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How to Start a Company from Scratch (A Step-By-Step Guide)

How to Start a Company from Scratch (A Step-By-Step Guide)

If you’ve ever thought about starting and running your own business, you’re not alone. Being your own boss, having flexibility with your schedule and keeping more of the financial rewards that come with business ownership are all good reasons to own your own company.

But as you might expect, it’s not all vacations and fat bank accounts. According to the SBA, 2/3 of businesses survive at least 2 years and approximately 50% survive 5 years.[1] So why is the failure rate so high? At least for the businesses that fail early on, lack of, or poor planning can be a major factor.

So how to start a company?

Starting a business from scratch doesn’t have to be hard or complicated, but it does take planning and work. Here are the first and most important 9 steps to take when your are starting a company from scratch.

1. Do an Honest Evaluation of Yourself

Do you work better in a structured or unstructured environment? Does a daily routine reduce your anxiety? What kinds of things are you good at? Does public speaking or making presentations make you nervous? Are you good at accounting and numbers? Can you handle the rejections you’re bound to get when selling or cold calling?

These are all important questions to ask yourself, in fact it’s a good idea to get other peoples opinion about their perception of you in each of these situations.

Whatever the answers you come up with for your evaluation, remember that’s all it is, an evaluation of where you are now. Think of it as a way to identify both your areas of strength and weaknesses.

You maybe good at public speaking which can help when raising money, but bad at accounting which just means that you’ll need to find some kind of help with that area of the business.

2. Evaluate Your Idea

If your business idea involves a new product or service (or even an enhancement to an existing product or service), it needs to be evaluated. This is technically called market research.

There are firms that specialize in doing market research for new products, but if you are on a tight budget, you can do this yourself.

First, if you can build a prototype for people to use, touch and look at that’s the best option. If a prototype is not possible or it’s a service business, then offer a highly descriptive presentation of the business plan complete with it’s unique benefits and how it’s different from the competition.

Then listen! Remember that this is not about others liking your product, this is not your baby that they are talking about. You want honest market research that gives you the best chance for a successful business. Take notes, when someone tells you that they didn’t like a feature or some aspect of your idea tell them ‘Thank you”.

After several rounds of market research with different groups of people, you should see patterns emerging about things that they both liked and didn’t like. Use this information to tweak your product or service and do another round of market research.

Keep in mind that you’ll never come up with a universally loved product, your job is to produce a product or service that appeals to the broadest range of your target market.

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3. Make a Business Plan

I know, I know this isn’t the “fun” part of starting your own business, but it is an very important step in creating a successful business!

Basically, you can think of a business plan as an outline or blueprint of your business. A good business plan should have the following elements:

  • Executive Summary – This should lay out the businesses product or service and the problem that it solves for the consumer.
  • Market Evaluation – This should talk about the market you are serving. Is it an expanding market, and how does your product better fulfill the consumers in that market.
  • Market Strategies – How are you going to penetrate the market and sell your product.
  • Operational Plan – How will the company run from day to day? Who are the key employees and what are their specific rolls. Do your key players have specific goals set for them in advance?

A final word on making a business plan: while lying is never acceptable especially when you are using the business plan to raise money, it is acceptable to “put your best foot forward”.

Playing up the positives while minimizing the negatives is almost expected in a business plan.

Besides, banks as well as professional investors will both do a more in-depth analysis before investing any money into your idea.

4. Decide on a Business Structure

You have many options here, and discussing them with your accountant or financial adviser is really the only way to know what’s right for you. But just to give you a quick rundown of the types of business entities and their pros and cons we will briefly go through them:

Sole Proprietorship

This is a common way for small businesses to get started.

The pros being:

Relatively low costs to set up (usually a business license and sales tax license).Owners normally do not have to set up a special bank account, they are allowed to use their personal one. Any income earned can be offset by other losses (check with your state!). You as the sole proprietor have complete control over all decision making. 

Finally, sole proprietorship’s are relative easy to dissolve.

The cons of using a sole proprietorship include:

You as the sole proprietor can be held personally responsible for the debts and liabilities of the company. Some benefits, such as health insurance premiums, are not directly deductible from business income.

If you need to raise money, you are not allowed to sell an equity stake in the company. In that same vein, hiring key people maybe more difficult because you cannot offer them an equity stake in the company.

Partnership

A partnership is formed when two or more people decide to start a business. Although there is no legal requirement for any documentation to form a partnership, it is my advice that you never enter into a partnership without having a partnership agreement. (Remember, spending $1500 now can save you $150,000 in legal fees later!).

