Starting a Business 101: From Creating a Business Plan and Sticking to a Budget to Marketing and Making a Profit, Your Essential Primer to Starting a Business

Chapter 1

From an Idea to a New Business

You probably have business ideas all the time, but it takes more than an idea to launch a successful company. You’ll need a heap of self-motivation, time, sweat, research, and focus to nurture your idea seed into a full-grown, profitable business. Because that’s the dream—being your own boss, taking charge, and turning your passion into positive cash flow. That’s the draw of entrepreneurship, and to live that dream you’ll need to buckle up and buckle down to build your business.

You must choose the right business for you, even if that ends up looking differently than you had imagined. Your idea can be transformed by using a combination of your passion, strongest skills, available time and resources, and connections. You’ll need to make sure that there are people who want to buy what you’re selling. Chances are good that you’ll have a customer base, but you’ll need to find them and learn how to communicate in ways that will resonate with them. You’ll need to track down and learn everything you can about your competitors, borrowing from their successes and carefully avoiding their failures. All of this effort will help you build the successful, profitable, sustainable business you’ve always wanted.

KNOW WHAT IT TAKES TO START A BUSINESS

Getting Your Ducks in a Row

It takes more than a good idea and a great attitude to start and maintain a business. While it may seem like you can post profits from the jump, virtually all overnight success stories were years in the making. It takes time to create, build, and grow a business—not to mention money, energy, patience, and support. With those resources, you’ll be able to see your idea turn into a sustainable and profitable business. Just know that the road to starting your own business is a long and difficult one, so plan ahead.

There’s a lot of misinformation online about starting a business. Social media makes it seem like this venture requires minimal time and effort for huge returns and endless tax write-offs. To be crystal clear, starting a business won’t:

Turn you into an overnight millionaire.

Make all of your expenses tax-deductible.

Protect you against personal responsibility lawsuits (or lawsuits where you are sued for your actions as an individual).

Attract plenty of investors wanting to support you.

Free up more time for your personal life.

No matter what you’ve seen online, creating and running a business takes a lot of hard work. Your business won’t be hugely profitable in the first thirty days and won’t be able to support you completely within months. And while business expenses will be deductible on your tax return, personal expenses still won’t be.

THE TIME FACTOR

Small business owners work hard, and they work a lot. In fact, many surveys show that entrepreneurs work more than full-time employees, sometimes twice as much or more. One poll from the New York Enterprise Report found that 33% of entrepreneurs reported working at least fifty hours a week. Plus, 25% of those 33% of business owners reported working over sixty hours per week. That’s why so many small business owners burn out. Focusing so much time on building your business leaves little time for relationships, health, rest, and fun.

With all of the time you’ll be spending on your business, time management skills are crucial for your success. You’ll be juggling your business, your home life, and possibly another job. It takes superb multitasking abilities and discipline to manage all of this successfully for the years it may take to start your business. You’ll also need to have strong support systems in place when you just can’t get everything done on your own.

THE MONEY FACTOR

Every business needs sufficient start-up funds. If your business idea requires inventory, machinery, equipment, and premises, your initial costs will be much greater than a company that can be started with a laptop. In addition, if you can’t run your business without employees, your costs will also be higher than a solo venture. But even companies with very lean start-up budgets need funding, and it’s often more than they expect.

Most small businesses won’t produce profits for at least six months to a year, sometimes longer. That means every dime that comes in the door goes right back out. And, often, more money will be flowing out than in for quite a while. Remember, if this business will be your primary personal income source, all of your personal expenses factor into this cash flow equation. That means until or unless you get external business financing, you may personally end up borrowing a lot of money through loans and credit cards. Many business owners struggle with mounting debt, which can be difficult to overcome in the beginning stages. That’s why it’s crucial to make sure you have enough funding available.

THE TAX FACTOR

Many new entrepreneurs are under the incorrect impression that they’ll be able to run a profitable business that generates huge tax savings. They expect to be able to run all of their expenses through the business, writing off even their personal expenses. This sadly isn’t true, which often comes as a shock on the first tax return.

When a business generates profits, it also generates a tax bill from the federal and state governments. Who pays those taxes—you or your business—depends on how the business is set up. But for the majority of small business start-ups, the business income flows through to the business owner’s tax return, and the owner bears the responsibility for reporting and paying the taxes. Having an LLC, a limited liability company, as your legal business structure doesn’t affect this at all. LLCs don’t exist for tax purposes—they are legal structures.

As for personal expenses, some (or a portion of some) of those will become legitimate business expenses. These legitimate expenses are mainly for mixed-use, such as your personal phone or car that you also use for the business. The business portion of these expenses then becomes deductible. But things like meals eaten while you’re working (not during an in-person meeting with other people), clothes that you bought for a personal photo shoot, or your at-home subscriptions don’t magically become deductible when you start a business.

