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Small business loans: How to apply, pros, cons, and resources to guide you

By Eric Carter September 20, 2019 Reference: https://quickbooks.intuit.com/r/loans/small-business-loans/

If your existing or newly founded small business needs working capital, but securing investors, a personal loan, or a small business grant isn’t an option… a loan might be your best route.

Business financing can be a long and confusing process.

But rest assured, with the following roadmap, you can easily manage the process and find the loan terms—whether long-term or short-term loans—as well as the monthly payments that best suit you.

Here are the four steps we’ll follow together…

  1. Know the types of small business loans
  2. Learn how to get a small business loan
  3. See if you qualify for different loans
  4. Apply for the best loan for your needs

Types of small business loans

  • SBA loans
  • Traditional business loans
  • Business lines of credit
  • Invoice factoring
  • Specialty loans
  • Loan alternatives

Small Business Administration loans

SBA loans are funded through small business lenders but guaranteed by the US Federal government. Because the Federal government backs the loan on behalf of your business, your small business is more likely to get approval than if you went directly to lenders. SBA term loans range from $500 to $5.5 million.

Who can apply?

For-profit businesses that operate in the US or US territories, with existing equity investment, with no additional lenders providing financing, that meet certain size standards are eligible to apply for SBA loans.

Pros

SBA loans are flexible from an amount and term perspective. Both short-term and long-term options are available, and SBA loans typically have some of the lowest interest rates available.

Cons

The application process is long and burdensome. Business owners may be required to disclose personal credit information and approval can take months. SBA loans are some of the most prized loans; therefore, they are often limited to those with a strong credit history, financial record, and adequate collateral to back the loan.

Traditional business loans

You apply for traditional business loans directly to the banks and financial institutions that loan funds. Loan amounts range depending on the lender requirements, lender size, and your business’ industry, size, and history.

Who can apply?

No one-size-fits-all answer exists for this question. You can spend days researching business and small business loans and find seemingly endless options. To explore options in the traditional business loan space, conduct your search with your company size, balance sheet, history, and personal risk in mind.

Pros

Flexibility is the key benefit to traditional business loans. You can apply for loans that fund general business purposes, or loans specific to capital investment (e.g. equipment, inventory, additional employees). The sizes of loans available also vary. But keep in mind, the larger the loan your request, the more information you will need to provide.

Cons

If you don’t have good business credit, a solid business history, or don’t want to personally back your business loans, you may have trouble gaining approval for traditional business loans.

Business lines of credit

A business line of credit is similar to a loan in that you apply for access to a specific amount of money. Once approved, you have access to the funds. Unlike a loan, a business line of credit allows you to withdraw only the amount of cash you need, and you only pay interest on that amount of money.

Who can apply?

The approval process is similar to a traditional bank loan; however, the process is more detailed and restricts your business from certain activities. For example, if you provide a certain type of collateral to secure the line of credit, the lending bank may disallow you from offering that asset as collateral for another line of credit or loan. Often, credit unions offer best-fit financing options.

Pros

Lines of credit are a great way to ensure access to cash is available in the event that your business needs it. At the same time, you don’t pay interest unless you use the cash available.

Cons

In exchange for the credit line approval, you will likely restrict your ability to secure debt financing from other sources. As mentioned, the credit line agreement your business will execute to secure the credit line may prevent you from offering your business collateral to other creditors, including suppliers and financial institutions.

Invoice factoring

Invoice factoring — or, invoice financing — is a business practice where your business sells your accounts receivable to a third-party company (the factoring company). The factoring company immediately pays your business a large percentage of the invoice amount (often 80% – 90%).

Your customer pays the invoice amount to the factoring company according to the payment terms of the invoice (30 days, 45 days, 60 days, etc.). Once your customer pays the factoring company the invoice amount, the factoring company pays your business the remainder of the invoice, less a fee to the factoring company.

Who can apply?

Factoring is generally available to any company that issues consistent invoices to customers on payment terms. If you have a sizeable customer base that pays your business consistently through invoices, your business may be an invoice factoring candidate.

Pros

Your business gains immediate access to cash due on each invoice. Instead of waiting the 30, 45, or 60 days for cash due on an invoice, your business gets the majority of that receivable immediately. This immediate payment from the factoring company increases your cash flow.

Cons

You never receive 100% of your accounts receivable. Even if the factoring company is able to collect 100% on the invoiced amount, you will pay a fee to the factoring company.

Specialty loans

Specific small business loan programs support certain people groups or causes. For example, the SBA’s Office of Women’s Business Ownership and Women’s Business Centers help female business owners find loans. The USDA helps small business owners in rural areas secure loans.

Who can apply?

Specialty loans are available to business owners with certain characteristics or businesses that participate in a specific category of work. To see if you qualify for specialty loans, search for loans based on your unique criteria (e.g. age, gender, ethnicity, disability) or industry (e.g. non-profit, agriculture, medical, research).

Pros

The average small business will not be eligible for a specialty loan. Specialty loans exist to bolster underserved demographics or causes. If you qualify for a specialty loan, you will face less competition in the approval process.

Cons

Specialty loans can require extra paperwork to prove your business meets the criteria, and the loan may restrict your ability to utilize funds. For example, if you receive a USDA backed loan, you may be able to buy farm equipment with equipment financing, but not buy new computer equipment.

Alternatives: Microloans, marketplaces, and credit cards

If you can’t qualify for a business loan or line of credit, you may consider loan alternatives: microloans, business loan marketplaces, or credit cards.

Microloans are loans with significantly lower principals than standard loans. Depending on the lender or lender marketplace, microloans can range from fifty dollars to a few thousand dollars. Microloans are often funded through crowdsourcing platforms and don’t always require the rigorous approval process associated with traditional loans.

Think of loan marketplaces (often, online lenders) as dating sites for debtors and creditors. Individuals may not be able to fund an entire business loan, but if their money is pooled with other individuals, they may be able to collectively fund a loan.

These individuals together become a creditor in a loan marketplace.

On the other side of this transaction, a small business that cannot get loan approval from standard lenders may be able to secure a loan from a loan marketplace. A pool of individual lenders is more likely to approve a risky debtor because the risk is spread across the multiple creditor lenders that come together to fund a single loan. Business loan marketplaces are growing in popularity for both individual creditors and debtors.

Finally, don’t forget about credit cards. Strangely enough, your business might not get approval for a $10,000 small business loan, but it may get approved for a $10,000 credit card limit. Many credit card issuers have specific programs tailored to small businesses.

These three loan alternatives might be good options, or the only option, for businesses that cannot obtain a business loan. If you have trouble landing a business loan, consider your credit card options.

Pros

All three offer your business buying power when your business is unable to secure a traditional business loan.

Cons

Microloans, loan marketplaces, and credit cards all tend to carry higher interest rates than small business loans.

2. How to get a small business loan

  1. Determine how much money you need
  2. Decide if a loan is the right method
  3. Select the type of loan that fits best
  4. Review the lenders available
  5. Review each lender’s requirements
  6. Collect information and apply

How much money do you need?