The pros of a partnership include:

Being relatively easy and inexpensive to start. Hiring key employees can be easier as you are allowed to give equity ownership to as many partners as you want.

For tax purposes, partnerships are relative simple as any income is treated as “pass through” meaning that each partner pays tax on their individual portion of the partnerships income (As of this writing, always check with your tax adviser).

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As far as the cons go:

It can be difficult for some general partnerships to raise capitol. Because it is a partnership, the actions of one of the partners can obligate the entire organisation. All profits must be shared according to the partnership agreement regardless of the amount of work done by any single partner.

Some employee benefits may not be able to be deducted on income tax returns.

Limited Liability Company (LLC)

This is a very popular business entity for small to medium sized businesses. The reason for this is the cost of set up is not prohibitive and there is a separation between the owners and the company.

The pros of an LLC include:

Limited liability for the partners, unlike sole proprietorship’s and partnerships where the owners are held responsible for all of the companies debts and liabilities, an LLC provides some protection against certain debts and liabilities that are solely the companies.

Simple taxation, just like the sole proprietorship and partnerships, income is considered “pass through” and is only taxed once on an individual level.

There is no limit on the number of shareholders in an LLC. An LLC requires fewer fillings and administrative requirements than a corporation.

Corporation

A corporation is much more complex and expensive to set up. And a corporation is legally considered an independent entity that is separate from its owners.

The pros of a corporation include:

Complete separation between the owners and the company. Because the corporation is considered its own legal entity, owners can not be held personally responsible for any debts or liabilities of the company.

A corporation can raise capital much easier just by selling more shares in the company.

Cons of corporations include:

Much higher administrative costs than any other business entity. Corporations generally have a higher tax rate. Dividends are not tax deductible for corporations. Income paid in dividends is taxed twice, once by the corporation and again by the shareholder.

Again, this is just a short summary of the pros and cons, always check with your tax adviser about what will work best in your situation.

5. Address Finances

Again, not one of the “Sexier” parts of starting your business from scratch, but very important nonetheless.

So, you’ve done your business plan and an estimate of your start up funding should be included. It should include the amount of funding you’ll need to get you through your first full year of operations.

Now, how do you get that money?

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Self Funding

If possible, self funding is the easiest. You won’t have to go to banks and investors with hat in hand, or give up ownership or control of your company. But as we know, this is not a reality for most people. But don’t worry, there are still plenty of options available.

Friends and Family

They can be a good source of funding your business if they can see and understand your vision.

Remember that business plan? Pass them out to everyone you know. Then follow up, be prepared to tell them the total amount of money you expect to raise, the minimum investment you are looking for and what you will give in return for the investment.

For example, you give a friend your business plan and follow up with him/her a few days later. You can explain that you have secured funding for $80,000 of the $100,000 you need. You are selling a 2% share in the company for every $2,000 investment. How many shares would he like?

And when he/she tells you no, thank him/her and ask if he/she can think of anyone off the top of his head who might be interested? Tell him/her you really appreciate his/her time and if he/she does come across someone who might be interested to let you know.

Banks

These guys are happy to lend you money when you don’t need it, but all of the sudden they get stingy when you actually need a loan! This is where preparation comes in.

It’s a good idea to go over your business plan with an expert and maybe even have it rewritten by an expert before you approach either a bank or professional investor. Both will want to go over your business plan with a fine tooth comb, verifying all the numbers and data you provide.

You should also brush up on everything in the plan so that you can answer any questions they have with authority.

Crowdfunding

Finally, there is crowdfunding through sites like Kickstarter or GoFundMe. Crowdfunding helps to build interest, community spirit, and a customer base. It’s also an efficient way to raise funds. You can take a look at these tips to find out more:

6 Crowdfunding Tips To Get Your Project 100 Percent Funded

6. Register with the Government

As stated earlier, different types of business entities have different filling and administrative requirements. At the very least, you’ll probably need a business license as well as a state sales tax license.

Unless you are forming a corporation, there are many good resources on the web that will do everything for you at a minimal cost.

7. Assemble Your Team

Remember when we evaluated your strengths and weaknesses? Here is where we fill in the gaps!

Do you hate sales and cold calling? Great! There are people who love selling and wouldn’t want to do anything else.

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Bored to death with accounting? There are a ton of small accounting firms out there that will take care of that for you.

