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Starting your own business.

There's no question that starting your own business is one of the most challenging things you'll ever do. But while it can be complicated, there are some a few simple steps that every entrepreneur should follow to make the process of starting your own business go as smoothly as possible. On this page we'll cover some of the most basic aspects of starting your own business, including:

While obviously there's plenty of other small details you should consider when starting your own business, this page covers the subject in broad strokes. The first and one of most critical things every entrepreneur should have before starting a company is a business plan. A business plan details what your company will do and how it will do it. While that may sounds simple, business plans are often complicated documents with financial projections and substantial research. The topic of incorporating your business, and important by-laws that you should know before you enter in a partnership are also covered, along with whether you need funding to move forward with starting your own business. Lastly, check out the section on metrics, where we discuss the key measurements you should monitor after your business launches.

Creating a business plan.

You should have a business plan before starting your own business, particularly if you're seeking start-up capital. The three components of a creating a solid business plan are as follows:

  • Research: you should thoroughly research your competition, your market, and any trends related to the business you'd like to start. This information will eventually serve as the backbone of your business plan, and will support your request for funding to an investor or lender. This is one of the most important things to do before starting your own business.
  • Solid Writing: a business plan must be clear and concise. Creating a business plan that is overly-wordy or confusing will simply have the effect of discouraging an investor from reading it, and will thus hamper starting your own business.
  • Financials: your business plan should include a least one year of financial projections showing how your company will stay afloat, and hopefully become profitable. At the very minimum this should include a profit and loss statement and a cash flow table. If you're seeking funding you should also detail the start-up capital required for starting your own business.

As far as the business plan itself goes, it should include the following sections:

  • An executive summary: perhaps the most critical part of your business plan, this should be a one-page summary of the entire document.
  • A description of your company's services or products.
  • Market research: this data should show an investor that you're aware of market trends, and should support your financial projections.
  • Competitive comparison: make sure you know how you stack up against other businesses similar to yours with a brief comparison stating how you'll do things differently.
  • Financial projections.

Incorporating your company.

Incorporating your business has many advantages including the protection of personal assets, as well as tax breaks and deductions. It's something to consider as you're starting your own business. As a start-up, you have multiple options when selecting what type of business you would like to form:

  • Sole proprietorship: this is a business owned by one person.
  • LLPs or GP: these are limited partnerships, meaning that partners have unlimited liability of any debts incurred.
  • Corporation: these are for-profit, limited liability companies. When starting your own business, you have the option of choosing between a C-corporation or a S-corporation, which differ in the way that taxes are levied on each.

As previously noted, incorporating your business—as opposed to entering in a general partnership or starting a sole proprietorship—offers numerous benefits if you're starting your own business. These include:

  • The protection of personal assets: if your business goes under, you may still protect your personal assets from creditors. This is not true of sole proprietorship or a general partnership.
  • Transferable ownership: you may easily hand over ownership of your company to another individual.
  • Tax breaks and deductions: businesses are taxed at rates far lower than individuals, something you should be aware if you're starting your own business.
  • Long-term viability: corporations may carry on regardless of the death of the CEO, shareholders , or other key members of the company.
  • Improved credit rating: the credit rating of a company is independent from of that of its owners, again, something you should know if you're starting your own business.

Bylaws.

When you're starting your own business, it's always important to plan for the worst case scenario. That's one reason why establishing corporate bylaws are important when starting your own business. Corporate bylaws dictate the internal structure of a business. They are incredibly different from company to company, but generally they encompass the following:

  • How the partnership between two or more founding members is structured, and what their respective roles are.
  • The rights and powers of founding members, as well as any shareholders or directors.
  • How directors or board members are elected.
  • Compensation for corporate officers.
  • Who is responsible for what.
  • Inspection of the corporate records book.
  • How meetings with corporate shareholders (or board members)

When creating your company's bylaws as you're starting your own business, it pays to be prudent and plan well. Draw them up as if the worst could happen—for instance, as if you and your business partner could have an eventual falling out. Remember, making promises with a business partner about the future of a company and each of your respective roles is meaningless in the eyes of the law. And beyond that, there are a myriad of variables that could compromise what was once said, particularly when you're in the beginning phases of starting your own business.

Creating bylaws for your business is simple. There are a variety of computer programs, as well as books that guide you through the process as you're starting your own business.

Raising capital vs. bootstrapping.

When you're starting your own business, you have two options in terms of securing the cash you need to launch: raising start up-capital or bootstrapping. If you decide to go the route of seeking start-up capital, you must determine what sort of funding you need. There are several sources for start-up investment to consider as you're starting your own business, which include:

  • Your local bank: banks offer business loans, many of which are guaranteed by the Small Business Administration, a government organization. They will guarantee loans up to $2 million dollars, however, like every other loan, it must be paid back.
  • Angel investment: angel investors are individuals who invest their own funds in a start-up. In many cases, angels are former entrepreneurs themselves. While you don't technically have to pay an angel investor back, they oftentimes will take a sizeable percentage of the company ownership and expect a return on their investment. Many times angels actually play some role in the businesses operations, particularly if you're starting your own business for the first time.
  • Venture capital: venture capital is the crème-de-la-crème of start-up funding. Oftentimes the sky's the limit in terms of how much a VC is willing to invest in a company, but be forewarned: they expect a serious return on their investment and likely will demand some control of the business. Determining whether you actually need VC is something to consider as you're starting your own business.

Your other alternative for sourcing working capital as you're starting your own business is to bootstrap it. That means gathering the funds you need by dipping into your own personal assets, or by seeking them from friends and family.

Metrics you should monitor.

Once your business is up and running, there are a variety of metrics that you should monitor to make sure things are running as you'd like them to. Metrics—or measurements—are fundamental to starting your own business, whether you're operating a coffee shop, retail store, or website. There are a huge range of metrics that you can use to measure how well things are going while starting your own business, and many are often times specific to what kind of business you're operating. Here are a few examples of measurements you can use as you're starting your own business:

  • Rates of customer attrition.
  • Conversion ratios.
  • Traffic to a web site or storefront.

The most important thing you can do as you're starting your own business is to pay attention to details. That means no matter how minor it may seem, you should establish ways to measure how well something is functioning, and what the cost is to you. If you have employees, tirelessly examine what a labor unit is worth to make sure that you're not spending too much on payroll. Constantly seek out ways to lower your per unit labor, as well as your cost of goods and all other operating expenses. Establish a "per buyer" economic, which means determining how much you're making off of each customer, and figuring out ways to boost that dollar amount. This is a work in progress, but is something you should figure out as you're starting your own business. Not only that, but as your business grows you will have to continue refining your metrics.

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