Everything You Need To Know To Start A Small Business: Part 1

Hello, readers! Welcome back to the Hoods Tax & Accounting blog! If this is your first time here, welcome! We’re delighted to be able to share up-to-date information about taxes, bookkeeping, and accounting. Our blog is also dedicated to educating you about tax-advantaged savings accounts, tax provisions, programs, and more! We aim to provide you with the tools needed to meet your short and long-term goals. Our seasoned professionals are experts on the tax code, eligible deductions, and QuickBooks—all necessary fundamentals for saving you money! The Hoods Family has been around since 1988 and our comprehensive accounting and tax planning services are among the best in the Lowcountry. If you’re in need of tax preparation, accounting, QuickBooks training, or business consulting services, do not hesitate to schedule an initial consultation! We are officially in tax season, and Tax Day is fast approaching. We recommend preparing early to maximize your savings and refund. We do offer contactless services using a combination of over-the-phone consultations and digital drop-offs, for safety and convenience. You can read more about our hours and submit a request for a meeting using our website!

Although tax season is over, we are still available to help with any questions or concerns you may have. Before we get into today’s topic, we would like to make you aware that we are offering tax planning appointments to assist with questions about withholding, small business tax, retirement and investment accounts, sale or purchase of rental properties, or other estates, and more! Reach out to us to set up an appointment with one of our knowledgeable tax professionals. 

In our last blog, we discussed tax information you need to know when starting a side hustle. There is a common misconception that side hustles, such as freelancing or making and selling goods and services from your home, are not taxable income. However, this is not the case. Any earnings from a side hustle are taxable, and there are steps you can take to make sure your taxes go as smoothly as possible. If you are interested in learning more, we encourage you to check out our last post. Additionally, if you are interested in learning how to start a side hustle, check out one of our other posts.

Today, we’ll get started talking about everything you need to know in order to start a small business. If you are thinking about pursuing a small business venture, congratulations! Starting a business of any kind is a great way to utilize your talents and creativity, make money, and be involved in your community. However, as nice as it would be to wake up, open a store, and simply start selling things, there are steps you need to take before that can happen. If you are interested in learning more about what you need to know before starting a small business, you’re in the right place. Let’s get started.

Conduct Market Research

First and foremost, you’re going to need to do some research. If you’re thinking about starting a small business, you likely have an idea for a business in mind. This may be a hobby or interest of yours, or something you earned a degree in. Whatever your idea is, market research will help you determine if there is an opportunity to turn your idea into a successful and profitable business. Market research helps you get an overview of how much of a demand there is for your product or service, as well as what competition is out there. Conducting market research should help you answer the following questions:

• Is there a demand or desire for your product or service?
  
• How big is this demand? How many people are interested in your product or service?
  
• How many similar products are already available? Which companies are your competitors?
  
• Where do your customers live and how can you reach them?
  
• What would a potential customer pay for your product or service? 
  

Gathering information about the demographic of your potential customers is key. A demographic is defined as a particular sector or group of a population. This could include age, gender, interests, wealth, or anything else that is relevant to your business. Finding out this information will help you better understand how your business will work and how to reach your target audience. Besides gathering information about who your customers are, you’re also going to want to take a good look at your competition. If there are businesses selling similar products or services, how much are they charging? Are they selling their products online or face to face? Answering these questions will help you take note of improvements or changes you may need to make to your business ideas.

Create A Business Plan

A business plan is the foundation of any business, big or small. It clearly outlines and explains your goals and how you plan to achieve them. There are two common categories for business plans: traditional and lean. A traditional business plan uses a standard structure, using comprehensive details. It includes a summary of what your business is, as well as a mission statement. It will go into detail about the products or services you offer. You should also include a detailed description of who your business plans to serve, what your business’s strengths are, and what will make your business a success. A traditional business plan also includes information like how your business will be structured, your marketing strategy, and financial projections. A lean business plan summarizes only the most important points of your plan and is often less time-consuming. This type of plan may work better for you if your business is relatively simple. It lists out key partnerships, such as suppliers or manufacturers. A lean business plan also includes what value your business will bring to the market, how customers will interact with your business, and how your business will make money. No matter which type of business plan you choose, you should include these key points: A description of your product or service and its value, how you plan to market it, how much money you expect you’ll need to startup, how much revenue you expect to bring in, and who your target audience is. 

Fund Your Business

Once you have created a business plan, it is time to fund your business. Your business plan should outline how you plan to do this. Start-up costs often prevent people from pursuing their dreams, but that doesn’t have to be the case. Funding your business is one of the most important financial choices that you will make. Remember that there is no one-size-fits-all approach to funding. Every business has different needs. Generally, there are three main types of funding: Self-funding, investors, and loans. 

Self-funding is sometimes referred to as “bootstrapping”. It allows you to utilize your own financial resources to support your business and lets you stay in complete control of your business. This can come in the form of using your savings accounts or turning to family and friends. Although this type of funding allows you to keep control of your business, it also has the biggest personal risk– Don’t spend more than you can afford.

The use of investors involves finding individual investors (sometimes called “angel investors”) or venture capital firms. Do your research to make sure the investor is reputable and has experience. Generally, you will share your business plan with a potential investor and they will see if it fits their criteria. Sometimes, investors prefer an extensively detailed business plan. They will look at your business’s management team, market, products and services, and financial statements. If they decide they want to invest, you will agree on terms and conditions. Many times, investors expect some stake in the company, or membership on your board of directors. Once you agree on terms, you can get the investment.

A small business loan can also be a great option if you don’t have enough funds to start your business. To increase your chances of receiving a small business loan, you should have a comprehensive business plan, expense sheet, and financial projections. This will help give you an idea of how much money you’ll need to ask for and will help the bank determine whether or not it is in their best interest to give you the loan. You can contact banks or credit unions to request a loan, and compare offers before making a decision. 

Another option you can utilize is crowdfunding. Crowdfunding raises money for a business from a large number of people, similar to donations. Crowdfunders are not typically investors, so they don’t receive a share of ownership in the business. Instead, crowdfunders often expect a gift or “perk”, such as receiving the product you plan to sell, a discount, their names in the credits of something, or a meeting with you– The business owner. Crowdfunding is generally very low risk because you get to keep control of your business and if your plan fails, you are typically under no obligation to repay the crowdfunders.

These are just a few of the first steps you’ll need to take in order to start a small business. There are other things you will need to do, such as choosing a business location and business structure, registering your business, and more. So stick around for part two! We hope you found this article helpful, and if you feel ready to begin the journey of starting a small business, we encourage you to reach out to us for business consulting! Here at Hoods Tax & Accounting, our tax professionals are always eager to give our clients as much help as possible when it comes to their finances. If you have any questions regarding your taxes, or if you need help with tax planning, contact us! Hoods Tax & Accounting offers a variety of services including small business consulting, QuickBooks training, tax preparation, accounting, payroll, and more! Visit our website for more information, as well as helpful links to resources you may find useful. Thank you for reading and we hope to see you back next time to keep learning about various tax and accounting topics!