It may seem obvious that you should determine how much money your business needs before you start looking for a loan. But, don’t skip this step for three reasons.

First, the bigger your loan, the more you will pay towards interest. Your loan is an interest-bearing debt that will weigh on your balance sheet. You want to pay off your loan as efficiently as possible. The more you pay towards to principal, the quicker that loan will disappear from your business liabilities.

Second, remember that lenders make money on your interest payments. Accordingly, lenders want you paying interest for as long as possible. If you know how much money you need before you talk to the lender, the less likely you will fall victim to a lender convincing you to take out more money than you need.

Finally, loans affect your credit score. Too much debt negatively impacts that score. The less debt you take on, the less likely the loan will bring your credit score down.

Is a loan the best way for your business to access capital?

Before jumping into debt, consider your other options. Would it be better for your business to take on an additional owner in exchange for equity capital?

Instead of taking on a loan to higher additional employees, is it possible to outsource the work to a freelancer and avoid the need for the loan?

Loans aren’t necessarily bad, and they are a normal capital raising strategy for businesses of all sizes. However, many businesses burden their balance sheets with so much debt that they can’t recover. Make sure a loan is the right fit for your business before committing to a debt financing strategy.

What type of loan is the best fit for your business?

As mentioned, there are plenty of loan options for your business: SBA loans, traditional small business loans, specialty loans, lines of credit, and loan alternatives. How do you determine which one is the right fit for your business? Go through a list which each loan to determine suitability for your business:

  • Qualifications
  • Restrictions
  • Interest rate
  • Loan terms
  • Impact to credit

First, take a look at the loan qualifications to see if your business qualifies. If you qualify, review any restrictions that might apply to the loan. If restrictions disallow you from applying the funds as your business needs, the loan is not a fit.

Next, look at the interest rate and the term to see if your business can afford the loan. Look for any early pay penalties that may apply in the event that you can pay off the loan before the end of the term. Remember, lenders make their money on interest!

Finally, consider the impact of the loan on your business credit score. Some debt can improve your credit rating, but too much debt will pull that number down.

Review the lenders available to your business

Once you land on a loan type for your business, find applicable lenders. Think of your business as a customer during this process. Shop around. Play one lender against another, and search for the best deal possible.

Because lenders make their money on interest, they may not offer you their best rate at introduction. Don’t be offended by this. Push back. Let the lenders know that you are shopping their rates and terms against competitors.

A word of caution as you shop lenders: If you give a lender permission to check your credit score, the check will show up on your credit history. You don’t want your credit score checked too often in a short amount of time.

Get as many details as possible from a potential lender before you give permission to check your credit score.

What are the lender’s requirements?

Once you have narrowed down the list of lenders, make sure you understand their requirements before applying. For example, most lenders require collateral to secure the loan.

Collateral is an asset that your business owns. Typical collateral acceptable to lenders includes inventory, equipment, accounts receivable, and other business assets that have a value which is easily calculated.

The collateral needs to be similar in value to the loan principal to adequately secure the loan.

In the legal documents your fill out to finalize the loan, you will offer your business collateral as the backup. If you don’t pay the loan, the lender has the right to seize your collateral, and then sell the collateral to repay the loan.

In the event that a lender is not satisfied with your business collateral, it may require that you find a co-signer with better collateral. In this case, you want to find a co-signer before the loan documents are ready for signing.

Asking for a co-signer to risk his or her collateral to secure your loan is a big decision, and it isn’t fair to spring this on a co-signer at the last minute. A co-signer needs to make an informed decision about co-signing just as the lender makes an informed decision about loaning you money.

Understand collateral minimums, and any other loan requirements, early in the process. Give yourself time to determine what risks you are willing to take to secure your loan.

What documents and information do you need available?

The documents required to secure a loan vary from lender to lender and based on your business history.

If your business carries enough cash to cover the entire loan, you likely won’t need much more than a balance sheet and some recent financials. However, the fact that you are considering a loan probably means you don’t have that much in the bank.

In this case, you will need a few years of business financials, a written business plan, your business credit history, personal financial information, contact information, references and possibly more.

Lenders to specific industries want proof of your specialty.

For example, if you run a law firm, construction business, accounting firm, medical practice, or real estate agency; the lender may require you to show your professional licenses indicating your authorization to practice your business.

If you are a researcher, or your loan furthers product development in an advanced field, the lender may want to see your educational history and copies of your degrees.

If you are building new property, developing land, or laying new infrastructure, the lender may want to see surveys, blueprints, scopes of work, or other documents related to the project.

The more business information you have available, the more prepared you will be. If specific licenses, qualifications, or permits tailored to your business exist, have associated documentation ready for review when you apply for a loan.

3. Qualifying for a business loan

  • Basic loan requirements
  • How to improve your business credit score
  • Tips for getting approved

Loan requirements

Some baseline requirements exist to secure a loan:

  • Credit history
  • Business history
  • Business plan
  • Collateral

Credit history is ideally your business credit history. However, if you are a startup, lenders may require your personal credit history. In this case, make sure that you understand what your personal responsibility is if the lenders ask to check your personal credit history. If you co-sign a business loan, you are personally responsible for the debt incurred by your business.

Your business history is a brief description of your business and its financial track record. Prepare at least five years of financials and bank statements if you have been in business this long.

Lenders look at your history to predict the future.

They want to answers to questions like:

Is your business growing? Is your business profitable? If your business isn’t profitable, is it on a trajectory of profitability? The more information you can provide, the better your chances of getting approved.

Lenders want to know how you will use the funds. Unlike your pitch to investors and customers, lenders aren’t concerned with your groundbreaking ideas.

Your pitch to lenders should specifically address how you will apply the funds and how your business will pay off the loan.

For example, they want to hear that you will hire software developers with the loan money, and the applications the developers build will start generating revenue within six months of hire. They don’t care about the software itself, only that the software will allow your company to pay interest when due for the life of the loan.

Finally, lenders need a clear understanding of your business collateral. If you don’t pay off your loan, the lender needs to know how it will recoup the money it loaned you.

Collateral in cash form or a form that is easily converted to cash is most attractive to lenders. Accounts receivable is cash due from customers, so it is ideal collateral for lenders. Equipment and inventory are easily valued and can be sold to third parties in the open market; so, they are typically good sources of collateral.

Because your equipment, inventory, and accounts receivable all change in value as you operate your business, most lenders will require multiple types of collateral to finalize a loan.

If you have no collateral, the lender might require someone with adequate collateral to co-sign or guarantee the loan. Lenders don’t dish out money without being secure. Make sure you understand collateral requirements.

How to improve your business credit score

Your business credit score serves similar purposes as your personal credit score. However, because your business conducts more transactions than you do personally, there is more data available to base the score off of.

Examples include transactions, daily balances, outstanding debts, and payment history.

First, to start improving a bad credit score, start by obtaining your current scope through an agency like Dun & Bradstreet, Equifax, and Experian. Free options include CreditSignal, Nav, Credit.net, and CreditSafe.com.

With your credit score known, you can start improving it.

Start by paying your bills on time. Your creditors can and will report bad payment history. Pay on time.

