Financial Literacy

Starting a business is kind of like diving into the deep end of a pool - you're excited, a little nervous, and not quite sure what's beneath the surface. And when the entrepreneurial spirit hits, the urge to jump in can be intense. But, like any big move in life, a little prep goes a long way.

This week, we're going to break down the essential steps you need to take before you launch your business. Our goal? To help you avoid common mistakes and give your startup the best shot at success.

Step One: Look in the Mirror

Before diving headfirst into the business world, it's time to self-reflect. Do you have what it takes to be an entrepreneur? Sure, being your own boss sounds like a dream - goodbye, 9-to-5! But it's also tough. It takes grit, determination, and the ability to juggle a million things at once. Do you have that fire in your belly?

If you're unsure, don't worry - we'll give you some key points to consider when figuring it out. By the end of this week, you'll have a clearer idea of whether entrepreneurship is really for you.

Big Questions, Bigger Answers

Once you've sized yourself up, it's time to start asking some big-picture questions about your business idea. What kind of business do you want to run? Where will you operate—online, brick-and-mortar, or maybe both? Who's your target customer, and how will you get them to walk through your door (real or virtual)?

These aren't questions you can gloss over. They're the foundation of your business strategy. We'll walk you through creating a solid game plan to help you understand your market and nail down exactly what you're offering.

Crafting a Business Plan

For many entrepreneurs, writing a business plan sounds about as fun as organizing their sock drawer. But it's an absolute must. Think of it as their business GPS. Without it, they increase their chances of getting lost along the way.

This week, we'll introduce the steps involved in creating a business plan that not only makes sense to you but impresses potential investors. Whether you're seeking funding or just trying to stay on track, a good business plan will be your guiding star for the next few years.

Show Me the Money: Finding the Right Financing

Even the best business ideas need fuel to take off, and in this case, that fuel is money. Whether it's your savings, a loan, or a little help from a friendly investor, you'll need to figure out how to fund your dream.

We'll help you sort through your options. From bootstrapping to crowdfunding, we'll cover the most common funding sources and help you decide which may be best for your business goals.

Choosing Your Legal Structure

Legal structures may not sound like the most glamorous part of starting a business, but they are very important. Your choice here affects everything, from taxes to personal liability.

Should you be a sole proprietor, form an LLC, or partner with someone else? We'll break down the major pros and cons of each option and help you understand which option may be the right fit for your business.

Your Responsibilities as an Employer

Thinking about hiring your first employee? Awesome! But being an employer comes with its own challenges including payroll, benefits, compliance, and more. We'll cover what you need to know about managing employees, handling payroll, and staying on the right side of federal and local laws. Our goal is help you build a strong, supportive team while keeping everything running smoothly.

Of course, we can't cover everything you need to know about starting a business in a brief series of articles. But we can introduce you to the topics you should likely consider when brainstorming the next steps of your potential venture.

The Bottom Line

Starting a business isn't easy. There are many moving parts, and the road to success is full of twists and turns. But with the right preparation and mindset, you can navigate those challenges.

Let's get started!

You've probably heard it before: "Entrepreneurs are born, not made." It's a nice little myth, but it's just that - a myth. The truth is, running a successful business isn't about having some magical entrepreneurial gene.

Some people might have natural qualities that make them lean toward entrepreneurship, but that doesn't mean the rest of us are out of luck. You can absolutely work on developing the traits that make for a successful entrepreneur. But before you start, it's just as important to figure out if entrepreneurship really suits you. Discovering you're not cut out for it after the fact can lead to major financial losses and a lot of personal stress.

So, how can you tell if you've got what it takes? Let's discuss some questions you can ask yourself.

What's Your Tolerance for Risk? 

There is no getting around it: Starting a new business venture requires risk. You're no longer just a small cog in a large wheel that will roll on with or without you. When you're an entrepreneur, your ultimate success or failure is in your hands. There is no safety net.

