A Complete Guide To Setting Up A Small Business

This is a step-by-step guide to setting up your small business and you’ll learn that it’s much simpler than you thought…

Each of us has our own reasons for being drawn to Entrepreneurship. Some of us want to be our own boss.

Some of us want to work for a company where our effort has a tangible impact. Some of us even want to do it to add a little challenge to our lives. Sadly, motivation can be quickly lost when we realize how much effort starting a business actually is.

To start a successful business you need a great idea, to know how to apply for business licenses, to work out who you should be selling to. Add to that the complex world of marketing and eCommerce. We completely understand why most people find this situation overwhelming.

Taking the leap

In our time we have met two types of potential small business owners:

People who have an idea and jump straight into the process without preparing at all
People who are too aware of what they have to do to set up a small business, but are too overwhelmed by the process to actually start

This guide is designed to help both of those types of people. This is a clear and actionable guide that will help you to fully prepare to open and run your own business, without leaving you feeling overwhelmed by how much preparation you need to.

This is a modern guide that will help you to start a business in the ever changing market of the 21st century. We will be taking you through every step of the process – starting with Conducting Market Research.

Conduct Market Research

There is never going to be the right time to start a business. So, we recommend that you don’t wait around for one.

Instead, you should start your journey to being a small business owner by conducting some market research.

This can be really helpful for you even if you don’t have an idea for a business yet. Even if you do have an idea you may want to have a go at our first market research exercise, as it will help to confirm if your idea has legs.

Market Research to find an idea

“There is only one winning strategy. It is to carefully define the target market and direct a superior offering to that target market.” Philip Kolter

You should begin this research by looking at the type of business that you could be running, and the work that goes into running them.

For example, you may start this research thinking you want to go into an Affiliate Marketing Business. But as you learn more about what that entails (and you realize you don’t want to spend all day writing blog posts) you discover that this is not an area of interest to you.

By understanding how these types of businesses work, you can narrow down your choice by thinking about how you want to spend your days.

Here are the seven main types of business models:

Affiliate marketing
Consultation (and coaching)
Ecommerce
Freelancing
SaaS (software as a service)
B2B (Business to Business)
Selling Expertise

Next, you should spend some time exploring products and services that excite you. Ones that you would be happy to spend the next decade curating. Maybe you have a hobby that you want to monetize. Or you have a skill you think others could really benefit from.

Now is the time to see if there is a market out there for these ideas. You should also be looking to check that the market is not too over-saturated. Look into industry trends, cycles, and habits.

Market Researching with your idea in mind

Once you have established that there is a market, that isn’t too overcrowded, for your idea, product, or service, it’s time to do some research to see where you fit in.

You will find this process much easier if you are part of your own target market. That way you will have a better understanding of the industry, what are its customer’s expectations, and what is missing from this market.

When you find that gap, design a business that can plug it, and do it better than anyone else out there.

Here are some other things you should research during this market researching period:

Who your competitors in the industry will be
How their companies performed in their first year, and their first five and ten years if the company is that old
What types of products are most successful in this business (looking at both trends and staples of the market)

While you are doing this market research you will probably come across future competitors and their stories. Keep a record of their stories and any advice you see them handing out. These are lessons you can learn without having to go through all the hardship.

Write A Business Plan

A well-crafted business plan is essential if you are looking to get a bank loan or outside investment to kick start your company. If you are self-funding then you shouldn’t spend too long on this step.

That being said, one of the biggest benefits a business plan can provide you with is clarity. Putting together a business plan allows you to think through all your ideas for the business and fully realize them.

Without taking the time to do this you will most likely find yourself stuck later on down the line, not knowing what to do next.

If this process feels boring, think about this quote from the Heath Brothers, ‘what looks like resistance, is often a lack of clarity.’ By doing this step as early as possible you will be saving yourself a lot of pain in the future.

Here are some things that you should know by the time you finish your business plan (note, they do not all need to be included in the business plan):

Your target market
The Problem you are trying to solve
Your solution to The Problem
What are your long, mid, and short-term goals for your business?
Your business model
What your ideal customer looks like

Your business plan should be no longer than a page. If you can’t sell your investors on your business within a page, then your proposal is not thought through enough.

