How To Start A Business From Scratch

How To Start A Business From Scratch: The Ultimate 10 Step Guide

Elena Hudgens
By Elena Hudgens 27 Min Read

Starting a business is not always easy; it can be challenging to get the funds, find the right people, and make it through the day-to-day. If you’ve been aspiring to start your own company, here are some ways how to start a business from scratch.

You don’t need an MBA degree or large sums of money, but you need an idea to fill an unmet need in the marketplace. Then you can use these tips on starting a business from scratch to form your plan for success.

1. Analyze The Market

To know how to start a business from scratch, you’ll need to start with the basics. 

Research your idea and find out what you need to know about your target market. Consider what will make your company stand out and be different from the others.

To think about the future, you need to imagine what it will look like in 5 or 10 years. One example is thinking of new markets and niches that may come up due to technological innovations.

  • Strengths – refer to what a company excels at and what separates it from its competitors: a strong brand, loyal customers, strong finances, and unique technology.
  • Weaknesses – stop a company from performing at its optimum level- these are areas the business needs to improve in order to remain competitive. A weak brand, higher than average turnover, high levels of debt, or lack of capital would be some examples.
  • Opportunities are favorable external factors that could give an organization a competitive advantage. For example, if a country cuts tariffs, then the car manufacturer can export its cars into the new market increasing sales and market share.
  • Threats are factors that have the potential to harm an organization. For instance, a drought may destroy or reduce a wheat-producing company’s crop yield, making it so their revenue would be greatly reduced.

Next, you’ll need to establish a solid plan for your business. It can be as simple as pen and paper, or as detailed as a full-fledged business plan. 

Your business plan needs to include some key features and have a simple and clear structure. Always aim to create a business plan that anyone can pick up and understand your company, its objectives, and how you’re planning on getting there; this means breaking it up into clear sections.  

2. Create A Business Plan

Your business plan should include an executive summary, the company’s product or service description(s), marketing strategy, financial forecast (projections), and management team credentials. You can also include information about how you plan to run the day-to-day operations of your business and who will help you with those tasks.

  • Executive summary – An executive summary is an important piece of a plan which summarizes the entire thing on one page. It should include all vital information about your business and it usually does not exceed more than one page. In short, this section provides an overview of everything that is contained in other sections of the plan
  • Company description – Make sure to include basic information such as when the company was founded, type of entity – limited liability company (LLC), sole proprietorship, partnership, C corporation or S corporation – and the state in which it is registered. Give a summary of your history and provide readers with a solid understanding of its foundation.
  • Products and services – The goal of this section is to prove that our business fills a bona fide market need and will remain viable for the foreseeable future.
  • Market analysis – To be successful in the business world, a company needs to know its target audience. They should also know where these customers are and how they will reach them. Lastly, companies need to provide an extensive analysis of their ideal customer and how their service provides the solution for them!
  • Management team – This section should provide a complete understanding of who is investing in the business and what they are interested in. This includes listing key members of management, founders/owners, board members, and advisors.
  • Financial plan – When you’re creating a financial plan, you should include an overview of your finances. This includes cash flow statements, and profit and loss projections over the next three to five years. You can also include historical data from the past few years as well as your forecasted sales and saved balance sheet

3. Register your business

When thinking about how to start a business from scratch, there are a lot of reasons to choose one type of business structure over another. 

The business formation process can be handled by professional services or piece-by-piece as you go along. If you work with a company that offers this kind of service, it will also take care of many of the tasks in the following steps.

Unless you plan to work as a sole proprietor with different rules and maybe manage the same way as freelance work, choose an LLC or limited liability corporation. You can learn more about choosing the right form on Small Business Administration’s website.

Choosing the right business structure – LLC vs S Corp 

A limited liability company often referred to as an LLC, is a business entity that’s ideal for business owners who are looking for more protection from personal liability.