Second, improve your credit utilization ratio. Your credit utilization ratio is the amount of credit used compared to the credit available to you. Some suggest a 15% credit utilization ratio to improve your credit score while others suggest 30%. Consider this range as acceptable, but do what you can to lower the number. You can lower the number by:

  • Paying off balances
  • Increasing credit limits
  • Decreasing debt and credit card spending
  • Paying bills on a more frequent than required basis

Third, open credit accounts with suppliers when possible. The more suppliers you pay on a timely basis, the better your business credit score will become.

If your business ends up in collections, make sure you pay off the amount as soon as possible and ensure that the collection agency deletes the negative report from your credit report.

A good business credit score is key to getting loans that you need. Consider these steps to improve your score.

Tips for getting a small business loan approved

Preparation is the single best thing you can do to increase your chances of getting approved for a business loan. Start the entire process earlier than you think is necessary. Research loan types, loan terms, and loan requirements before you actually need the money.

The same goes for your credit history. Know your business credit score now, and start taking steps to improve it. When it comes time to apply for the loan, hopefully, you will have already improved upon your initial score.

Get your finances in order, and your business plan together. Talk to others who have gone through this process. Lenders are always changing what they expect and what they look for. The more information you have walking into the loan application process, the better your chances are.

Think about the business loan application process as you would a sales pitch to investors or customers. After all, it is a business transaction. The lender needs to believe you will pay the interest and the principal to make sure the deal makes sense from their perspective. Be prepared. And, as a final tip, be wary of merchant cash advances.

4. Applying for a business loan

Once you have narrowed down the loan type for your business and determined you are qualified, it’s time to apply. To apply for a small business loan, you need:

  • Reason for the loan
  • Credit history
  • Business plan
  • Annual revenue
  • Tax returns
  • Financial statements

If you have followed the steps in this article, it should be as simple as bringing everything together.

Not only should you have identified the reason for the loan, but you should also have ruled out other capital-raising options, and ensured that you aren’t asking for more money than you need. You should have a very specific number in mind for a plan for using the funds.

Not only should you know your current credit score, have your credit history in hand, and it should be improving as you progress towards applying for the loan. Your credit utilization ratio should be improving, and you should be paying your bills on time. Don’t forget to clean up any negative reports on your credit report with the credit agencies.

You should be on the third or fourth draft or your business plan. This draft should include updates from experts and others who have been through the business loan process. Ideally, you know someone in the lending space who can give some tips as well.

Finally, your documents should largely be prepared. If you are a startup, you won’t have that many business documents, so have your personal documents ready to go.

Applying for a business loan can be intimidating. But, with some intentional preparation, you can increase your chances of approval and get the money you need to take your business to the next level.

How to write a business plan (template): 10 steps, 5 tips, and examples to guide you

By Andrea Wahbe August 2, 2019 Reference: https://quickbooks.intuit.com/r/business-planning/business-plan-template/

Whether you’re a founder, a new owner, or just beginning to think about starting a business … demands come at you fast. Tasks, to-do lists, meetings, and more.

Amidst that rush, the idea of writing a business plan—much less following a business plan template—often feels time-consuming and intimidating.

Done right, however, the payoffs are enormous.

It’s more than the old cliche, “A failure to plan is a plan to fail.”

In fact, a wealth of data now exists on the difference a written business plan makes. Especially for small or growing companies. Bplans worked with the University of Oregon to compile and analyze research around the benefits of business planning. Here’s what they found:

 

For sources and links, see footnotes at the bottom of this article

Perhaps the strongest evidence comes from the Journal of Business Venturing’s “meta-analysis” of 46 separate studies on 11,046 organizations.

For anyone wanting to wade through all 15,126 words, spoiler alert:

“Our findings confirm that business planning increases the performance of both new and established small firms.”

In this post, we’ll cover everything you need to write a successful business plan and turn your idea into a reality. Even better—if you’re pressed for time—we’ve compiled the 10 steps and examples into a downloadable (PDF) template:

But, first things first …

What is a business plan?

A business plan is a comprehensive roadmap for your small business’ growth and development. It communicates who you are, what you plan to do, and how you plan to do it. It also helps you attract talent and investors.

But, bear in mind, a business idea is not a plan:

Templated business plans give investors a blueprint of what to expect from your company and tell them about you as an entrepreneur. The majority of venture capitalists (VCs) and all banking institutions will not invest in a startup or small business without a solid, written plan.

Investors want to know you have product-market fit, a solid team in place, and scalability—which is the ability to grow sales volume without proportional growth in headcount and fixed costs.

When do you need a business plan?

Before you leave a nine-to-five income, your business plan can tell you if you’re ready. Over the long term, it’ll keep you focused on what needs to be accomplished.

It’s also smart to write a business plan when you’re:

  • Seeking funding, investments, or loans
  • Searching for a new partner or co-founder
  • Attracting, hiring, and retaining top talent
  • Experiencing slow growth and need a change

Business plan template: 10 steps (plus, examples)

Start with a clear picture of who the audience your plan will address.

Is it a room full of angel investors? Your local bank’s venture funding department? Or, an internal document to guide you, your leaders, and your employees?

Defining your audience helps you determine the language you’ll need to propose your ideas as well as the depth to which you need to go to help readers conduct due diligence.

Now, let’s dive into the ten parts of your business plan.

1. Create an executive summary

Even though it appears first in the plan, write your executive summary last so you can condense essential ideas from the other nine sections.

For now, leave it as a placeholder. Of course, this begs the question …

What is an executive summary?

The executive summary lays out all the vital information about your business within a relatively short space; typically, one page or less. It’s a high-level look at everything and summarizes the other sections of your plan.

How do I write an executive summary?

Below, you’ll find an example from a fictional business, Landscapers Inc. (We’ll use that same company through this guide and within the downloadable template to make each step practical and easy to replicate.)

Its executive summary majors on what’s often called the value proposition or unique selling point: essentially, an extended motto aimed at customers, investors, and employees.

You can follow a straightforward “problem, solution” format, or a fill-in-the-blanks framework:

  • For [target customers]
  • Who are dissatisfied with [current solutions]
  • Our
    solves [key customer problems]
  • Unlike [competing product], we have [differentiating key features]

That framework isn’t meant to be rigid, but instead to serve as a jumping-off point.

Example of an executive summary

Market research indicates an increasing number of wealthy consumers in Cleveland are interested in landscape architecture based on sustainable design. However, high-end firms in the area are scarce. Currently, only two exist—neither of which focuses on eco-friendly planning nor are certified by green organizations.

Landscapers Inc. provides a premium, sustainable service for customers with disposable incomes, large yards, and a love of nature.

2. Compose your company description

Within a business plan, your company description contains three elements: (1) mission statement, (2) history, and (3) objectives.

What is a mission statement?

A mission statement is your business’ reason for existing. More than just what you do or what you sell … it’s about why.

Mission statements should be inspirational and emotional.

They should be rallying cries around which the heart and soul of your business turn.

Throughout every part of your plan, less is more. Nowhere is that truer than your mission statement.

Think about what motivates you, what causes and experiences led you to start the business, the problems you solve, the wider social issues you care about, and more.