Here is what a good one-page business plan should include:

The Problem
An elevator pitch for your business
A description of your target audiences
Marketing Plan
Financial Plan
SWOT Analysis (Strengths, Weaknesses, Opportunities, and Threats to your business)
Quarterly projections for your first financial year
You may also want to include some longer-term goals if you think they are appropriate

You will really see the benefit of all the market research you have done when it comes to putting together a business plan.

If you need some more inspiration on writing a business plan and the amazing things it can do for your business, check out this video.

After you have put together this plan you should take some time to get feedback on it. You should get feedback from a range of people. This should include small business owners and people in your target audience, as well as those in your personal social circles.

Taking feedback can be a difficult process but you will learn many valuable lessons. When it comes to taking feedback, we like to follow this rule:

People can help you realize what the problem is, but only you can solve it correctly.

You know your business, you are willing to put blood, sweat, and tears into it. Sometimes this can blind you from some of the issues with your idea. However, only you will know how to solve the problems in the way that works best for your business.

Once you have put it together, you may want to keep a copy of your business plan close to you at all times. This will help you to keep your inspiration levels high and to keep you focused on what you want to achieve.

Choose Your Business Name

Some people have a great knack for naming things. Sadly, we don’t all have that talent, and when it comes to naming businesses much more research needs to be done.

At the start of this guide, we promised we wouldn’t make you do any unnecessary work or research. All the work you do in this process will help weed out any future issues along the line.

Infringing on someone else’s trademarks can be an expensive and time-consuming process. It is something you want to avoid at all costs when possible.

Check out what happened to this UK-based tea company who were forced to change their name, branding, and packaging after infringing on the copyright claim of a London Restaurant. The owners knew this was a risk when they named their company, unfortunately for them, it didn’t end well.

So what can you do to make sure you pick the right name for your business. Well, spending the time to research can prevent many disasters like copyright infringement, not being able to secure a domain, said domain getting lost in a wave of Google searches, and much more.

Here is a list of quick tips that will help you pick out the perfect name for your business:

Don’t choose anything that is too hard to spell
Don’t choose anything too rude, unless that is appropriate for your industry
Don’t choose anything that will limit your growth in the future (i.e. Don’t call yourself Cody’s Hats, if you want to make more than hats in the future)
Make sure it’s not already trademarked
Make sure that the .com is available (if it is, purchase it as soon as possible)
Make sure it doesn’t have too many search results on google already
Don’t choose a name your customers and employees wouldn’t want to say
Don’t always go with your first choice (pick a selection of names that you love, and test them out on others)

Registering business name

Once you have settled on a name you will want to register it as soon as possible. This will prevent anyone from infringing on your copyright properties in the future. You can do this by registering your business with your local business association.

As we mentioned above, you should check that the .com domain for your business is available and purchase it as soon as possible. For more information on why this is so important, check out this article.

Acquire The Required Startup Funds

We often see people with great startup ideas walking away from their dreams because they don’t feel like they have enough money for their projects. We also see a lot of people failing to get the size of loan their business deserves because they don’t understand the process.

Let’s break down the different financial options available to small businesses and how to obtain them.

Business Loans

Business loans are becoming harder to secure, but they are still a great place to start when it comes to building a business. Business loans are often more generous than a personal loan, and repayment rates can be adjusted depending on the business’s success.

If you are unable to get a loan through a traditional bank, there are other ways of getting a small business loan. We would recommend starting with the Small Business Association loan scheme.

Business Grants

The benefit of a business grant is that they are not required to be paid back. They are for this reason generally a lot smaller than business loans, and often come with a long list of stipulations that need to be met by the business.

The key to successfully acquiring a business grant is to look for a grand as specific to you and your business as possible. For example, some countries are looking to boost the use of their local resources, therefore they are offering grants out to companies that source locally.

Check out this database of government grants to see if there are any that suit your situation.