This type of company has the least complicated and restrictive requirements in terms of establishing and running it- you can act as your own registered agent to complete the operating agreement! It also guarantees no double taxation.

Internal Revenue Service is responsible for the taxation of corporations. If you are launching a corporation, it will need to be done as a C-Corp first before following more specific guidelines in order to become eligible for partnership taxation as an S-Corporation.

The benefit of this particular business structure – limited liability protection – does not come without its drawbacks: any corporation with 100 shareholders or less can be taxed like partnerships.

Applying for an EIN

The IRS provides a free registration service for all applicants and can be completed online. To do this, you will need to provide your employer identification number (EIN), which is nine digits in length. This helps identify your business for tax purposes.

Opening a business bank account

Separate bank accounts are highly recommended for personal use and your business. It may be required by the state in some cases. In America, you usually need a business account when forming a company, depending on what type of company it is.

As a business owner, one of the most essential parts of building your sustainable company is keeping track of separate bank accounts.

This information helps document your financial health and aid in future decisions in the best interest of your company. Having separate bank accounts also allows you to decrease the taxes you would have to pay on income.

Get licensed 

One thing that people ignore while thinking about how to start a business from scratch is the legalities. 

You’ll want to ensure that you have all the right paperwork before starting a new business. Make sure you file all of the necessary paperwork with government agencies like the IRS and state Department of Revenue for taxes, register trademarks, complete background checks, and set up appropriate insurance policies for your business.

You will need a Taxpayer Identification Number (TIN) from the Internal Revenue Service (IRS) if you are a small-business owner. It can either be obtained from the Social Security Administration or through IRS.gov, and it’s required if your business is located in the USA or its territories and has employees who they will also use to file their taxes with an Employer Identification Number (EIN). 

You cannot obtain an EIN without first having a TIN yourself, which you can apply for online as long as your business is located in the USA or its territories and has no employees.

Your business licensing requirements may differ based on the city, state, or county you are doing business and the kind of small company you plan to start. For example, only sole proprietors need to acquire a license (though certain companies and services have individual licensing necessities). 

This is just one of many kinds of services a good business-formation company can provide for you or even handle on behalf of your enterprise.

4. Get funding 

Source : gofundme

A daunting part of how to start a business from scratch is getting financed. 

Some of the world’s most successful businesses have been self-funded. The upside is that you can avoid involving any outside parties in your business affairs; however, depending on what type of business you are starting up, it may need more capital than you possess or run out very quickly. 

Many entrepreneurs get the funding from friends and relatives in the form of an investment or loan because they often don’t have to repay these funds if things turn out negatively for them (there are “good” terms involved). 

Equally beneficial and free is awarding money (grants) for qualifying businesses through government agencies like SBA’s Small Business Innovation Research Program (SBIR), which provides grants ranging up to $150k per year– plus milestone payments.

Crowdfunding is a newer way to invest, and it allows you to raise small amounts of money from many people. You can make these arrangements happen by selling equity or offering rewards in presale crowdfunding campaigns. Try various crowdfunding platforms like Kickstarter, Indiegogo, and GoFundMe. 

A simple business loan means borrowing an amount of money for your company- whether that’s with interest or without-from either the bank or person (lender) – if this financial arrangement has been outlined ahead of time.

5. Create a financial plan 

You may not have much money to start, so you need to know how to start a business from scratch efficiently. Your first step is to make a budget for your company. This will help you decide the amount of money you will need for your startup costs and determine how much money you will need to make to break even. To do this, use the following formula:

Costs = Fixed Costs + Variable Costs

Fixed Costs – These are expenses that don’t change no matter what happens with the business. Examples include rent, utilities, and other fixed expenses like insurance.

Variable Costs – These are expenses that depend on the size of the business or its number of customers. Examples include the cost of goods sold (COGS), payroll, advertising, and other expenses that vary with time or activity level.

Keep track of all these costs to know where your money is going overtime. You can find out if it’s worth continuing or if it is time to close up shop.