How do you describe a company’s history?

Don’t worry about making your company history a dense narrative. Instead, write it like you would a profile:

  • Founding date
  • Major milestones
  • Location or locations
  • Number of employees
  • Executive leadership roles
  • Flagship products or services

Then, translate that list into one or two paragraphs (see below).

Why do business objectives matter?

Business objectives give you a north star. These goals must be SMART: specific, measurable, achievable, realistic and time-bound. Or, they must be tied to key results.

When your objectives aren’t clearly defined, it’s hard for employees and team members to work towards a common purpose.

Worse, fuzzy goals won’t inspire confidence from investors. Nor will they have a profitable impact on your business.

Example of a company description

Landscape Inc.’s mission is to change the face of our city through sustainable landscaping and help you create the outdoor living space of your dreams.

Founded in 2019 by sisters Sherry and Shelly Smith, we have over 25 years of combined landscape-architecture experience. Our four employees work in teams of two and have already completed ten projects for some of Cleveland’s most influential business and community leaders.

Our objectives over the next three years are to:

  1. Solidify a glowing reputation as a service-based business that always exceeds customer’s expectations and honors the environment
  2. Complete at least 18 projects during year one, 24 in year two, and 36 in year three generated through word-of-mouth, referrals, and home shows
  3. Increase revenue from $360,000 in FY2019 to $972,000 in FY2021 based upon ten completed projects in the last nine months

Sample pages from How to write a business plan: Your template in 10 steps

Note: review your mission statement often to make sure it matches your company purpose as it evolves. A statement that doesn’t fit your core values or what you actually do can undermine your marketing efforts and credibility.

3. Summarize market research and potential

The next step is to outline your ideal customer as well as the actual and potential size of your market.

Target markets—also known as personas—identify demographic information like:

  • Location
  • Income
  • Age
  • Gender
  • Education
  • Profession
  • Hobbies
  • Etc.

You can get even more targeted by mapping your customer’s journey:

By getting specific, you’ll illustrate expertise and generate confidence.

If your target market is too broad, it can be a red light for investors.

For example, if your product is perfect for people with money to hire landscape architects, listing “anyone with a garden” as your target market might not go over so well.

The same is true with your market analysis when you estimate its size and monetary value. In addition to big numbers that encompass the total market, drill down into your business’ addressable market; meaning, local numbers or numbers that apply the grand total to your specific segments.

Example of market research and potential

Landscapers Inc.’s ideal customer is a wealthy baby boomer or a member of Gen X between the ages of 35 and 65 with a high disposable income. He or she—though primarily, she—is a homeowner. They’re a working professional or recently retired.

In love with the outdoors, they want to enjoy the beauty and serenity of nature their own backyard—but don’t have the time or skill to do it for themselves.

Market research shows the opportunity for Landscape Inc. has never been better:

  • In the US, total revenue for landscaping services increased from $69.8 billion in 2013 to $99 billion in 2019 (1)
  • Among landscaping contractors, designing and building is the second-fastest-growing service offering (2)
  • What’s more, landscape design and construction is the number one “new service” existing companies plan to add over the next year (3)

In Cleveland, leading indicators for interest in green, eco-friendly, and sustainable landscaping have all increased exponentially over the last five years:

  • Online search volume for those terms is up 467%
  • Ten new community organizations have been formed
  • 73 high-profile projects have been covered by local media
  • And, currently, 13% of Cleveland’s residents have a household income of $125,000 or more (compared to the US average of 5%)

For more details, refer to our post on how to identify and attract customers.

4. Conduct competitive analysis

Competitive research begins with identifying other companies that currently sell in the market you’re looking to enter.

The idea of carving out enough time to learn about every potential competitor you have may sound overwhelming, but it can be extremely useful.

Answer these additional questions after you’ve identified your most significant competitors:

  • Where do they invest in advertising?
  • What kind of press coverage do they get?
  • How good is their customer service?
  • What are their sales and pricing strategies?
  • How do they rank on third-party rating platforms?

When visiting your competitor’s websites, take a look at their “About Us” page, or their mission and values statement.

If you’re presenting to a panel of investors, distinguishing yourself from competitors is one of the most critical pieces of your business plan.

If you haven’t done your homework, those investors will see right through you.

Spend some time thinking about what sets you apart. If your idea is truly novel, be prepared to explain the customer pain points you see your business solving. If your business doesn’t have any direct competition, research other companies that provide a similar product or service.

Next, create a table or spreadsheet listing your competitors to include in your plan. Your business should be listed last, on the right which is standard practice. This is often referred to as a competitor analysis table.

Example of competitive analysis

Within Cleveland’s residential landscaping market, there are only two high-end architectural competitors: (1) Yard Makers and (2) Design Your Landscape. All other businesses focus solely on either industrial projects or residential maintenance.

Yard Makers

  • Average cost per project: $12,000
  • Ongoing maintenance fee: $200 per month
  • Google My Business: 3.1 stars from 163 reviews
  • Environmental certifications: None
  • Primary marketing channels: Google Ads

Design Your Landscape

  • Average cost per project: $35,000
  • Ongoing maintenance fee: $500 per month
  • Google My Business: 3.7 stars from 57 reviews
  • Environmental certifications: None
  • Primary marketing channels: Home shows

5. Describe your product or service

This section distills the benefits, production process, and lifecycle of your product or service … and how what your business offers is better than your competitors.

When describing benefits, focus on:

  • Unique features
  • Translating features into benefits
  • Emotional and practical payoffs to your customers
  • Intellectual property rights or any patents that protect differentiation

For the production process, answer how you:

  • Create your products or service?
  • Source raw materials or components?
  • Assemble them through manufacturing?
  • Maintain quality control and quality assurance?
  • Receive and deliver them (supply-chain logistics)?
  • Manage your daily operations: bookkeeping and inventory?

Within the product lifecycle portion, map elements like:

  • Time between purchases
  • Upsells, cross-sells, and down-sells
  • Future plans for research and development

Example of product or service description

Landscaping Inc.’s service—our competitive advantage—is differentiated by three core features.

First, throughout their careers, Sherry and Shelly Smith have worked at and with Cleveland’s three leading industrial-landscaping firms. This gives us unique access to the residents who are most likely to use our service.

Second, we’re the only firm certified-green by the Cleveland Homeowners Association, the National Preservation Society, and Business Leaders for Greener Cleveland.

Third, of our ten completed projects—from 2018 and 2019—seven have rated us a 5 out of 5 on Google My Business and our price-points for those projects place us within a healthy middle ground between our two other competitors.

  • Average cost per project: $20,000
  • Ongoing maintenance fee: $250 per month
  • Google My Business: 5 stars from 7 reviews
  • Environmental certifications: Three (see Appendix)
  • Primary marketing channels: Word of mouth, referrals, and home shows

6. Develop a marketing and sales strategy

Your marketing strategy can be the difference between selling so much that growth explodes or getting no business at all.