Investors

If you require a large amount of start-up capital then your best bet may be to seek investors. Whilst these investors can bring a large amount of money into your company, you should expect to have to sacrifice some of your control to appease your investors.

Crowdfunding

Lots of entrepreneurs believe that crowdfunding is a waste of time. However, if there is a real gap in the market consumers are more than happy to support anyone trying to improve their lives.

If you are thinking about rolling your eyes at the idea of crowdfunding a business, read this article about a Dungeon and Dragons podcast that raised $11.4 million to make a web series, which was then picked up by Amazon and commissioned for at least 2 series. If people believe in your idea, anything is possible.

If you feel that crowdfunding is the way to go for your small business do some research into the different crowdfunding methods out there.

Using a large service is a great way to gain traction and respectability, however, they are likely to take a larger commission. Smaller sites may let you have more of the donations, but offer less exposure.

If you don’t decide to use this method initially, then it’s worth keeping it in mind for any expansions or new launches you have in the future.

Personal Investment

Finally, if you are in a financial position where you can responsibly invest in your own company then this may be the best option for you. We do not recommend taking out irresponsible personal loans in order to finance your business. Doing this could mean that if you lose your business you also lose your house.

Choose Your Business Location

The next step in your business building process is to think about where you want your business to be located.

This will be different for every business, and 2020 has taught us all that the old ways aren’t necessarily the best. So, make sure to think outside of the box when it comes to this section of your business.

This is not an either-or question. Most businesses will benefit from having an online side of their business (as this is how Gen Z and Millennials prefer to shop online).

Brick-and-Mortar Location

Pros

Your customers can make tactile connections with your products
You can build stronger relationships with your team
You’re team maybe more motivate when they have a dedicated space to work
Can save on shipping costs

Cons

Rent costs can eat into your profits
Commuting can cost a lot of money and take up a lot of your time

There are upsides and downsides to hosting your business in a physical space.

For some businesses, a physical location is a necessity – like ceramic vendors and art galleries. So, take some time to think about whether a physical location will benefit you as a business.

If you are looking at starting a shop or restaurant then this will be a fairly easy choice for you to make. However, if you are looking at starting a business that would require office space you may find you want to explore the idea of having your teamwork from home.

If you do decide that you want to lease a physical space then we have some advice for you. When leasing a physical space you should bear the following in mind:

Lease length – whilst signing a long lease agreement may seem appealing it is important to consider what might happen if your business fails. How will you continue to pay the rent on your location if your business goes under before the end of the agreement?
Tent requirements and improvements – you want your space to work for you as a business. Well-designed retail and office spaces are often very expensive. If you find a landlord that is happy to let you make your own improvements to your space then this can be a great way to save money.
Rent rates and escalations – if you can, find yourself a fixed-term rates contract for your space. This means that you will be paying the same rates throughout the contract, and the landlord will not be able to raise them. Non-fixed term rates are often presented as a high-risk, high reward situation. The rent could go up, but it also could go down, we’ll be honest with you, we’ve never seen a situation where the rent has gone down. Don’t risk it.
Subletting possibilities – You may find that subletting part of your space can help reduce the impact of rent rates on your profits. Check with your landlord that they are okay with you subletting before you do this, to avoid any legal troubles.

Online

Pros

No rent to be paid
No commuting
All team can work from the comfort of their own home
Access to a global customer base

Cons

Working from home can be hard on employees’ mental health
Domain renting, site hosting, and other online services can be very expensive
The business will often have to work across multiple jurisdictions

Don’t make the mistake of thinking that running an entirely online business is a simple thing. There are still different elements that have to be dealt with. Some of which can be very expensive.

There are many benefits to running a business online, however, as always, it pays to be prepared. When putting together an online business you should be aware of the following:

Purchasing and renting a domain
Finding a suitable host for your online presence
Equipping your team so that they can work from home
Acquiring some form of business social network so your team can communicate
Where your business is registered (for tax purposes)
The laws and regulations in the countries you will be sourcing from and selling to

Apply For Any Applicable Licenses and Permits

This is perhaps the most important, yet boring part of the process. However, it is not as stressful as many people think it will be. If you go into these applications having prepared yourself and fully explored your options as a business owner, you will most likely find this a smooth process.

