12 Things You Must Do Before Starting a Business

12 things to do before starting a business

1. Develop a business idea.

Every business begins as an idea. Maybe you already have an idea or you still need to brainstorm. Either way, it’s important to take the time to refine an idea once you have it.

“Before diving into logistics, ensure your business idea solves a real problem or fulfills a market need,” Grzegorz Kowalski, founder and CEO of Tripoffice.com, told us. 

To do so, Kowalski recommended considering your target audience and soliciting feedback from potential customers to see how they receive your idea. You could do this informally by having conversations with people who fit the demographics of your target audience, or you could invest money in setting up focus groups, surveys and polls to test the viability of your idea.

While investing money and time before you even know if your idea is viable might seem like a risk, it’s better to find out early on if your idea is the real deal or just pie in the sky. “This will lay the foundation for every other step,” Kowalski said.

2. Know your competition and the marketplace.

Once you have a strong business idea, it could be tempting to start planning all the details of how to build it. However, before you do so, it’s critical to understand the industry in which you’ll operate and the players in it that will be your competition. 

Knowing the market you’ll operate within, what your competition is doing and how your company fits into this landscape before you develop a business plan means you’ll see the bigger picture and be able to develop a strategy accordingly.

“Understand your industry, target audience and competitors. This involves identifying market trends, gaps and customer preferences,” Kowalski said. A deep understanding of the market will help you position your business strategically.”

3. Write a business plan.

A business plan serves as the guiding document for your business as you build and grow it. Creating a business plan also requires you to answer detailed and sometimes challenging questions that can help you anticipate potential challenges. 

“The process of creating a business plan forces founders to analyze the market, evaluate competitors, define their brand and outline a marketing strategy,” said Eric Proos, founding partner at Next Era Legal. “It can even help clarify which legal structure may be most appropriate for the company.”

Beyond helping you plan and guide your business through its earliest days, a business plan is a crucial document when it comes to securing funding. It offers lenders and investors a detailed overview of your proposed business venture, your level of industry expertise and your understanding of the opportunity, financial requirements and potential upside. 

“Down the line, a solid business plan is often indispensable when seeking funding from banks or investors,” Proos said.

4. Choose a legal structure.

The legal structure you choose for your business determines important aspects of running your business, including how you’ll pay taxes, the documentation you need to file and how you can raise money from investors. Each type of legal entity comes with specific requirements and restrictions, and only certain types of corporations may meet your particular business needs. 

“A simple LLC [limited liability company] should suffice to start,” said David Salerno, founder of Entrepreneur Sherpa. “You can start without setting up a more complex structure like a C-corp [C corporation] until your business generates significant sales and growth, justifying the legal setup and recurring costs.”

If you need help determining which legal structure is right for your business, a corporate attorney or experienced business accountant can help. These professionals are well worth their rates, since incorporating as the wrong type of entity can be a costly mistake that’s difficult to reverse.

5. Get your business registration, licenses and tax identification number.

Once your business structure is in place, you need to register your business and obtain the correct licenses, taxpayer identification number and, if you’re planning on hiring staff, an employer identification number. There are various resources to assist with establishing business names, filing incorporation paperwork, obtaining necessary licenses and registrations with your local municipality and getting your federal tax information squared away. 

“Find a resource online to help you do this efficiently, like LegalZoom or ZenBusiness,” Salerno said. “Getting legal help might be justified if you have more complex needs.”

Working with a professional or service ensures you’ll check all the required documentation and licensing boxes. This can save you legal challenges and costs down the line, so triple-check to make sure all required documentation is filed with the appropriate agencies and departments.

6. Finance your business.

Launching and growing a business requires money, and entrepreneurs have several options for getting the funding they need:

• Bootstrapping: A bootstrapped business is funded by the entrepreneur directly, either through the use of their savings or a personal loan. This is common for very small businesses and those being launched as a proof of concept.
• Friends and family: For small businesses that are beginning to grow, friends and family may offer the support you need (often with favorable rates and terms.) New or small businesses may not yet qualify for a bank loan, but friends and family may be a willing source of capital. We recommend having a clear, written agreement when accepting funding from friends and family, spelling out details like interest rates and repayment expectations. Even though you may trust each other, it’s best to have a document laying out the exact expectations between both parties.
• Bank loans: Bank loans are a common source of funding for small businesses that generate some revenue and have a short history of operations to point to. Bank loans require an application and approval by a financial institution. There are some options that make it easier for small businesses to secure a loan, such as Small Business Administration (SBA) loans backed by the SBA. 
• Alternative loans: If you can’t get a bank loan, alternative lenders may offer you the capital you need. These private sources of funding offer everything from term loans to equipment financing and invoice factoring. Often, these loans cost a bit more, but they make it easier and faster to secure funding.
• Investors: For businesses that need to scale quickly or have a lot of upfront costs to cover, soliciting investments from angel investors or private equity funds may be the route to go. Usually, these investments are made in exchange for a stake in the business, so it’s important to be deliberate about both who you accept investments from and how much equity you sell.

Related article: How to Find and Attract Business Investors

Any combination of these options could be used to finance your new business, so think carefully about which are best for the company you want to run. For smaller businesses, bootstrapping coupled with funding from friends and family or a modest bank loan should suffice. For a tech startup with grand ambitions, securing larger sums from angel investors or private equity may be necessary.