Growth strategies here are a critical part of your business plan. You should briefly reiterate topics such as your:

  • Value proposition
  • Ideal target markets
  • Existing customer segments

Then, add your:

  • Launch plan to attract new business
  • Growth tactics for established businesses to expand
  • Retention strategies like customer loyalty or referral programs
  • Advertising and promotion channels: i.e., search engines, social media, print, television, YouTube, word of mouth, etc.

You can also use this section of your business plan to reinforce your strengths and what differentiates you from the competition.

Be sure to show what you’ve already done, what you plan to do given your existing resources, and what results you expect from your efforts.

Example of marketing and sales strategy

Landscapers Inc.’s marketing and sales strategy will leverage—in order of importance:

  1. Word of mouth
  2. Referrals
  3. Reviews and ratings
  4. Local Google Ads
  5. Social media
  6. Home shows
  7. Direct mail

Reputation is the number one purchase influencer in high-end landscape design. As such, channels 1-4 will continue to be our top priority.

Our social media strategy will surround YouTube videos of the design process as well as multiple Instagram accounts and Pinterest boards showcasing professional photography. Lastly, our direct mail campaigns will send carbon-neutral, glossy brochures to houses in wealthy neighborhoods.

7. Compile your business financials

If you’re just starting out, your business may not yet have financial data (statements) or comprehensive reporting. However, you’ll still need to prepare a budget.

If your company has been around for a while and you’re seeking investors, be sure to include:

  • Income statements
  • Profit and loss statements
  • Cash flow statements
  • Balance sheets

Other figures that can be included are:

  • How much of your revenue you retain as your net income
  • Your ratio of liquidity to debt repayment ability
  • How often you collect on your invoices

Ideally, provide at least three years’ worth of reporting. Make sure your figures are accurate and don’t provide any profit or loss projections before carefully going over your past statements for justification.

Costs, profit margins, and sale prices are closely linked, and many business owners set sale prices without accounting for all costs.

New business owners are particularly at risk for this mistake.

The cost of your product or service must include all of your costs, including overhead. If not, you can’t determine a sale price to generate the profit level you desire.

Underestimating costs can catch you off-guard and eat away at your business over time. Insurance premiums tend to go up annually for most forms of coverage, and that’s especially true with business insurance. If an employee gets injured, Landscapers Inc.’s workmen’s compensation insurance to cover this risk will increase.

Example of business financials

Given the high degree of specificity required to accurately represent your business’ financials, rather than create a fictional line-item example for Landscaping Inc., we suggest using one of our free Excel templates and entering your own data:

Once you’ve completed either one, only then create a big-picture representation to include here as well as in your objectives in step two.

In the case of Landscape Inc., this big-picture would involve steadily increasing the number of annual projects and cost per project to offset lower margins …

Current revenue for FY2019: $200,000

  • 10 completed projects
  • ~$20,000 per project
  • 15% profit margins
  • $30,000 net

FY2019 projections: $360,000

  • 18 completed projects
  • ~$20,000 per project
  • 15% profit margins
  • $54,000 net

FY2020 projections: $552,000

  • 24 completed projects
  • ~$23,000 per project
  • 12% profit margins
  • $66,240 net

FY2021: $972,000

  • 36 completed projects
  • ~$27,000 per project
  • 10% profit margins
  • $97,200 net

8. Describe your organization and management

Your business is only as good as the team that runs it.

Identify your team members and explain why they can either turn your business idea into a reality or continue to grow it.

This section of your business plan should show off your management team superstars. Highlight expertise and qualifications throughout.

Also, mention the roles you still need to hire to grow your company and the cost of hiring experts. To make informed business decisions, you may need to budget for a CPA and an attorney.

CPAs can help you review your monthly accounting transactions and prepare your annual tax return. An attorney can help with client agreements, investor contracts (like shareholder agreements) and with any legal disputes that may arise.

Ask your business contacts for referrals (and their fees), and include those costs in your business plan.

Example of organization and management

Sherry Smith, Co-founder and CEO

  • Education
  • Professional background
  • Awards and honors
  • Notable clients

Shelly Smith, Co-founder and Chief design officer

  • Education
  • Professional background
  • Awards and honors
  • Notable clients

Landscape Inc.’s creative crews

  • Number of employees
  • Cumulative years of experience
  • Awards and honors
  • Notable clients

9. Explain your funding request

It’s important to outline how much money your small business needs, so you can make an accurate funding request. Try to be as realistic as possible.

You can create a range of numbers if you don’t want to pinpoint an exact number.

However, include a best-case scenario and a worst-case scenario.

Since a new business doesn’t have a track record of generating profits, it’s likely that you’ll sell equity to raise capital in the early years of operation.

Equity means ownership: when you sell equity to raise capital you are selling a portion of your company. Keep in mind, an equity owner may expect to have a voice in company decisions, even if they do not own a majority interest in the business.

Most small business equity sales are private transactions. The investor may also expect to be paid a dividend, which is a share of company profits, and they’ll want to know how they can sell their ownership interest.

Additionally, you can raise capital by borrowing money, and you’ll have to repay creditors both the principal amount borrowed and the interest on the debt.

If you look at the capital structure of any large company, you’ll see that most firms issue both equity and debt. When drafting your business plan, decide if you’re willing to accept the trade-off of giving up total control and profits before you sell equity in your business.

You should also put together a timeline, so your potential investors have an idea of what to expect. Some customers may not pay for 30 days or longer, which means the business needs a cash balance to operate.

The founder can access cash by contributing his own money into the business, by securing a line of credit (LOC) at a bank or applying for QuickBooks Capital. If they raise cash through a LOC or some other type of loan, it needs to be paid off ASAP to reduce the interest cost on debt.

Example of a funding request

Landscape Inc. has already purchased all necessary permits, software, and equipment to serve our existing customers.

Once scaled to $972,000 in annual revenue—over the next three years and at a 10% profit margin—our primary ongoing annual expenses (not including taxes) will total:

While already profitable, we are requesting $100,000 in the form of either a business loan or in exchange for equity to purchase equipment necessary to outfit two additional creative crews.

10. Compile an appendix for official documents

Finally, assemble a well-organized appendix for anything and everything (1) investors will need to conduct due diligence and (2) you or your employees will need easy access to moving forward:

  • Deeds, local permits, and legal documents
  • Business registries and professional licenses
  • Patents and intellectual properties
  • Industry associations and memberships
  • State and federal identification numbers or codes
  • Key customer contracts and purchase orders

As you include documents in the appendix, create a miniature table of contents and footnotes throughout the rest of the plan linking to or calling attention to them.

Business plan bonus: Tips to stand out

Investors have little patience for badly written documents. You want your business plan to be as attractive and readable as possible; so …

Keep it brief. A typical business plan can range from 10 to 20 pages. As long as you cover the essentials: less is more.

Make it easy to read. Divide your document into distinct sections, so that investors can quickly flip between key pieces of information.

Proofread. Double-check for typos and grammatical errors. Then, triple check. Otherwise, you might come off as an amateur.

Invest in quality design and printing. Proper layout, branding, and decent printing or bookbinding give your business plan a professional feel.

Know your margins. List every cost your business incurs, and make sure that you’re assigning those costs to each product or service that you sell.