Review your financial strategic plan 

Financial planning should start with a strategic plan for the company when considering how to start a business from scratch. When forming your new year’s resolutions, think about what you want to accomplish at the beginning of this new year and think through a series of questions:

  • Is there anything I need to expand?
  • Do I need more equipment? 
  • Do I need to hire more staff? 
  • What resources do I need that is different from what we already have right now? 

Then determine how your actions affect cash flow in any way – if so, how much will it be affected by this action within 12 months, including spending on major projects.

Create financial projections

Create monthly financial projections by recording anticipated income based on sales forecasts and anticipated expenses for labor, supplies, overhead, etc.

For this job, you can use simple spreadsheet software or tools available within your accounting software. Enter sales as revenues when they are received rather than waiting until cash is collected; it’s not always a given that conversions will happen right away and there are various cases to take into account here (most likely scenario, optimistic scenario).

It may be wise to seek advice from an accountant when developing these projections-they’ll help with understanding how their different scenarios might impact you financially.

Arrange financing

Use your financial projections to determine how much financing you need. Approach any potential bankers ahead of time to discuss what options are available for you. Well-prepared pros will help reassure them that you have a solid approach to finances.

Planning for contingencies

You don’t want to find yourself in a position where you’re suddenly without any finances. It’s always a good idea to have emergency sources of money before you need them, so try maintaining some cash or keeping room on your line of credit.

Monitor your financial activity 

As the year passes, you can compare your projections with actual results to see if you are on target or need to adjust. Monitoring helps make sure financial problems don’t get out of hand before you notice them.

6. Establish Your Brand

Once you have your idea, you’ll need to establish your brand. This needs to be done right to build trust with consumers and elicit people to buy what you are selling. This will be the foundation for all of your marketing efforts.

  • Build your place in the market – Before you begin to make any decisions about your brand, it’s important to understand the current market: who your potential customers and competitors are. To do this, there are many different ways-just a few of which include checking subreddits related to your customer base, talking with people in that target demographic, and getting a feel for how they browse products on various online stores or in shops offline.
  • Brand’s personality – Determine your brand’s unique value proposition and make it a part of your brand’s messaging. Decide some metaphors to personify the individual qualities your brand should have 
  • Brand name – Your company name should be memorable and easy for people to remember. It would be best if you worked with a marketing or advertising expert to make sure the font on all of your materials matches the font of your logo. 
  • Colours and fonts – Choose colors that represent your brand well; pick fonts that reflect your type of company, choose graphic images that portray the same message, and use taglines or slogans to show people what separates you from others businesses in the same niche.
  • Logo – Create a logo that is memorable and represents your company. Next, use color schemes that reflect your brand message when choosing colors for your website, brochures, or other marketing materials to stay in line with your branding strategy.
  • Slogan – Catchy slogans are nice-to-haves – short and descriptive phrases you can use in your Twitter bio, website headline, business card, or anywhere else where you’ve got limited space to make an impact.

Before people know anything about what you do or who you are, they will already have a perception of your brand. It’s important to realize that nobody has complete control over how their customers perceive them. You can tug them in the right direction and make an excellent first impression but once again, they cannot control individual perceptions which exist within each person’s mind (say if it was following a bad customer service experience).

7. Find a place to work

Source : WeWork

The next thing you should do is search for a place to work. This may mean renting out space in an office building for some entrepreneurs. Whether that’s an office suite or co-working space, this is where you will spend most of your time. These are some things you must consider while choosing your workspace – 