7. Secure a location (including digital real estate)

Whether it’s a home office or an entire building, you need to know where your business will be located before you launch it. Prior to your first day of operations, you’ll want to have the following in place:

• Phone and internet service
• Business directory listings
• Utilities
• A lease or purchase agreement for your workspace

In addition to a physical location, you’ll also need to consider digital real estate. That means owning a website, claiming your Google Business Profile and establishing social media profiles for your company. 

“‘Location, location, location’ is cliché, but times have changed,” Salerno said. “[Y]ou have to think of location in both physical terms … and digital terms.” 

Once you’re ready to develop your website, research the options to ensure you’re selecting the best website builder that will meet your immediate needs and be able to support your desired functionality in the future, such as online ordering capabilities. 

Enlist the help of a search engine optimization expert to ensure your website design and content are fully optimized. When deciding which kind of company to start, you may also want to consider the cost of starting an online business.

8. Acquire business insurance.

There are several types of insurance for businesses to consider, including general liability, commercial auto, directors and officers and performance bond insurance to name a few.

“Get the right advice from the right specialist for business insurance: different regulations, different states,” Salerno said. “Don’t get caught up in not being covered properly.”

It may be tempting to forego coverage early on to save money, but this could be a fatal mistake. Consider the risks your business faces and acquire adequate coverage from day one — otherwise, one turn of bad luck could mean the end of your business.

In addition to understanding the differences among the available options, it’s important to identify any local regulations that might require your type of business to carry certain types of insurance. For example, if you’re starting a carpentry or plumbing company, you’ll need liability insurance. Learn what else you need to keep in mind when choosing business insurance.

9. Hire professionals and build your team

A good business is surrounded by good professionals, including lawyers and accountants. These professionals bring insight and expertise you may not already have to your business and they can help guide you as you build it from the ground up. While they represent a significant cost, choosing the right professionals is money well spent for any small business.

“Enlist experts such as accountants, lawyers or consultants to handle complex matters like taxes, contracts and compliance,” Kowalski said. “Simultaneously, recruit employees or contractors to execute your vision.”

If you need to aggressively build your in-house team, consider bringing on a professional recruiter. These professionals learn about your business and the open roles you need to fill and then proactively go out to find top talent to add to your team. The upfront cost of a recruiter will pay off if you end up with a crack team of employees who can help build your business into a stand-out brand in your industry.

10. Use local and national business resources.

There are plenty of local, county and national resources to make sure your business name is available, to verify the legal structure you’ve chosen is correct and in compliance with location-specific ordinances and to advise on the different business loan options and other funds available to entrepreneurs. 

“Your state’s economic development office and local startup ecosystem, including local colleges and universities, often offer complimentary services to help, including writing business plans, reviewing legal contracts, et cetera,” said Meredith Bowen, a partner at Walker Bowen Talent Partners.

You can also refer to resources provided by your local corporation commission, the Small Business Administration and the IRS throughout the planning process. Additionally, organizations like the Service Corps of Retired Executives (SCORE) provide free resources for small businesses, including entrepreneurial mentorship and guidance.

What to avoid when opening a business

Sometimes, it’s just as important to understand what not to do when starting a business. Here are five common mistakes entrepreneurs make that you should avoid when you’re starting a business.

Doing everything by yourself

Small business owners wear a lot of hats, but it’s important to hand off some of those roles to get everything done. Whether that means hiring professionals, contracting freelancers or bringing on employees, you need to find support to run your business effectively.

Ask yourself which areas of running your business are taking you away from tasks that will have a greater impact. Consider where your expertise is lacking. These are areas that make sense to outsource to someone else. Doing so will help you contribute where it matters while knowing that the things that still need to get done are being handled.

Hiring employees too soon

Although it’s important you don’t try to do it all yourself, carefully consider whether you need to hire an employee before bringing them on. Expanding your staff too quickly also expands your payroll expenses, which can be detrimental to your cash flow. Cash flow is vital to the survival of your business, especially early on, so don’t be over-eager when it comes to building out a team of in-house employees.

At first, consider working with freelancers, who can be assigned work on an ad hoc basis. As your need for help grows, look into recruiting a full-time employee or seeing if one of your freelancers would be interested in transitioning into that role. Always consider the long-term cost of hiring an employee and whether your revenue can support it.

Spending irresponsibly

When first starting a business, you should be frugal. Only invest in the tools needed to run your business. Establish a conservative budget and consider your expenses line by line — do you need each one of them? If you’re spending extravagantly just to look bigger than you are, it may be time to cut some expenses.

We recommend working with an accountant to develop a budget based on your existing and projected revenue. These professionals can help you create a realistic plan for how to guide your business through its earliest fiscal challenges. They can also help you maximize your tax deductions, so you can invest wisely in the things that will help your business grow and your tax bill to shrink.

Rushing to launch

Being the first to market is not the key to success if you haven’t fully developed your product or service, so don’t rush when launching your business. Even if you’re entering a new market and want to get in on the ground floor, it’s important to make sure you have a refined go-to-market strategy and quality products and services. If your customers have terrible experiences with your half-baked offerings early on, it will be difficult to recover and change their perceptions down the line.

Miscalculating the demands

Many entrepreneurs underestimate the challenges of owning a business, leading them to become overwhelmed by its responsibilities and demands. This, in turn, can hurt the quality of the products and services you deliver to customers.

To avoid overpromising, set realistic expectations and be upfront about your availability. Telling clients when you are at capacity shows that you are trusted and in demand and that you recognize your limits to ensure high-quality work.

Sean Peek contributed to this article.