Revisiting and revising your business plan?

It’s good to periodically revisit your business plan, especially if you are looking to expand. Conducting new research and updating your plan could also provide answers when you hit difficult questions.

Mid-year is a good time to refocus and revise your original plans. Why not have the best second half you possibly can, right? Below are three ways to reignite your plan:

Refocus

When you wrote your original business plan, you likely identified your specific business and personal goals. Take some time now to assess if you’ve hit your targets.

For example, if you planned to launch a new tips and trends video series and it hasn’t happened yet, what’s stopping you? Put a timeline together and set a launch date. This can be hard to do, though, if you’re working 18-hour days.

If you only want to work a set number of hours per week, you must identify the products and services that deliver the returns you need to make that a reality. Doing so helps you refocus your productivity on the most lucrative profit streams.

Also, use what you’ve achieved and the hard lessons you’ve learned to help you re-evaluate what is and isn’t working.

Realign

Do a gut check to determine whether all of your hard work is still aligned with your original goals and your mission statement. Are they still relevant? Have you lost sight of the big picture?

Ask yourself where you want to be a year from now and can you get there with your existing plan? Try to get offline for a while to think through these questions and realign your values. In the end, both you and your clients will reap the rewards.

Repurpose

If your time has become more focused on small projects rather than tangible growth and building a valuable client list, consider packaging your existing products or services differently. For example, can you bundle a few things together?

In the case of Landscapers Inc., perhaps they can offer a special pool and patio package. Doing so might help them bring in fewer, yet more higher-paying projects. Perhaps they can offer a maintenance package as well, to keep that customer long-term.

You must deliberately manage your revenue streams, and that might require shuffling things around a little to focus on what is working for you.

Business plan template: More than a cliche

Even if you don’t plan on seeking investments early on, there are other important reasons to use a business plan template:

  • Writing out your goals and actions plan helps clarify what you’re trying to accomplish
  • It’s a chance to better understand your market (e.g., demographics, behaviors)
  • You can establish the roles of each team member and set benchmarks for accountability
  • Team members can also refer to the document to stay on track
  • Catching errors helps you make sure financial projections are accurate
  • You’ll see the holes and blind spots that could cause future issues

The old cliche is still true today: “A failure to plan is a plan to fail.” Only more so.

Ways to Increase the Value of Your Small Business

By Bridgette Austin June 16, 2015 Reference: https://quickbooks.intuit.com/r/finding-funding/4-ways-to-increase-the-value-of-your-small-business/

Gifts of ownership and estate planning are among the most common reasons for conducting a business evaluation for small family businesses, according to the American Society of Appraisers (ASA). However, a business valuation is helpful for many things, including:

Simply put, a business valuation or appraisal determines the fair market value of your company, including any cash, tangible and intangible assets. The IRS defines fair market value as “the price that property would sell for on the open market” and “that would be agreed on between a willing buyer and a willing seller, with neither being required to act.” Both the buyer and seller must also possess reasonable knowledge of all relevant facts when determining the value of a business.

Even if you don’t have an immediate incentive for bringing in a professional appraiser, having an understanding of the factors that drive the value and growth of your company can help you strategically plan for future business needs. Here are four main areas to pay attention to when assessing the current and projected future value of your business.

1. Assess Your Company’s Financial Strength

While there are other factors that determine the value of a business, the financial strength of your company is a major one. When looking at the value of your organization, you or the professional appraiser will likely be analyzing three factors:

  1. The amount of cash your business generates today.
  2. The amount of cash (and the expected growth of that cash) your business is expected to produce in the future.
  3. If you have interested buyers, the return they expect from investing in and/or purchasing your business.

Your company’s financial statements—the balance sheet, income statement and cash flow statement—will be particularly helpful in presenting a snapshot of your profit margin and how your business performed over time. Pay special attention to your cash flow statement, which tells you if your company is generating enough cash for financing, investments and operations.

Look at your financial statements as a whole, not individually, so you get a complete picture of your company’s capitalized earnings, cash flow and assets. For example, your income statement provides guidance on where to invest money to increase profitability, trim expenses or delay investments in equipment. Likewise, your cash flow statement helps you figure out if you have enough cash to pay your bills on time.

2. Track Customer Growth and Satisfaction

The size and strength of your customer base are additional performance indicators you should monitor and use to ascertain your company’s value. For example, you might use the following customer metrics:

  • Total number of active customers or clients.
  • Total amount of sales per customer or client.
  • Total number of repeat sales/customers.
  • Survey results from customer feedback and customer satisfaction surveys.

As you review your customer data, keep a look out for constant trends and patterns. For instance, are repeat sales up, down or stagnant? Is your customer base growing slowly, rapidly or not at all?

Strong customer loyalty and high client retention rates help drive the value of a business. “True loyalty clearly affects profitability. While regular customers aren’t always profitable, their choice to stick with a product or service typically reduces a company’s customer acquisition costs. Loyalty also drives top-line growth,” states Frederick F. Reichheld in Harvard Business Review.

Additionally, having a diverse customer base will boost your fair market value by ensuring a large portion of your sales volume is spread across many customers. Thus, work to grow your customer base so it varies by size, geography and other characteristics to ensure long-term growth and survival.

Taking these factors into account will not only provide helpful information for valuation, but doing so also gives you insights when making decisions around market expansion. Additionally, keeping a tab on customer satisfaction and loyalty will further guide you on where and how to invest in existing customer relationships.

3. Monitor Employee Feedback and Productivity

Like your customers, your employees contribute to your company’s overall health and longevity. Your valuation should look at the number of sales generated by employees, but it should also weigh metrics on worker morale and satisfaction. Studies over time have shown that employee engagement and satisfaction positively influence productivity in an organization.

Author Shawn Achor discusses the connection between employee happiness and business outcomes in his book, The Happiness Advantage. He reveals that “A decade of research proves that happiness raises nearly every business and educational outcome: raising sales by 37%, productivity by 31% and accuracy on tasks by 19%, as well as a myriad of health and quality-of-life improvements.”

Valuation professionals consider the average length of employment and turnover rates for workers in a company, so it pays to create a supportive workplace where employees thrive and consistently contribute to your bottom line.

4. Measure the Worth of Your Intellectual Assets

A major reason why large and successful companies hold significant value is due to their investment in and development of technologies that are both unique to the market and enjoy economies of scale. Likewise, developing production methods that help your company get products and services to market quicker and cheaper than competitors will drive up the value of your company.

Your intellectual property—including copyrights, licenses, production methods, patents, software and trademarks—is an intangible asset and competitive advantage that should be considered in a business valuation. While difficult to quantify, the IRS provides specific guidelines on assigning economic value to intangible property.

Resources and Tools for Valuing Your Business

Consulting the American Society of Appraisers (ASA) or a similar professional association is the first step towards discovering your organization’s fair market value. There are numerous organizations, tools and resources for finding a qualified business valuation specialist and conducting a self-directed business valuation.

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How to start a business: A guide, checklist and canvas

By Andrea Wahbe January 17, 2020 – Reference: “https://quickbooks.intuit.com/r/how-to-start-a-business/“

You’re ready to take the leap and start a business. Congratulations! Making that decision might feel risky, but it’s a good thing.

