The beauty of becoming an entrepreneur is that no matter what your interests are, there’s probably a way you can turn that passion into a business. And chasing your entrepreneurial dreams can be a truly rewarding experience.
But ideas are one thing—executing that idea and making it a reality is something else entirely. If you’re ready to ditch the standard 9-5 and finally become your own boss, there are certain steps you need to take to put yourself in a position for success.
Make it legal
Sure, this isn’t exciting as pitching to venture capitalists or reeling in a big client, but getting the legal stuff out of the way will protect your big idea and help you avoid any unpleasant surprises in the form of a lawsuit.
Unsure what type of business you should be? The choice depends on your company, industry, partners, long-term goals, and more. As the Small Business Administration notes, there are numerous types of business structures. The five most common models include limited liability company (LLC), S corporation, sole proprietorship, C corporation and a partnership. Deciding which one is right for you requires research and a firm understanding of each corporation type’s pros and cons.
Once you’ve decided what model is right for you, it’s time to choose a name. You can usually check on your secretary of state’s website to see if the name has been taken. Then, register your business with your secretary of state.
Following registration, apply for an employer identification number (EIN) through the IRS. This is a unique 9-digit number used for tax administration.
Additionally, check to see if you need any special licenses or permits. What you’re required to obtain varies not only by industry, but also across states, counties, and cities. The SBA has a great guide to starting your search for licensing and permit requirements.
Open a business bank account
Having a business bank account looks professional and allows you to separate personal and business finances—something many new companies fail to do. A company bank account will also optimize the budgeting process, simplify tracking of expenses, and make tax filing easier.
Choosing a business bank account isn’t a difficult process, but the number of choices out there may make your head spin. Here are some things to consider:
- Is there a monthly maintenance fee? If so, can you avoid it by meeting a balance requirement?
- What’s the minimum amount to open an account? Is there a minimum balance? Consider your cash flow and reserve needs.
- Are there fees for ACH payments, wire transfers, bank transfers, etc.? If so, calculate how much money you’ll pay in fees per month.
- Is there a cap on deposits each month? If you work primarily in cash, you may exceed the limit of deposits and end up with extra fees.
The goal should be to find a balance. You want a bank account that’s easily accessible, offers competitive fees (if any) and doesn’t have strict balance requirements,
Get proper funding
Studies show that insufficient cash flow is the main reason businesses fail. When you’re just getting started, it’s absolutely crucial that you have enough money on hand to run operations properly.
Funding can come from a lot of sources and you’ll probably end up using a variety of ways to get capital to launch. Choose the funding options that make the most financial sense and can get you enough cash. Some ways to find valuable funding for your business are:
Use personal savings and credit cards. If you have a home, a home equity line of credit is worth considering. You could even get a personal loan for business, which actually comes with competitive interest rates and therefore can make sense for new companies.
Advice: Be very careful and responsible about how much you take on personally.
2. Friends and family
Friends and family are one of the most common sources of funding for startups. Before you get help, clearly define whether the money is a loan or equity in the business. Make it official by signing a contract and laying out terms for repayment or distribution.
Advice: Don’t just choose anyone. Be wise about who you ask and try to choose those with business skills or knowledge of the industry.
3. Business line of credit
A line of credit works like a credit card, giving you access to revolving capital (i.e. the limit replenishes as you repay the money). You can use the money any way you see fit for your business and you only pay interest on the funds you actually use.
Advice: Though interest rates are typically lower than credit cards, make regular payments and be sure to keep the balance as low as possible. You don’t want to fall into a debt trap.
4. Business credit cards
The good thing about business credit cards is that there are products for nearly everyone, including those with poor credit. Perks and rewards like cash back, miles, points and more enable you to optimize spending. Some cards also come with sign-on bonuses that give you savings in the thousands of dollars.
Advice: Different business credit cards offer different perks. Consider which benefits your company needs before applying.
5. Equipment financing
Chances are you need some form of equipment to run your business, whether that’s an oven for a pizzeria, computers for a web design firm, or lawn mowers for a landscaping company. Equipment financing allows you to purchase that equipment outright and pay it back over time, typically at interest rates competitive to term loans.
Advice: Compare an equipment loan with a lease. If you feel the equipment will be near obsolete by the time you finish paying it off, a lease is sometimes the more affordable option.
Going forward after the initial steps
After you’ve accomplished these initial steps, it’s finally time to find clients and bring in revenue. Now that you’ve gotten the nitty gritty out of the way, you can focus on refining your marketing plan, targeting the right customers and growing in your new dream career.