomplish this as a virtual assistant niched in the marketing field. As a result, you may choose not to take on a finance team role because it doesn’t align with your mission.
Having your missions and values down can then turn into an elevator pitch. Explaining to a Chief Marketing Officer your mission in the form of an elevator pitch can make you look laser-focused and ready to help their team execute. In turn, this improves your chance of securing another potential client.
3. Draft a shareholder’s agreement
They say, “If you want to go fast, go alone. If you want to go far, go together.” When we start a business, we might start it with a friend, spouse, or mentor.
When you work with someone else, it’s vital to prepare a shareholder’s agreement from the get-go. A shareholder’s agreement outlines your business relationship with others in the company. This can reduce significant conflicts among your team later on.
For example, suppose your business grows and sees a lot of success. Suddenly, your partner believes they should receive more company ownership because they’ve put in more work. You disagree and think a 50-50 split is fair.
Without a shareholder’s agreement, this conflict could go to court. While both you and your co-founder are distracted by the lawsuit, it could even collapse your business’s long term prospects.
However, a shareholder’s agreement could set out ownership stakes in the beginning to prevent disagreements later on. It’s best to speak with a lawyer to understand how to approach a shareholder’s agreement.
4. Research start-up costs
Money is the blood of your business, and the number of dollars coming in often determines how well your company is doing. A barrier to entry for entrepreneurs is the start-up costs. That’s why it’s vital to understand how much you need to spend to get your company off the ground.
Suppose you’re starting an IT business. You need financing to purchase computers, servers, and software. This might cost a few thousand dollars.
In contrast, a beauty salon has a much higher start-up cost. A salon requires a storefront, which alone is a few thousand in rent per month. The store might also need renovations, equipment, decor, furniture, and more.
Every type of venture is different, and it’s critical to understand what the typical costs are for your business. Without this understanding, you may not be prepared for surprise expenses.
5. Search for financing
After understanding costs, you need to figure out how to finance your venture. Many entrepreneurs start with personal savings.
However, taking a loan (debt financing) or looking for investors (equity financing) are typically used in tandem with your savings.
Debt financing means you borrow money from someone else or an institution to start your business. It’s hard to get a loan for a company you haven’t started. The lender has no idea how you’ll pay it back. But close friends or family members may still be open to providing a loan.
Another way to debt finance your business is to take out a personal loan. This capital can be based on your strong credit history or secured by assets like your home. It’s loaned to you irrespective of your business.
You’re personally liable for this debt if your business fails. This could mean losing your home or even personal bankruptcy.
Equity financing means another person purchases part of your company. This person or firm may also act as a mentor to your business since they have a stake. Or they might be a silent partner who has zero involvement.
With equity financing, you won’t have to pay anyone back if your business fails. But, you ultimately lose some ownership of your company, and you may have more limited options in decision making as your investor also has a say.
Working with a lawyer when receiving a loan or investment is critical. A legal professional can draft an agreement between you and the lender or investor. Like a shareholder’s agreement, such a legal contract prevents future issues.
6. Consider business risks
Starting a business is challenging because of the inherent risks. Unlike an employee, you take on financial obligations like paying rent, suppliers, and wages. You also face legal risks related to the provision of your services and day to day operations.
For example, suppose you provide bookkeeping services. An inaccuracy recording even one transaction can create tax or other accounting issues for your client and lead to a financial loss. As a result, your client might sue you for negligence.
Even more legal issues arise when you have an office, warehouse, or storefront. Suppose you’re a car detailer. A client walks into your garage to pick up their vehicle. While walking around, they slip on a puddle of water and hit their head on the ground. This accident leads to bodily injuries, and that client then sues you.
Both these situations are risks to entrepreneurship. However, you can mitigate these risks with the proper business insurance. The right business insurance plan covers the cost of legal fees, damage awards, court costs, and more in the situations above.
Additionally, the right business owner’s policy can cover business assets and business interruptions. Such a policy ultimately reduces the unwanted surprises your company faces.
Business insurance plans aren’t expensive either, despite the benefits they provide. Get a quote with APOLLO and buy online today in under 5 minutes.
Related: When is insurance mandatory
7. Create a digital presence
Your online presence allows prospective customers and clients to learn about your product or service. Information, such as client/customer reviews, web pages, or social media posts, helps customers and clients decide whether they want to patron your company.
Before starting your business, consider what digital outlets you want to focus on. An accounting firm likely finds more success on LinkedIn than Tiktok. In contrast, an e-commerce business selling organic bath bombs might find the opposite is true.
To determine what channels work, research what similar businesses are doing. Alternatively, you can test the waters with everything and double down on your successes.
8. Find technology that makes your business more efficient
It’s hard to run a business without technology. The right software and hardware solve many problems that entrepreneurs face in their industry.
The proper technology also saves you significant time to create a better work-life balance. Automating mundane tasks like billing lets you get back to doing what you’re passionate about.
Technology purchases can be expensive, but they provide a great return on investment by saving time and increasing your quality of service.
Related: Which online business is best to start?
9. Look into required business permits and regulations
Business permits and regulations don’t apply to every venture. For example, there are few laws specific to private tutors. But businesses like salons, restaurants, and clinics face numerous regulatory laws.
Health regulations are a major hurdle for salons, restaurants, and clinics. The last thing we want is a restaurant with mice running around! A manicurist might also need to clean equipment in a particular way to maintain client cleanliness.
Regulations are specific. It’s vital to read them over and ensure your business adheres to them. Otherwise, you risk government regulators shutting down your business.
Your company might also need particular permits. Salons often need specific licenses to cut hair or provide manicures. Restaurants need permits to sell alcohol and serve food. Many industries have unique permit requirements, and it’s vital to understand what your business needs.
Starting a company is an exciting endeavour. But, it’s not an easy one. There are numerous considerations and tasks to perform beforehand. Many are unique to your specific type of business, and others require professional help from lawyers and accountants.
Really consider what risks you’ll face before your business gets rolling. The right business insurance plan can mitigate some of these problems. Get a quote and buy your business owner’s policy plan today with APOLLO.
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