According to a recent study by Oxford Economics, 74% of small and medium business owners are willing to take big risks to ensure success. “Fortune,” as the saying goes, “favours the bold.”

Still, you should also consider that:

  • Two-thirds of business owners say the first year is the toughest.
  • Only half of small businesses survive more than five years.
  • Competition, cash flow, and taxes are the top three threats to a profitable business.

Data from QuickBooks, TSheets, and Oxford Economics

Creating your own business is a rewarding opportunity to achieve work-life balance while pursuing your passions. But, it isn’t easy. Fortunately, if you’re diligent when starting your company, you’ll put yourself in a much better position for success.

This article guides you through the 15 steps to start a business. We’ve provided a downloadable step-by-step guide so that you have the “know-how” to start a successful business. No matter what kind of business you have, this roadmap should prove useful.

Define your vision

A business without a vision is like a ship without a rudder. Defining the vision of your business should set everything else in motion.

Drafting a mission statement should serve as the foundation of your vision. In a few paragraphs, identify your company goals and the high-level strategies you’ll use to accomplish them.
If writing a mission statement isn’t in your skill set, visit some of your competitors’ websites to learn from, and emulate, what they’ve written. Patagonia’s mission statement inspires customers and employees alike:

Notice that it’s broken down into three parts that are easy to follow

  1. Mission statement: “We’re in the business to save our home planet.”
  2. Narrative: “Our reason for being.”
  3. List: “Core values,” etc.

When writing out your vision, be as clear and concise as possible. Make sure you also write a compelling and motivational message that inspires team members to work together towards a common goal. Your statement should help convey your “why.” It answers, at the most basic of levels, why you wanted to get into business.

Research your market opportunity

There’s a lot to consider when starting a new business — from developing your product to accounting and legal practices.

That’s why you want to make sure that you have a strong business opportunity before going too far. Here are some critical steps to follow.

Select a product or service

What will your business sell, and how do you plan to be different from competitors (e.g., what is your value proposition or unique selling proposition)?

Define your target market

Who will your business serve? Begin with demographics like age, gender, income and location. Then, go deeper through personas or create a customer journey map.

Identify key competitors

Having competition is a good thing, as it means there’s a demand for your product or service. Compare similar products or services both to replicate what your market loves and to differentiate yourself from what’s already available.

Know your market size or opportunity

In the end, market research means quantifying the opportunity your product or service represents. Take time to figure out the market size of your potential customer base. Estimating the current and future monetary value of your business idea and setting reasonable goals will help you win a “piece of the pie.”

But, how? That brings us to our next step.

Write a business “canvas” (then, a plan)

The good news is you’ve already done some of the work by tackling the first steps above. Keep in mind, your first business plan isn’t final. Parts of it will most likely change as you learn more about your market and grow your company.
Some experts even say you should instead start with a business model canvas: a one-page document that covers the critical information you need to get started. This option will save you time and get you up and running faster.

Download the business model canvas and full checklist here
You can download our business model canvas and checklist to get started. Once you’ve been in business for a while or you’re ready to seek funding, you can build out a more detailed plan. It should cover each section in the screenshot above in more depth. This includes everything from:

  • Resources to operate.
  • Your overall marketing plan.
  • What your cost and sales structure will look like.
  • How you’ll manage your finances, expansion and more.

Understand your startup costs

Even if you’re self-funded and have yet to work with angel investors, you must still understand your startup costs. Here are some crucial facts:

  • The majority of businesses start with less than £10,000.
  • Three quarters relied on their personal savings.
  • The number one regret of owners looking back on the first year is they didn’t spend more time learning about financial management.
  • The majority of businesses require £50,000 or more in annual revenue to feel confident about their long-term health.

You should start by mapping out all of your anticipated costs for the next year. Then, determine how much money you need to earn every month to stay in business (e.g., your operating income and salary). Also, be mindful of forgotten costs like business taxes.
It takes a few years to build up your revenue, which is why it’s so critical that you recognise costs and cash flow early on, which leads us to our next step.

Plan your own starting finances

Determine how you will fund your business if you don’t have your own startup cash. And, you don’t have to seek angel investments or venture capital. Instead you can turn to these methods

Crowdfunding

You’ve likely heard of the crowdfunding platforms Kickstarter or Indiegogo. This is a popular route for many new business owners. It works by seeking funds from a large number of people, rather than one major investor.

Microloans

These are small business loans, often less than $10,000, that you can apply for to get your business off the ground. You’ll have to research your microloan options, depending on what country you live in, as there are many different services to choose from.

Personal loans

If you have a good credit rating, you can take out a personal loan instead of a business loan. You can also borrow against credit cards or a personal line of credit. Just be aware of long-term interest and tax implications before you do so.

Grants

Depending on what country you live in, you may be eligible for grants, either from your government or private organizations, to help you finance. Again, you’ll have to research what those grants are, whether you qualify and how to apply.

Friends and family

Last, but not least, plenty of businesses get their start through the help of friends and families. Don’t be embarrassed to reach out. At the same time, take those pitches seriously by outlining all the work you’ve done through your canvas or plan.

Determine your business structure

Now, it’s time to define what type of company you plan to run by choosing the legal structure of your business entity. Are you better off as a sole owner or proprietor? Do you have a partner? Do you plan to incorporate your business?

Each option has its advantages, as well as associated tax reporting responsibilities and regulatory requirements.

Sole proprietor or sole owner

This is a popular option for anyone who doesn’t have a lot of liabilities (e.g., no employees or significant investments) when they are first starting. As your business grows, you may wish to switch to a different legal structure. This could be an excellent option for those with a small side-hustle or day job.

Business partnership

If you are going into business with another partner, then you will need to register as a business partnership. Because each partner will have a stake, you must work with a lawyer and a tax professional to layout the type, terms and tax implications of your partnership.

Incorporated business

Some notable benefits of incorporating your business are tax breaks and liability protection. Due to upfront costs, many sole proprietors wait until they have earned enough funds and are at the right stage to incorporate.

There are several other options, depending on which country you live in. For example, you can form a Limited Liability Company (LLC) in the United States, or operate as a sole trader if you’re in Europe. Speak with an accountant or bookkeeper to determine which option best suits your needs for today and the future.

Investigate your legal requirements

Before you launch your business, consult with a lawyer to ensure you’ve considered all the legal requirements. Include legal fees in your financial planning as well. It’s essential to have a good lawyer on-call to solve legal and contract disputes, and to provide advice before signing a new contract.

Here are some of the questions to ask and services to request from a lawyer:

  • Should you trademark your company name or logo?
  • Do you need a patent, copyright or intellectual property protection?
  • Can they create standard contracts for negotiating with other businesses and vendors?
  • What’s involved in forming a sole proprietorship, a partnership or corporation?
  • What’s the process for sharing equity when seeking private investors?

Different laws apply to every type of business, product or service. Every country, and even region, will have its own set of rules as well. Your local and federal government websites are an excellent place to begin your research about requirements.
You should also consult national consumer and privacy laws for collecting personal customer information.

