7 Important Steps for Starting a New Business

The following post was written and/or published as a collaboration between Benzinga’s in-house sponsored content team and a financial partner of Benzinga.

When you're ready to start your business, you want to get going yesterday. You might feel tempted to cobble together some great signage, plaster it on the outside of a building and think, "Yep, this feels right!" 

Not so fast. You need to do some major stuff first — and that even involves careful research! Learn the steps to starting a new business below. 

Step 1: Conduct market research. 

Market research helps you understand your customers needs and wants. The worst thing ever would involve opening for business, then crickets. Market research tells you whether it's a good idea or not one at all.

You want to understand the underlying needs of your customers and how your products and services can help them meet those needs. You want to understand what they'll pay for your products, whether you sell $80 hats or $5 tacos. 

You should know everything about your target customer: Her age, gender, economic status, types of services or products she currently uses and more. It can increase your sales (isn't that what you ultimately want?) and lowers your risks. Especially if you're going to invest a lot of money in a business, you want to know whether the risks you take make sense before you start.

The right words, tone and imagery can make or break your business, so where are the best marketing channels of your target audience? Where do they hang out? Where on social media do they live?

The only way you'll know the answer is to have a successful, complete marketing plan and do in-depth market research. 

Step 2: Write your business plan. 

If you've never written a business plan before, you may feel pretty much like a gasping fish on land. However, breaking it up into several sections can make a huge difference in how you get your business plan up and running.

• Executive summary: The executive summary is an overview of your business and your plans. It comes first in your plan and — good news! It's only about one page long.
• Opportunity: All you have to do is answer three questions: What do you plan to sell to your audience? How do you plan to solve a problem or need for your audience? Who is your audience and who is the competition?
• Execution: Next, you answer how you'll turn your business into an actual business. What's your marketing and sales plan? How will you operate? What do you have in mind for success metrics?
• Team: Who will it take to get there? Include your legal structure, location (if you've already put your foot on the gas pedal) and team. 
• Money plan: What's your financial plan? You can't get started without a financial forecast. This involves a cash flow statement, income statement and balance sheet.

Naturally, this takes some time to put together. You may want to hire someone to help you with this process so you know you get all the right pieces in place.

Step 3: Fund your business.

How will you fund your business? You may want to go straight to the bank for a loan, and that's certainly a viable option, though some lenders have gotten stricter these days. Go to your local bank (sometimes smaller banks offer more options than larger banks.

Check out some other ways to fund your business.

Credit Cards

As long as you use it responsibly, a credit card can help get you started. Just know that it's one of the highest interest rate options available.

Borrow from Your 401(k)

Another risky maneuver, you could also get your 401(k) to work in your favor. However, you can borrow from your 401(k) using the right methods. But what happens if your business fails? You could drain your nest egg along with everything else.

Crowdfund

Crowdfunding lets friends, family, and strangers contribute quick money toward your business. Crowdfunding usually applies to short-term fundraising, not long-term efforts. 

Raise Money Directly 

You can also ask family and friends directly for money for a startup loan. Just remember that this could affect relationships. They might never get the money back if your business doesn't pan out!

Consider a Microloan

Microlenders (which are not large banks) offer smaller loan sizes and apply more flexible underwriting criteria. They charge slightly higher interest rates for loans than banks. 

Step 4: Choose a business structure.

What's a business structure? If you're in the dark, you're not alone. 

Sole Proprietorship

Start selling your product or run your business. That's all you need to do. You don't need to monkey around with tax "stuff." All your income and expenses get reported on your 1040 Form, Schedule C.

The downside: The self-employment (SE) tax of 15.3 percent, which gets applied to the first $132,900 of net income, which involves a 12.4 percent Social Security tax and a 2.9 percent Medicare tax. 

What does this apply to? Sales of products or services, commissions or short-term income in real estate (if that's your jam).

Limited Liability Corporation (LLC)

The benefits of an LLC include personal protection from the lawsuits and the ability to reserve a business name and create a formal brand. The downsides include high renewal fees or publication requirements, depending on the state in which you live.

S Corporation

You can save significantly on taxes with an S corporation, depending on your situation.

Shareholders and officers of an S corp won't pay for corporate debts and liabilities and your share of the S corp's net income is not subject to self-employment tax. 

Step 5: Register your business. 

Most small businesses just need to register with state and local governments, and in some cases, if you use your legal name, you won't need to register anywhere. However, you could miss out on personal liability protection, legal benefits and tax benefits if you decide not to register your business. Check with your local and state levels for more information.

Step 6: Get federal and state tax IDs.

Many states want to know that you're doing business in the state, even if your business is based in or incorporated in another jurisdiction. You may get state tax ID numbers or various other identification numbers when you kick your business off the ground.

Your local jurisdiction may also require you to register before doing business or to get accounts set up for sales, property, income or other types of tax. You may also need to get licenses or permits, particularly if you plan to build for your business.

Step 7: Insure your business.

Finally, set up your business insurance. By law, you need to have certain coverages like workers' compensation insurance and unemployment insurance to operate. Workers' comp helps your employees if they suffer a work-related injury or illness by helping pay their medical expenses and any missed wages while they recover.

Liability insurance helps pay the legal fees associated with lawsuits that may get filed against you. Without these coverages protecting your business, you'll have to pay out of pocket for claims.

The Hartford can help you determine the other types of coverage your business needs. Get a business insurance quote to learn more.

Get Your New Business Off the Ground

Exhausted yet? 

From creating a marketing plan to registering your business, you need to consider a lot. (This doesn't even include actually purchasing items, hiring employees, actually diving into marketing and more!) Plus, in this tumultuous time during COVID-19, you might find that it's tough to get a brick-and-mortar business off the ground, and that's where market research comes in handy.
The preceding post was written and/or published as a collaboration between Benzinga’s in-house sponsored content team and a financial partner of Benzinga. Although the piece is not and should not be construed as editorial content, the sponsored content team works to ensure that any and all information contained within is true and accurate to the best of their knowledge and research. This content is for informational purposes only and not intended to be investing advice.