  • Style of operation – Depending upon the qualities of your business, the work must be modified. A traditional retail store would have a different space from a kiosk and so on. 
  • Demographics – Determine if the proximity of your business is important for your customer. Also, analyze the community and if your target customer is present in enough percentage in the population of the location. 
  • Foot traffic – Some businesses like retail stores should have greater foot traffic around the location to attract customers, other businesses require discretion. Monitor the foot traffic in a location and choose it accordingly. 
  • Accessibility – Your business should be accessible to the customers it is targeting. There should also be an adequate amount of parking available for your consumers. 
  • Competition – The location of your competitors also matters. For businesses in which comparison shopping plays a part, try locating near to your competitors. 
  • History of the location – Research the previous tenants of the location. Sometimes, consumers can attach the failure of the previous business to the location in their minds and that could raise an issue for you. 
  • Ordinances – You want to make sure you don’t open your business where it will conflict with any ordinances or restrictions. Look for the specific location you are considering as well as neighboring properties -you probably don’t want a liquor store opening up next to your day-care center.
  • Other costs – The major cost of your ongoing facilities expense is rent. However, utilities such as electricity, water, and heating are not always included in leases so you should therefore ask the utility company for a summary of the previous year’s consumption and billing.

If you don’t want to go do that, check out co-working spaces like WeWork. These spaces are great because they offer entrepreneurs the opportunity to share resources and ideas with other like-minded professionals.

8. Hiring and Managing Employees

The entrepreneur is the perpetual optimist. They believe that the world needs their product or service, and they’ll do anything to get it out there. With a can-do attitude, entrepreneurs often have too much to do, not enough time in the day, and don’t know where to start when it comes to hiring employees.

When you want to know how to start a business from scratch, one of the first tasks you undertake is hiring your employees. But this may not be easy for some people who are still on the fence about whether or not they want to carry forward with their idea.

Some platforms where you can post job applications are – 

If you hire an employee before you’ve created a business plan, it may seem like you’re committing to something before anything is certain. This could lead to some issues if things don’t work out.

But if you have someone working on your company with you from the very beginning, you can delegate tasks better and avoid getting overwhelmed by details later on. You also need someone to keep up with your deadlines and keep your ideas on track as more people are added to your team. 

9. Making Marketing Decisions

If you’re like most entrepreneurs and wondering how to start a business from scratch, you’ll need to decide whether you want to do the marketing work yourself or outsource it. If you want to invest in your own business and do the marketing for it, then there are many ways that you can go about it. 

Know your target audience 

One way to start building a buyer’s profile is by knowing their age, gender, location, income level, and education level. If you want to be more specific about your buyers’ journey or pain points for example you could also research them.

Communicate your USP

Even when your competition has more resources, you can always depend on your unique selling proposition to convert onlookers into paying customers. Your USP consists of products, services and benefits that only your company can offer.

Research your competitor’s actions

Your goal is to differentiate your brand from other brands and be original. Study how other brands built their identities and see if you can improve on their methods or techniques.

Spread the word

One of the most popular methods is using social media like Facebook and Instagram to reach potential customers.

Digital marketing plays a central role in how you get the word out about your business. Social media marketing managers are essential to any successful company because of their agility and ability to keep up with new technologies that change social media drastically. 

Collaborate with influencers

Micro-influencers are often more credible than major influencers because of the quality of content they publish. 61% of customers will buy a product or service recommended by a micro-influencer.

Marketing is vital to the success of any business, especially small businesses like retail wine stores or new clothing lines started by people with experience in fashion design.

Conclusion

Starting your own business needs a lot of work, but the rewards are worth it. You get to make your hours, set your rules, and make decisions. But it’s not an easy path. If you wish to be successful, you have to establish your brand, work hard, and be willing to take risks.

As long as you’re willing to put in the hard work, there’s no reason that you can’t start your own successful business.

Starting a business from scratch can be rewarding, but what about having one that does well? What is even more satisfying than seeing your company take off and succeed with you achieving the income for yourself, your employees, and their families.

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Posted by Elena Hudgens
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Elena Hudgens is an entrepreneur with 10+ years of experience. She started her journey by building her own e-commerce website on Shopify and turned her $1000 savings to millions in just 2 years. Soon she started different ventures in which she failed and succeeded. And now, she's on a mission to help other entrepreneurs with her life and business lessons.
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