What about marketing? You can hire someone in-house or out-source that too.

Your job is to keep on top of all the different aspects of the business to make sure they are all running smoothly and getting the results you need. If not, it’s your job to figure out the problem and implement a solution.

Check out this guide and learn how to delegate effectively:

How to Delegate Work (the Definitive Guide for Successful Leaders)

8. Buy Insurance

No matter what kind of business you start, you need insurance! Yes, I know, no one likes to buy insurance, but it can literally be the difference between having a minor inconvenience and declaring bankruptcy.

We live in a very litigious time, even a minor slip and fall at your place of business could bankrupt you without insurance. If you need help finding a good agent, check with your local trade organizations or fellow business owners.

9. Start Branding Yourself

Has anyone ever ask you for a Kleenex or a QTip? We all know what they are because of branding, Kleenex is just a brand of tissue and QTip is just a brand of cotton swab. It doesn’t have to be as widely known as Kleenex or QTip, but you can make your brand a common name within your niche.

I once owned a manufacturing company that developed a product that was so popular that my competitors started co-opting my brand name for their products.

If you aren’t sure how to kickstart branding yourself, check out these ways:

5 Ways to Build your Personal Brand & Make More Money

The Bottom Line

Starting a business from scratch can be one of the most rewarding experiences a person can have.

But do you know what’s even more rewarding? Having a business that succeeds, is profitable and provides a good source of income for you, your employees and their family’s.

More Resources About Entrepreneurship

Featured photo credit: Tyler Franta via unsplash.com

Reference

More by this author

David Carpenter

Lifelong entrepreneur and business owner helping others to realize the American Dream of business ownership

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Last Updated on September 28, 2020

How to Change Careers Successfully When It Seems too Late

How to Change Careers Successfully When It Seems too Late

The wake-up call often comes when you least expect it. Maybe you’re enjoying a relaxing get-together with your old college buddies when someone turns to you and says, “Wow, I never thought you’d become an investment banker. I always thought you’d write a novel!” If this leaves you wondering how to change careers, you’re not alone.

Before you know it, you find yourself remembering your old dreams—and comparing them to the career field where you are now. Life rarely goes according to plan. Marriage, kids, and grandkids often come earlier than imagined—or later.

Maybe you pursued one career path because you were considered the breadwinner, but now someone else in the family is the breadwinner. Conversely, maybe you landed a job, thinking you’d stay for six months, and now you’ve been there for sixteen years.

A recent report from the Bureau of Labor Statistics pointed out that “baby boomers held an average of 12.3 jobs from ages 18 to 52″[1]. For millennials, who are more technologically apt, that number is likely to be much higher.

As this proves, it’s perfectly normal to change careers and begin a job search even when it seems too late! Steering your way through a career change is part calculation, part chance, and part leap-of-faith.

If you feel stuck and are ready for a career change, take these steps to guide you.

Step 1: Be Mentally Prepared

These points can help you master the psychological aspects of a career change at any age.

Now or Never Is a Fallacy

For most professionals, there is no cut-off age for striking out in a new direction. People do it at all stages of their careers.

If you’ve ever dreamed of leaving a large company to start your own business, you are not alone. Similarly, thousands of entrepreneurs and people working for one-man shops decide each year that they’d like to work for larger organizations.

You’ll find hordes of baby boomers looking for a redo alongside mobs of GenXers and Millennials—especially as the boomers now remain in the workforce longer than their predecessors.

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Your Career Is not a Straight Line From A to B

You don’t have to have your career trajectory completely decided from the start. In fact, that’s an unrealistic expectation, no matter how methodical you are.

People change. Industries merge, morph, and in some cases, disappear. Careers rarely follow the straight and narrow.

Many careers can be compared to journeys—there are the adventurous patches, boring patches, downright scary patches, and the hills and valleys, too. The trick is to try to have a little fun while you’re charting out your various careers.

Don’t panic if you find you need to change your career. It may take some work as you sort through job posts, write cover letters, and pursue your dream job, but you’re up for it.

Career Changers Are Among Good Company

Consider these well-known trailblazers whose careers took a radical turn:

Jeff Bezos, CEO of Amazon.com, studied computer science and electrical engineering at Princeton, went on to establish himself as a Wall Street prodigy, then quit to launch Amazon.com.

Sara Blakely, a billionaire businesswoman, was a fax machine salesperson before creating her signature slim wear line, Spanx.