You may want to hire yourself a start-up attorney who can help you through the process of applying for licenses and permits. You may also find that they are a useful member of your team when it comes to drafting legal documents and contracts for new employees.

This will not be applicable to every business. Some of you may not need any licenses or permits before you start your business.

However, if you don’t check and start your business without the right permits then you can find yourself in a lot of trouble. Therefore, we always recommend that you check beforehand and cover all your bases.

The Small Business Association’s database is a great place to check to discover what licenses you need to start your business. We recommend checking this database as permit and license requirements vary from state to state.

And they also may be required if you are looking at selling your products or services outside of your home state. You will also find this resource from the IRS very helpful.

Open A Business Bank Account

The next step in this process is to open up a business bank account.

[If you are solely a self-employed freelancer then you will not need a business bank account. Every other type of business will need one. That being said, you will find filling in your tax reports a lot easier as a freelancer if you set up a business account.]

Why is this so important?

Firstly, having a separate business account that is used to pay in and out for all business-related expenses will make your end of the financial year a lot less stressful.

Having a business account that is strictly used for the business will create an easy-to-follow stream of money that will make settling your taxes a lot easier.

Secondly, you will find doing international business a lot simpler when you have a business account. Many companies will not take your business seriously if you are operating it out of a personal bank account. Many people might even think that you are attempting to scam them.

Thirdly, having a business account will allow you to build a credit rating for your business. Having a good credit score will make it a lot easier for your business to get a loan in the future.

Your credit score is a rating of your company’s financial conduct that tells banks who likely you are to make good on your loans. The better your score, the more they will trust you.

It is worth noting that Business accounts come with a lot more fees than personal accounts. For example, most banks charge you for opening a business account and will charge you a small fee to keep it open. Most business accounts will charge you for making cash deposits and withdrawals.

If you personally have a bad credit score there are many smaller, online banks that are more generous with small businesses than the larger, mainstream banks. Make sure that any bank you open an account with is signed up to a financial protection agreement like the FSCS.

Set Your Business Up For Paying Taxes

This is another crucial step that you must take the time to do correctly (no matter how boring it feels).

Some states don’t require you to register your business until it starts making money (this includes income before you start making a profit). However, other states require you to register your business much earlier.

Even if you live in a state that only requires later registration, we would recommend registering as early as possible. It is best to get as much of this out of the way before your time and brainpower are being taken up by having to run the business.

When registering as a business you will be required to file the following:

Articles of incorporation and operating agreements

One of the key documents for registering your company is your articles of incorporation and operating agreements. This involves submitting a list of information about your business. What is required will vary from state to state, but will nearly always include the following:

The name of your business
Your business’ intentions
Any stock details
The legal structure of your business
Who you currently employ

Doing Business As (DBA)

If you cannot do the above (register articles of incorporation and operating agreements) then you will have to register your business name or DBA (doing business as).

This can be any of the following: your legal name, the name you have picked for your business, or a fictitious name (this can only be done if you are the sole owner and worker for your business).

This normally requires a registration fee. If you are confused about the laws in your local state you should contact your local county clerk’s office. They will be able to point you in the right direction.

Income tax forms

Again, what is required in this category will vary from state to state. However, all businesses will have both federal and state tax requirements.

The structure of your business will also affect the type of forms you will be required to submit.

Taking the time to submit the right tax forms will prevent you from getting in trouble with the IRS and receiving huge fines or even jail time.

You can find a list of required tax forms on the Small Business Association website.

Employer Identification Number (EIN)

Some companies will be required to collect an EIN from the IRS when setting up their business. This code is one of the reasons why you should set yourself up a separate business bank account, as it will save you days of admin at the end of every financial year.

Here is a checklist of who is required to collect an EIN from the IRS.

Assess Your Importing and Exporting Needs

International Trade seems like a win-win situation at first. However, the more time you spend researching it, the more you will discover how complex and expensive the whole process can get.