Some people have no problem tolerating this sort of risk. The idea might even serve as motivation. If you're someone who experiences anxiety at the thought of added risk, however, entrepreneurship might not be for you. Another option is to start very small by running a side business in your spare time rather than diving into the deep end of the entrepreneurial pool right away.

Are You Happy Working for Someone Else? 

Some people are perfectly content spending their time working for a corporation. Others, however, thirst for the ability to assume more responsibility. The idea of playing an integral role in every aspect of a new business is an intoxicating notion.

If working for someone else leaves you with an itch you can't quite scratch - and you're intrigued by the idea of being the animating force of your venture - entrepreneurship might be a good fit.

Is There Something You're Passionate About - That Could Also Be a Business?

We hear it repeated over and over: Entrepreneurs need passion. Deeply felt passion is a competitive advantage. It drives you forward even in the face of significant obstacles.

Passion, however, doesn't always make a great business. Not every dream can be monetized. Real success is found at the nexus of passion and business opportunity.

How Else Can You Test the Waters?

Passion and a zest for business is great, but nothing tells the true tale like real-world experience. If you're still on the fence about entrepreneurship, here are a few practical steps you can take to help make up your mind:

• Speak to other entrepreneurs about the challenges they face.
• Seek professional guidance or assistance from entrepreneur and business support groups.
• Ask for feedback regarding your business plan or idea.
• Get out in the field and observe how small businesses operate. Ask questions about life/work balance, customer attraction and retention, and what it's like to transition.
• Start a small, part-time venture you can pursue in your spare time. If this is a roaring success, this is one key data point that entrepreneurship might be for you.

The Takeaway

Entrepreneurship isn't for everyone. It requires hard work, tolerance for risk, and a willingness to take the lead on every aspect of a business. By closely examining your preferences and attributes, you can make an informed decision as to whether entrepreneurship is really for you.

Like many things that could radically change our lives for better or worse, the idea of starting a business stirs extraordinary emotions. On the one hand, who doesn't dream of being one's own boss?  Who wouldn't get excited by the notion of building a successful enterprise from scratch? Or the possibility of becoming financially independent while still pursuing your passion?

Of course, that's the best case scenario. The truth is that the majority of new small businesses don't succeed - though failure rates have been dropping recently. Starting a business and making it a success requires negotiating a gauntlet of challenges. Not everyone is cut out for the task.

This week, we're discussing everything you need to know before choosing to start your own business - and one of the first things you should do is ask yourself some tough questions.

Below we've outlined some of the most important questions for you to answer.

What's my animating principle?

"Why?"

After "money," that's the most important word in entrepreneurship. Starting a business is a serious undertaking that requires hard work and sacrifice. Whether it's money or independence, it's imperative that you have a firm grasp on your motivation for getting started.

Am I willing to do what it takes?

Can you tolerate a certain degree of risk? Are you willing to assume a greater degree of responsibility than you've ever had? If the answer to either of these is "no," you may not be ready to pursue entrepreneurship.

Do I have the resources to get started?

Businesses come in all shapes and sizes. Some require serious startup cash; others can be bootstrapped for virtually nothing. Whatever your situation may be, it's important to make sure you are sufficiently capitalized before taking the plunge. If you need funding, get ready to explore financing options, whether from a bank or investors.

What type of business do I want?

Many people come up with a fantastic idea, then decide to become an entrepreneur to make that idea a reality. Others, however, feel the entrepreneurial urge but lack a compelling business idea. If you're in the latter category, focus on two things: your skills and your passion. The common ground between these two areas is often where you'll find a strong business idea.

How will I attract business?

You won't last long if you can't find customers. Formulating a plan to attract and retain clientele is a critical part of an early business strategy. It's important to think deeply about the industry you're in and the competitive advantages you can create. You need to differentiate your product from others already in the market.

Where will I locate my business?

For brick and mortar operations, location is extremely important. If you're planning on opening a food truck, for example, it's a good idea to park it next to a large office park during lunch hours. Think about foot traffic, accessibility and other issues.