Grab all 15 steps in this PDF checklist along with the business canvas

Create and register a business name

After you’ve had a conversation with your accountant and lawyer, it’s time to register your “doing business as” name. The process will differ by country and even region. Do your homework to understand your local requirements.

First, ensure your name is available. The quickest way to find out is through an online search. Type your desired name into search engines like Google and Bing. Check social media platforms, such as Facebook, Instagram, LinkedIn and Twitter. Then, reference your local secretary of state’s office to ensure another firm isn’t using the name. If you plan to conduct business in multiple countries, be sure to check for the name’s use in those states or countries as well.

You should register that name and ensure it’s valid before creating business cards, logos, websites and more. It’ll save you stress and likely a significant headache later. Again, registration sites differ based on which regions and countries you operate in.

Finally, if you decide to register your name as a trademark, you’ll need to do so at this point. Your lawyer can guide you through this process. Keep in mind, there are additional costs associated with every registration you do.

Apply for permits and business licenses

Visit your government services or the Small Business Administration (SBA) website to find out whether your business requires any national or local licenses or permits.

While you’re at it, check to see whether you qualify for any tax deductions and credits. Many local governments design special credits to help small businesses grow faster.

You will also need an employer identification number if you plan to hire employees or open a bank account. This will also serve as your tax ID so that you can pay federal, state and local taxes.

Your accountant can advise you on any other tax-related applications you may need to complete. Again, this process depends on where you live and what type of business you’re operating.

Open a small business bank account

There are different types of business bank accounts and products that can help you save money and grow faster. As soon as you’re ready to start your business, arrange a meeting with a business banking specialist to determine which type of account is right for your business.

Cross-reference the bank’s advice with your accountant to determine which savings bundles or special accounts will actually benefit you.

If you’re planning an international business strategy and expect to generate a high volume of sales in those overseas markets, opening a bank account in the local market makes even more sense. You’ll save money on bank transfer and currency exchange rate fees.

Also, establishing a financial presence country-by-country will make it easier for your bookkeeper and accountant during tax season, as they’ll be able to see separate statements for country-specific revenue.

Set up your accounting systems

If your accounting system is set up correctly from the start — with future growth in mind — you’ll save yourself time and money long-term.

Many small business owners outsource their accounting to a bookkeeper or chartered accountant. While that can save you a lot of time, you still need access to tools that let you see how your finances are doing month-to-month.

Since cash flow is critical in the early days of starting a business, don’t launch without a cash flow spreadsheet and a balance sheet template.
You might also consider accounting software that automates this process and can help you visualize the money coming in versus money going out.

Regardless of the option you choose, maintain an exhaustive record of all of your finances in one place. Every level of business has legal and tax obligations for record-keeping. Nailing down your booking from day one frees you up to work on growing your business.

Outsource essential functions early on

When starting a business, you might be tempted to do everything yourself to save money. But, spending time on tasks that aren’t in your skill set can cost you time and money.

Delegate or outsource tasks that aren’t your area of expertise (e.g., accounting, admin or public relations). If you have the funds and legalities worked out, you can hire a few employees to share the workload.

It might be tough at first to trust other people with your business, but if you find great employees, you’ll question why you didn’t hire them sooner.

If money is tight, but you still need help, you can enlist contractors or freelancers to help you cover areas where you aren’t strong. Managing your sanity is just as important as managing your time.

Familiarise yourself with payroll taxes

If you do decide to hire someone instead of outsourcing, you’ll need to familiarise yourself with business taxes. Employee salaries require taxable amounts withheld from their payroll. Speak with your accountant to ensure you meet all your tax responsibilities.

Digital payroll services offer both self-service and full-service options. Some of the benefits of using payroll software include:

  • Setting up and tracking employee health insurance, retirement plans, deductions and garnishments.
  • Monitoring employee payroll data and annual changes (e.g., bonuses and salary bumps).
  • Having a digital process to deposit your taxes automatically.
  • Being able to add new employees to your payroll system automatically.
  • Enabling automatic direct deposits, which transfer funds into your employees’ accounts worldwide.

For more information on what’s involved in setting up and administering payroll, check out: How to use payroll software to manage payroll effectively. If you’d prefer to do it yourself, review the DIY post on our resource centre.

 

Build a basic web presence – FASTISPEED SERVICE PORTFOLIO

If you don’t at least have a website and email address in today’s always-on, digital world, do you even exist?

Data from BrightLocal
To win new customers, you must include a website as part of your marketing strategy. Fortunately, you don’t have to spend a ton of money setting up your small business website. There are lots of affordable options available.

When you have the time and resources, you can move on to adding social media profiles and consider other digital marketing tactics like paid ads, reviews and search engine optimization.

According to 99Firms, 61% of small businesses invest in social media marketing and nearly 50% of small businesses spend $10,000 or less on digital marketing each year.

As your business grows, so too can your budget for building a stronger, more impactful digital marketing strategy.

Explore business partnerships

While we talked about reasons to go into partnership with another person when you start a business, we should also address partnering with other companies for collective growth.

There are many different ways to form a partnership, like:

Referrals and revenue share

Some work with partners to help them sell services in exchange for a commission or revenue share deal (e.g., one business gives another one a percentage of the sale). It’s very common if you have a small sales team and want to expand your efforts without hiring more full-time employees.

With referrals, you might offer a commission to a partner who helps introduce and assist you in closing a new prospective customer.

Revenue sharing is usually better for businesses that help a customer use your product or service better. For example, software vendors have expert partners who might help a mutual customer to use the software more effectively and, therefore, spend more money with the software vendor. The expert partner would, therefore, get a percentage of sales based on terms both parties agree on.

Joint ventures

If you plan to, say, build a tower for office space or make a movie, you might consider forming a joint venture with another business or group of companies.

Let’s say you have all the equipment and staff to film the story, but want to add computer graphics in afterward. That’s where a partnership with another production business with that staff and those capabilities makes sense.

Cross-promotions

If two businesses have similar target customers, it often makes sense to partner on a cross-promotion.

Spend some time thinking about whether there are businesses in your community that you can work with on a partnership deal. When approaching them:

  • Be honest and clear about what you want and what’s in it for them.
  • Be patient and willing to negotiate to ensure both parties are happy with the deal.
  • Be ready to walk away if you can’t arrange a fair and mutually-profitable opportunity.

Just like when you’re hiring employees, place trust at a premium. You can always ask their existing or past partners whether they were happy with a recent joint venture or cross-promotional experience.

Learning how to start a business is the first step

This post outlines the necessary steps you must follow to launch a new business. Remember to start with your vision, research your opportunity, and record it all in a business plan or canvas.

Download the business model canvas and full checklist here
It’s critical to understand and manage your startup costs and cash flow wisely. If you aren’t self-funded, find out which investment options make the most sense for your business.

Outsourcing or hiring employees who are experts in their field will free up your time to focus on what you do best so you can drive faster growth. You can also lean on business partners in your community for support and to collectively grow your customer base.
Always remember, fortune favours the bold. But, it also smiles upon those who are prepared.

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