How are imports and exports classified?

If you are doing any of the following then you are legally taking part in international trade:

You employ someone in another country
You buy goods from another country
You sell goods to another country
You buy services from another country
You sell services to another country

If you are not planning on doing any form of importing or exporting with your business then you can skip this section. However, many businesses are taking part in these activities without even realizing it. This can lead to hefty fines.

Things you will have to consider if your small business trades internationally:

VAT
Shipping costs
Price of goods
Outsourced services costs
Import/Export duties
Local laws and regulations
Customs delays
More business licenses and tax forms

While being an international small business can have real benefits, there are a lot of downsides to it. However, we have noticed that the majority of small businesses that we interact with are international businesses, whether they intended to be or not.

Plan For Business Growth

Our final step before launching your small business is to plan for the growth of your business.

Running your own business can be a wonderful experience if you stay prepared. Trying to solve problems before they occur is a lot less exhausting than fighting them as they pop up. In this final section, we are going to cover some areas of running a small business that will really benefit from advanced preparation.

Advertising

Advertising can be an intimidating activity. Many entrepreneurs have in it their head that advertising is an expensive and time-consuming process.

The truth is that is rarely both. As a business owner, you will have to make a decision as to whether you want to outsource advertising or do it yourself.

Whilst outsourcing your advertising can be expensive, it will save you a lot of time. You can also (nearly always) guarantee that the person you hire will understand more about advertising than you do, and is better equipped to do the job.

However, if you are looking to save money then handling your own online advertising is a great way to do this.

If you are pressed for time then you should take some time to research which social media you should be putting your time and energy into. For example, if you are a B2B company then Linkedin will be your most effective advertising platform.

However, if you are selling art then you will want to put your efforts into advertising on a visual platform like Instagram or Linkedin.

Expansion

Before you launch your business it is important to spend some time thinking about how your company will look in the future.

Will you be looking to take on new employees, or do you want to stay a one-man-band forever? Are you planning to sell the business once it is making a certain amount of profit, or are you planning to keep it?

Do you always want to take a hands-on role in your business or will you take a step back at the first opportunity?

These are all questions you should know the answer to (or have at least considered) before you launch your business. This will help you build the kind of business you want from the very first day.

Collaborations

Collaboration of one of the oldest tricks in the business handbook, but it is still one of the best.

Collaboration is a way to build your business and customer base without having to rely on organic growth. Collaborating with another well-known business, or charity will give you the opportunity to piggyback off of someone else’s audience.

The key to a successful collaboration is to create an opportunity that benefits both sides. As a small business, you may want to create opportunities that benefit your partner more, to make the idea more appealing to them.

Customer experience is everything

When it comes to building your business customer experience is everything. The easiest way to run a successful business is to build a loyal, repeat customer base. Think about how Apple has people queuing around the block to buy a new phone every year.

Gaining organic traffic takes a lot of effort, so you need to make sure that you are making the most of your existing customers. Being friendly and going the extra mile can be what sets you apart from your competitors.

You never know when a good customer experience might lead to your next big sale. The young girl that you have a free GWP (gift with purchase) to might be the daughter of a potential new client.

You can’t plan for everything

All successful business leaders understand that you cannot plan for everything. Things will always go wrong, no matter how long you spend preparing for them. The mark of a good business leader is someone who can cope with the unexpected and adapt to it.

Summary

Setting up a small business requires so many moving parts that it is not uncommon for people to become overwhelmed and give up before they’ve even started. This guide has been designed to prevent that from happening.

However, we hope that by following this step-by-step guide that you will find the process easier, if not fun.

And we hope that by taking the time to do market research, make a business plan, setting up your business correctly, and planning for the future you will be able to start a business that provides you the joy of being your own boss.

If you are prepared to put in the time and effort before jumping into a new idea then anyone can start a successful small business. As a sourcing company in China and Asia, we are a small business as well working with a lot of other small businesses. Hopefully this guide was helpful to you.

So, what are you waiting for? It’s time to start setting up your own small business…