How will I handle staffing?

Are you going to be a sole proprietor? Hire contractors? Full-time employees?

How will I handle taxes, insurance, and accounting?

New business owners can get overwhelmed by the need to keep track of their finances. Make sure you have plans to handle taxes, insurance, and accounting in place.

The Takeaway

Before you consider starting a business, ask yourself some fundamental questions. Take time to answer those inquiries rigorously, and you'll be in a better position to evaluate your overall business readiness.

Creating a business plan is an essential step for anyone looking to start a new business. Whether you're starting a small home-based operation or launching a multi-million dollar venture, a well-crafted business plan is critical for success. 

You'd never try to build a house without a blueprint, and starting a business is no different. Planning a new venture can be a complex process, so writing a business plan is a great way to break down all the moving pieces into one comprehensive blueprint for success. 

Business plans are often used when entrepreneurs seek funding to get started, but business plans are important even if you don't need funding. A business plan allows you to clarify your business goals and develop a strategy for achieving them. It helps you define your target market, determine your competitive advantage, and identify the resources you'll need to succeed. In other words, with a solid business plan in place, you'll be better equipped to make informed decisions about your business and its future.

Before writing a formal plan, it may be helpful to lay the groundwork by conducting a SWOT Analysis – a strategic planning tool you can leverage to evaluate the Strengths, Weaknesses, Opportunities, and Threats of your business idea. When performing a SWOT analysis, gather and analyze data from various sources, including market research, financial reports, customer feedback, and competitor analysis.

A SWOT analysis includes:

• Strengths - Identify the unique features and capabilities that give your business idea a competitive advantage. It could be a strong brand, patented technology, skilled workforce, or a well-established network of suppliers.

• Weaknesses - Identify the areas of your business idea that need improvement. These factors could be a lack of experience in a particular market, insufficient funding, or a limited product line.

• Opportunities - Identify potential market trends and growth opportunities. These factors could be the emergence of new technologies, changes in consumer behavior, or untapped markets.

• Threats - Identify external factors that could negatively impact the business. These factors could include increased competition, economic downturns, changes in regulations, or changes in consumer preferences.

Once the analysis is complete, use the insights gained to inform your business plan. And if your business requires funding, the kinds of questions and issues you'll encounter during your analysis are likely to be similar to questions you'll get from potential investors or lenders.

Writing Your Plan

A well-crafted business plan can help a business clarify its goals and direction, attract investors and partners, and guide decision-making. It's an important tool for any business, as it helps to ensure that the business is aligned with its mission and is positioned for success.

There are a number of formats for business plans, but they all include the following core areas:

• Executive Summary - Much like the summary on your resume, your business plan summary should offer a concise representation of your plan as a whole.

• Mission Statement - A mission statement is a short, clear statement that defines the purpose and goals of the business. It should be concise and specific, and it should describe the business's unique value proposition.

• Company Description - This should be the first thing you write. You'll need to discuss what type of company you're starting, the market niche it will fill, products and services offered and how your business will differentiate itself in the market.

• Market Analysis - A market analysis involves researching the market in which the business operates, including the size and growth of the market, the target customer, and the competition. 

• Products and Services - This section should go into greater detail about the product or service you're providing. You should discuss the features of your product, where it stands concerning the development life cycle, competitive advantages your product possesses, and any intellectual property information.

• Marketing and Sales Strategy - Here, you should discuss how you plan on selling or marketing your products and services. Other important questions you need to address: How will you gain a foothold in the market? How will you acquire new customers? Will you focus on internal or external marketing and sales? Outline the tactics and actions the business will take to reach and sell to its target market. This may include marketing channels, promotional campaigns, and pricing strategies.

• Business Structure - This section should describe in detail how your business will be structured regarding organizational leadership and management. What is the chain of command? Who owns the company, and in what percentage? Often, an organizational chart is a good way to illustrate your corporate structure.