THE SUCCESS FACTOR

More than five million new businesses were started in the US in 2022. Approximately 10% of those failed within the first year, and another 70% will likely fail within the first 2–5 years. That doesn’t mean you should be discouraged. It gives you the opportunity to look at what went wrong for other businesses so yours can avoid the same fate. The most common causes for business failure include:

Lack of planning

Running out of money

Poor management

Inability to adapt to changing conditions

Ineffective marketing

Each of these can be overcome with solid planning and flexibility. No matter how good your plan is, reality will throw you a curveball. That’s why your business has to be able to adjust to whatever is happening in the world in order to survive.

A One-Month Snapshot of Start-Ups

According to the US Census Bureau, 418,904 new businesses started in November 2022. The majority of those—191,226—were formed in the Southern US. Only 48,850 of those new companies nationwide planned to pay employee wages. The top start-up industries that month included construction, retail, professional services, and administrative and support services.

CHOOSING THE RIGHT BUSINESS FOR YOU

What Do You Want to Do?

When it comes to choosing the best business for you to start, there are many factors to take into consideration. As you’re trying to decide what to do, think about:

Passion. How much do you care about the business you’re considering?

Skill set. What do you already know how to do well?

Industry expertise. What knowledge and experience can you bring to the business?

Motivation. Do you have the ability to get things done even when you don’t want to?

Runway. How much cash can you contribute, raise, or borrow to fund your business while it’s in the start-up phase?

Budget. How much money do you expect to spend on the business until it’s viable, and what do you plan to spend it on?

Scalability. Do you have the capacity to meet increasing demand or workload?

Demand. Will people or businesses want to buy what you’re selling?

Market saturation. How many other businesses are selling what you plan to sell?

Give yourself time and really think about the factors in relation to your personal interests, goals, and experience. Your business idea should score high on all—or at least most—of these factors. If it doesn’t, you might want to consider starting a different type of business. For example, a company you’re passionate about and have a high level of expertise in won’t be successful if there’s no demand for what you plan to sell, or if the market is already oversaturated. At the same time, selling a product that’s in high demand with lots of room for growth when you have no interest in it and hate working on it can also lead to business failure. Strive for a balance between your passion and knowledge and the market allowance.

Perfect Is the Enemy of Done

No business idea will score perfectly in every factor category. As you’re pondering what business you’d like to start, don’t aim for a perfect outcome. Instead, take your best idea—the one with the most potential—and get started. You’ll make mistakes, hopefully ones you can recover from and fix. If you wait for everything to be perfect, you’ll never launch.

TURN WHAT YOU LOVE INTO WHAT YOU DO

Passion projects can be fun and fulfilling, and turning them into a profitable business can satisfy both personal and professional goals. To start a business that you’ll be passionate about, think about the things you love to do and rank them from favorite to least favorite. Once you have that list, you can start brainstorming about possible ways to transform a passion into a viable business prospect.

Your next step is making a list of all the things you know how to do, the skill set you’ll bring to your fledgling company. Even if your passion and your current work don’t seem to have anything in common, you can probably still find some overlap in skills you’ll need. Include the skills you’d want to highlight on your resume, as well as the talents and abilities you would bring to the table. Examples of skills relevant to running a business include:

Software and apps proficiency

Editorial or copywriting experience

Bookkeeping

Data analysis

Organization

Time management

Creativity

Written and verbal communication

Negotiation

Research

In addition, make sure to list all of the skills necessary to create the products or provide the services you plan to sell, such as carpentry or acupuncture. These will be specific to this particular business, as opposed to the general business skills listed above.

WHAT YOU HAVE AND WHAT YOU NEED

Your next step will be to take an inventory of your resources. This list will include things like cash, credit lines, equipment, physical space, and other assets you already have on hand that can be used to launch your business. When you know what resources you have, you’ll be able to determine what else you’ll need to get your company started.

Once you’ve got your physical resources sorted, it’s time to focus on your knowledge and experience. This is different than your skill set, or the things you can do. It’s more about your industry knowledge and expertise, whether you gained that knowledge through a job, a volunteer program, or your life experience. These resources include things like knowing which suppliers deliver on time and offer beneficial payment terms, for example. You’ll also want to include any licenses and certifications you’ve earned. Resources can also include your network of colleagues, contacts, and mentors.

THE EXTERNAL FACTORS

Once you’ve catalogued everything you can bring to the business, it’s time to look at the market and see whether your business proposition has a chance. For your business to succeed, there needs to be demand for whatever you’re selling, room for your business in the market, and the capacity to grow when (or even before) demand makes that necessary. You can learn about the first two—demand and market saturation—by conducting thorough market research.