Jonah Peretti, co-founder of the media sites Huffington Post and BuzzFeed, initially taught computer science to middle schoolers.

Be Ready to Take on the Naysayers

Expect plenty of advice—usually of the discouraging kind—from friends and family when they learn that you’re exploring a career change. Those you know best are often the most vocal in trying to thwart your plans.

Be prepared to field a flurry of pessimistic conjecture and doomsday scenarios. Know, though, that when your loved ones question your judgment, they’re not necessarily doubting your talent but trying to look out for your wellbeing. Stepping out of your comfort zone will make anyone close to you uncomfortable.

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Keep in mind that pessimists avoid the unknown, while optimists invite new challenges. Above all, believe in yourself and follow your instincts. Don’t let your fear of change paralyze you from seeking out your new career path.

Project an aura of enthusiasm, energy, and passion. You’ll find it’s contagious.

Step 2: Be Proactive

These tips can help you master the practical aspects of changing careers at any age.

Take Baby Steps

Ease into your new direction. Start building the skills you’ll need to make the switch.

Find out what skills you will need, and do whatever it takes to add them to your skills arsenal. Make the time to invest in additional training.

Start by devoting a half-day each week to your new pursuit until you’re ready to confidently make a move.

Clearly define where you want to go and what you’ll need to do to get there. Take an inventory of your strengths. Read trade magazines, and study up on industry trends.

Volunteer

Charitable organizations are often looking for volunteers to help them with their outreach, social media, and engagement. You can show up without the requisite skills and learn as you go in a fun, convivial, low-pressure environment, which will help you expand your experience and skills.

Take Online Courses

Today, LinkedIn and many other providers offer online courses in everything from accounting software to time management to mastering Excel. For extra credit, see if you can find classes that award online badges for completing each course.

Don’t be shy about adding these certificates to your online profile. Keep your profile fresh by adding more and more skills to it.

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Take a Temp Job

Depending on your field, it may be possible to freelance at a company where you learn on the job.

Remember that you can’t just show up at a potential employer’s claiming you have the skills. Taking a temporary job that allows you to polish your skills is proof that you’re serious about your career change.

Network!

Build a family tree of contacts. Explore beyond the main branches of your work acquaintances, industry groups, and social contacts. Join your alumni organization. Tell everyone.

Ask friends and friends-of-friends to meet you for coffee to explain what it is they do and tell you which skills you’ll need to succeed in your chosen field[2].

When you want to learn how to change careers, start by networking!

    If you have friends or associates with ties to the organizations where you want to work, ask your contacts to make an introduction. The majority of today’s jobs are found through one’s own networks. When jobs open up, companies invite informal recommendations from internal and external channels.

    Step 3: Take It Online

    This last step can help you master the online aspects of a career change at any age.

    Develop an Online Presence in the Field of Your Dreams

    Reconfiguring your online presence will be a critical step in your career change. Fine-tune your digital identity to reflect your new direction, tailoring your profile to the role and industry you’re after. Include keywords that are relevant to the industry so that recruiters can find you.

    Craft a clever personal statement that states your interests, your values, and your dreams. Once you’ve zeroed in on your message, also pick and choose which outlets make the most sense for it.

    Will your personal statement resonate on LinkedIn? Or is it highly visual—making it a better fit for Instagram?

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    Polish your sites until they gleam, then get active so others take notice. Add insightful content to your social media pages that goes deeper than the information on your resume, such as commentaries on something taking place in your newly chosen field.

    For more on how to build an online presence, check out this article.

    Final Thoughts

    Americans spend 1,800 hours or more each year working. That’s nearly one-third of your life, and it goes without saying that your job satisfaction and career goals have a great bearing on your life’s happiness barometer.

    Set out to intentionally pursue career satisfaction, looking for opportunities to fine-tune your working life so that you find fulfillment.

    If playing the piano is your personal bliss, could you meld your love of music with your clinical psychology background and find a job using music to promote healing? Perhaps there’s a foundation that would fund you in a multiyear study.

    Or, if you’re a movie buff for whom every encounter has the makings of a screenplay, why not sign up for an evening class and see if your years of writing advertising copy could morph into a career move into the film industry?

    Achieving your career change successfully will occur when you mentally prepare, take a proactive approach, and mine your personal and online networks. The pay-off will be in a life well-lived in a successful career.

    More Tips on How to Change Careers

    Featured photo credit: Jason Strull via unsplash.com

    Reference

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