• Funding and Financial Projections - If you're seeking financing, you'll need to offer financial data to support your case. A financial plan includes a forecast of the business's financial performance, including revenue, expenses, and profits. Information about cash flow, capital expenditures, income, and expenses should be included. It should also include financial projections for the future and a budget for how resources will be allocated. You should include quarterly forecasts for the next five years.

While writing a plan can be daunting, there are hundreds of templates available through a simple online search for "business plan templates" that you may find helpful.

Crafting a detailed, data-supported business plan is an important for aspiring business owner. By following the steps listed above, you can make a credible, compelling case for the viability of your new enterprise - while also creating a defined blueprint to follow.

Aspiring small business owners face two significant challenges right off the bat: coming up with an inspired idea, and finding enough money to turn that idea into a viable business. Unfortunately, securing funding is often the most challenging part of getting a new business off the ground.

To help you navigate this tricky terrain, let's review the basic types of business financing.

Conventional Bank Loans

A traditional bank loan is one of the most common forms of small business financing. You'll want to secure the most competitive rate possible, so it's important to explore options with multiple banks. Lending standards tightened after the economic crash of 2008, so you should also make an effort to keep your personal credit as clean as possible.

On your application, you'll need to detail the type of business you will run, your personal credit history, tax information and other financial data. It's a good idea to provide as much information as possible to make your case.

Personal Resources

It's not unusual for business owners with lower startup costs to self-finance which might entail using savings or cashing in a retirement plan. There are two key things to consider here: First, make sure you aren't leaving yourself financially vulnerable; if your business encounters trouble, it could quickly deplete your savings. Second, be aware of the costs of tapping into retirement accounts. Borrowing against your 401k or withdrawing money early can result in additional costs and penalties.

Find Investors

If you've seen "Shark Tank" on TV, you're familiar with equity investors, who provide cash up front for a slice of company ownership. Other investors enter the game even earlier - often before the business opens. These are called angel investors.

An angel investor helps fund startup costs in exchange for equity in your company which can be very helpful if you need to generate a considerable amount of cash. It can also, however, be quite expensive. If your company is a runaway success, that slice you sold to investors may turn out to be extremely valuable.

Crowdfunding

One of the most exciting new ways to generate financing is via crowdfunding. This is exactly what it sounds like -- startup owners go online to raise money, using one of the major crowdfunding platforms (Kickstarter, for example). In return for their generosity, those who pledge cash are generally given rewards on a sliding scale. The more you donate, the better your reward.

While it's possible to fund a typical business on these platforms, they are generally better suited for creative enterprises.

Small Business Association Loans

One of the most popular methods for financing a new venture is a Small Business Association (SBA) loan. These loans are excellent options for business owners who may struggle to secure financing through a traditional bank.

It should be noted that the SBA doesn't make loans, but rather works with lending institutions to help businesses that can't find traditional financing. To access an SBA loan, you must have applied for a conventional loan and have been turned down.

The Takeaway

If you want your new business to flourish, it's vitally important that you have enough capital to grow. Consider the financing options listed above, and you'll find the funding option that's right for you.

Starting a business comes with myriad of key decisions and responsibilities. One of the most important of these early decisions involves your legal structure. What you do here may have profound tax, legal and financial implications, so it's important to make the right choice.

With that in mind, here's an overview of the various structures, and information about where and when each option makes the most sense.

Sole Proprietor

If you're looking for something simple and streamlined, you may wish to pursue a sole proprietorship. This structure is the most common in the U.S. and has exploded in popularity over the last three decades.

You don't have to take any official action to form a sole proprietorship. Simply being self-employed and earning money is enough to give you sole proprietor status. That doesn't mean you are exempt from any relevant permits or licenses, however. Sole proprietors are also potentially legally liable for debts and losses.

Additionally, sole proprietors are responsible for keeping track of their own taxes, including self-employment taxes and quarterly estimated taxes, thoughout the year.

Corporations

Even the most novice businessperson is familiar with the concept of a corporation.  A corporation is shareholder owned and legally independent business venture. This means the corporation - not the owners - are typically liable for damages or debts.