Scalability can be a little harder to pin down. Your business will need the capacity to grow as demand grows, increasing efficiency and profitability. A business that depends 100% on you to perform services, for example, won’t be scalable in terms of increased demand but can be scalable in terms of profitability. However, if you can bring on employees or partners to share that workload, you could make your business more scalable. Scaling too early or too late can lead to business failure, so it’s important to listen closely to the demands of your client base.

CONDUCTING MARKET RESEARCH

Knowledge Is Power!

Before you launch a business, you’ll need to make sure there’s a pool of interested customers ready to buy whatever you’re planning to sell. That pool of potential customers will be your market, and you’ll need to find out as much as you can about them. Through extensive research, you’ll learn a wealth of information about your future customers, including:

Their demographic information.

Their buying habits.

What triggers their buying behavior.

How they choose the products and services they use.

What problems they’re trying to solve.

With that information, you’ll be able to create customer persona profiles. These profiles function as avatars that stand in for a particular segment of your target market. You’ll understand what motivates a subset of your customers’ purchases, what drives them to spend money, and what problem you can solve for them. Plus, you’ll learn what entices them to buy from you instead of your competitors.

Of course, there’s a price for that information, so you’ll need to carve out space in your budget for things like marketing data, research assistance, and surveys. But this will be money well spent, as it will give you direct insights into your customer base and their buying habits.

What Are Demographics?

Demographics are statistics and facts that describe a particular population. They include things like age, location, marital status, gender, education level, and income. Gathering this information will help you get to know your core customers so you can speak to them to prompt a response.

WHY BOTHER WITH MARKET RESEARCH?

While you’ll use your market research to help you define and communicate with your customer pool, you can also use it in other ways to help you launch your business. Solid market research can help you:

Reach customers in the way customers prefer.

Secure funding.

Identify additional business opportunities (such as add-on products or services).

Figure out where and how to advertise.

Properly price your products.

Without market research, you’ll be flying blind. With it, you’ll have a stronger sense of whether your business can succeed before you launch. The bottom line is this: Market research can propel your new business toward success and help you avoid potential pitfalls.

FOUR WAYS TO GATHER MARKET DATA

If you’ve never done market research before, it can feel daunting. You’re collecting information that will help you refine your ideas and pinpoint what your potential customers want. The best way to find out what they want is to ask them. To figure out what you want to ask, you can start by gathering general information that will help you narrow down your questions, allowing for the most valuable information to be given.

There are four main ways to conduct your market research:

1. Do secondary research: Gather existing information from a variety of sources, such as government databases, industry reports, and competitor websites.

2. Send out surveys: Create a set of questions and ask your target customers to answer them by reaching out through email or social media.

3. Conduct interviews: Reach out to your potential customers and talk to them one-on-one to find out how and why they use similar products or services.

4. Use focus groups: Gather a small group of people that demographically match your target audience and lead them through a group discussion centering on your product or service offering.

The first two methods generally won’t cost much, if anything at all. For secondary research, you can find demographic information from the US Census Bureau at www.census.gov

, industry data from the US Bureau of Labor Statistics at www.bls.gov

, and the scoop on your competition by doing deep dives on their websites. You can send out online surveys using tools like Google Forms, SurveyMonkey (www.surveymonkey.com

), or Wufoo (www.wufoo.com

). Keep your questions short and to the point, and use different types of answer formats, such as multiple choice, response rating (like a 1–5 scale), or text boxes for open-ended answers.

For individual interview participants, you might offer gift cards, special discounts for your business, or samples of whatever you’re selling in exchange for their time. These conversations can be done remotely or in person, and you’ll want to record the session either way (just make sure you let the interviewee know that you’re recording). Focus group participants normally expect to get paid, and if you’ve never hosted a focus group before, you might want to invest in a professional discussion leader to get reliable results.

CREATING YOUR CUSTOMER PERSONA PROFILES

Once you’ve collected your market research, you’ll use the information to create your customer personas. When you know exactly who you’re talking to, it’s much easier to connect with them. It’s also easier to avoid language or topics that would turn them off. For example, you wouldn’t talk to first-time grandmothers with multiple pets in the same way you’d talk to young college students with fur allergies.

To create these avatars, start with demographic information. Knowing the basic facts will help you begin to see individuals inside the giant customer pool. Then you can begin to add in what you know about their lifestyles, buying preferences, needs, and concerns. Giving each avatar a name will help them come alive in your imagination and give you an edge when you’re creating marketing content. It’s easier to talk to a real person than to