One popular corporate structure is the "C" corporation. The corporation structure works best for larger and more complex organizations since income is taxed twice - once for the corporation and again for employees / shareholders when paid out as salary. Another type of corporation is the "S" corporation. In this case, earnings pass through to shareholders at the end of the year.

Typically, to form a corporation, you need to file articles of incorporation with your state government or, in some cases, another state's government (Delaware is often used as a home state for many corporations).

Unless you're planning on starting with multiple employees and a relatively large budget, the corporation structure likely isn't for you since many of the benefits are available by forming a simpler Limited Liability Corporation (see below).

Partnerships

A partnership is simply a business venture with multiple owners. Partnerships can be equal (called "General Partnerships") or unequal ("Limited Partnerships") regarding ownership share and liability.

Starting a partnership requires a few steps: registering your business, establishing a name, and securing licenses and permits. Partnerships are a great way to pool risk, tap into the skill sets or experience of multiple people and share startup costs. Partners do sometimes disagree, however. It's also important to note that partners can be personally liable for debt.

Limited Liability Corporations

A Limited Liability Corporation (often just shortened to "LLC") is similar to a C or S corporation in that it offers legal protection. In other ways, however, it resembles a partnership. An LLC offers tax benefits and flexibility much like a partnership, as all profits (or losses) are assigned to the individual LLC members, rather than the corporation.

Much like corporations, LLCs are created through a process that includes drafting articles of incorporation and possibly drafting an operational agreement between partners.

The Takeaway

Finding the right legal structure is a core component of any successful business launch. By studying the options listed above, you can make the most informed choice possible - but, above all, consult with a legal professional before determining your business structure. There are other considerations that are beyond the scope of this article.

Becoming an employer for the first time can be a head-spinning experience. You have to assume responsibility for a variety of things that directly impact the physical and financial well-being of other people. Failing to do your due diligence in these areas can result in a litany of potential problems.

Given this importance, let's review the fundamental responsibilities with which any new employer should be familiar.

Safety Regulations

In the U.S., the Occupational Safety and Health Administration (OSHA) is tasked with ensuring employees operate within a safe workplace. Business owners are mandated to comply with OSHA's regulations. Some of the most important regulations include:

• Ensuring the workplace is safe from hazards
• Ensuring the workplace complies with all safety regulations
• Providing medical exams and training when required
• Designing a safe protocol for dealing with hazardous materials
• Establishing health and safety procedures for employees
• Businesses that violate OSHA regulations can be fined or even shut down, so it's important to familiarize yourself with these mandates.

Payroll Responsibilities

If you're going to pay employees, it's critical that you have a solid grasp on payroll fundamentals. You'll need to collect personal tax information such as federal ID numbers and understand how and when tax payments are made. You'll also need to know the difference between a W2 (an employee tax document) and a 1099 (used for contract workers). Learning the basics about payroll reporting requirements is also a necessity.

Additionally, you'll need to explore how state unemployment compensation works, and the responsibilities you assume when paying into this system. You also need to be cognizant of federal, state and local minimum wage laws, and laws that govern overtime compensation. Payment laws vary from state to state, so you may wish to check with your state Labor Department to make sure you're on the right path.

Health Benefits

Under new federal law, companies with 50 or more employees must provide health insurance to at least 95-percent of their employees. The Family Medical and Leave Act also mandates that employees receive time off for illness, family issues or disability. Smaller companies are not required to offer health benefits.

Disability Access

The Americans With Disabilities Act requires that businesses give disabled applicants the same consideration they would give to anyone else -- along with on the job accommodations that do not impose undue hardships. This law also mandates that those with disabilities be given fair consideration when it's time for promotions, bonuses, and benefits.

The Takeaway

Starting a new business comes with a whirlwind of new responsibilities. It's critical, however, to treat these responsibilities with grave seriousness. Your employees will be relying on you just as much as you rely on them - and failure to meet your obligations under the law can carry significant penalties.