November 18, 2002
Small-Business Start-Up Guide
A small-business advisor answers the most common questions about starting
There is a lot you have to face when you're considering starting up your
own business. First, you need to come up with an idea that takes advantage
of your skills and experience while fulfilling an untapped need of your
market. You then have to conduct extensive research to learn more about
the industry you're in, the market you'll be serving, and the companies
you'll be competing against. You also need to create a plan of action
that will get your business moving. Finally, there are a lot of nuts-and-bolts
issues you need to confront -- from dealing with licenses, permits and
other red-tape, to determining the correct legal structure for your company,
to determining your financing needs.
Our Small Business Advisor regularly gets asked about how to go about
starting a small business. We've put together some of the most common
start-up questions she's received. By clicking on the questions below,
you'll get detailed information on the topic.
Developing a business idea is a matter of creating a vision, leveraging
your strengths and determining what the market needs. These three steps
should get you started.
Create a vision
Close your eyes for a few minutes and conjure up a detailed image of
what you want your life to look like in 5 years. Be as specific as possible.
- Where do you live?
- How do you spend your days?
- What kind of work do you do?
- Do you work alone or with other people?
- Who are you surrounded by?
- What do you do when you aren't working?
Don't limit yourself to these questions; create a vivid vision of yourself,
touching on things that are important to you. These are all personal issues
that will impact the type of business you pursue – being a city or country
person; wanting to travel or sit at your computer; liking to meet people
or work on the phone. This activity will help you create a foundation
for choosing a business, making business decisions, and setting clear
It is best to do this exercise with someone else and share your vision.
If you can't, write it down to make your vision more concrete.
Determine what you're good at and what you like to do
It's often useful to look inside yourself to figure out what you like
and dislike, and where your talents lie. It's one thing to come up with
a winning business idea. It's another to come up with one that fits your
skill set and interests you. Your business has to keep you excited so
you can thrive over the long haul.
One of the best ways to do this is to make three separate lists:
List 1: What you're good at
Everyone is good at something and many skills can be the foundation for
a business. You might be naturally organized or have a knack for fixing
things. You may be so used to your skills that they don't immediately
come to mind, so assemble this list by observing yourself for a few weeks
with an eye out for your aptitudes and by asking people who know you well
for their impressions of what you excel at.
List 2: Skills you've acquired over the years
Whether or not you've worked in a conventional environment, you no doubt
have accumulated many. Write down all the work responsibilities you've
had; think about the varied tasks you know how to complete. Make sure
this list is complete -- there should be at least 10 distinct items.
List 3: Things you like to do
List the things you enjoy doing. This may not be as easy as it sounds.
This list should be at least 10 items long. Stretch beyond your hobbies
and interests that spring to mind immediately. If you're stymied, ask
people who have known you for a long time -- particularly people who knew
you as a kid -- what they have seen you doing when you're happiest.
Keep these three lists in an accessible place (for instance on your
desk) for several weeks, and every time an idea comes to you, jot it down
in the proper category. Ask people who know you well for their input or
to help you jog your memory.
Figure out what the market needs
So far, you've been looking inward to come up with your business idea.
Now its time to look outward to discover an unfilled need that you can
meet with your product or service.
There are plenty of "Top 10" or "Hot New" business lists out there.
These may stimulate some ideas, but the best business ideas will come
from you and will be based on who you are and what the market is looking
for. So while you're doing your soul searching and list making, put up
your antenna and look out for business opportunities.
<< Back to Small-Business
Start-Up Guide Once you've determined what you're good at and what
the market needs, its time to do some research. This may seem obvious,
but its one area where many would-be entrepreneurs fall short. Just because
you like an idea doesn't mean it makes a viable business.
Now is the time to roll up your sleeves and ask a lot of questions.
You will need to find accurate, reliable information about your industry,
your market, and the companies you will compete against. Much of the information
you get will be extrapolated from reports (both from the government and
commercial companies), newspapers and magazines, trade associations, university
studies, and other research. This type of information is often available
at business research libraries, as well as at various online databases.
You'll also be doing a lot of investigating on your own. Read on to learn
more about how to take advantage of these various research methods.
Talk to potential customers and suppliers
Who will you be selling your product or service to? Contact some of
these people and take an informal survey. Ask them if they would be interested
in a product or service such as yours. Find out what they'd be willing
to pay for it. Determine how they currently meet this need to learn about
your competitors. Ask about ways your type of product or service could
be improved. Suppliers and sales reps often know what other companies
are up to, and can also help you get an idea of industry trends.
Talk to people already in the business
This is an excellent way to learn the pitfalls and nuances of running
a particular business. You'll be surprised how many people will be willing
to help you, provided you don't intend to compete with them directly (although
in some cases, direct competitors may even offer assistance). Often, you
just have to ask. Contact five or ten people who are excelling in the
business you want to start. Tell them that you admire what they've done,
and ask them if you can have a few hours of their time to discuss "the
ropes" of the business. You can even offer to pay them for their time
Contact trade associations
Trade associations often conduct research on their respective industries.
This data is usually distributed only to members, although sometimes they
will make parts of their reports available to non-members and the press
as well. Trade groups also publish member directories that can be useful
in tracking down what firms you may be competing with. Again, these directories
are usually for members only, although you can sometimes use them at your
You also might want to speak to a trade group's "publications" department.
Many trade groups publish handbooks for companies looking to get involved
in their particular industries that contain helpful hints and statistics.
Others offer books and courses that can aid you during your start-up phase.
To find out what trade associations follow your industry, consult:
- Encyclopedia of Business and Professional Associations (Gale Research)
- The Small Business Sourcebook (Gale Research)
- Business Information Sources (University of California Press)
Read newspapers, magazines, trade publications, and newsletters
Periodicals are an excellent source for industry statistics as well
as information on your competitors. Trade publications - newspapers and
magazines that focus on issues affecting a particular industry - often
run articles that focus on recent research reports, or they publish their
own proprietary market data. You can also find news developments about
your competitors and their products. The Wall Street Journal and
other business publications can give you information on business trends
or other economic issues that may impact your business. Local newspapers
and business journals can provide you with a window into your local scene.
To find these publications, consult the following sources:
- Wilsons Business Periodicals, Infotrac, UMI Periodical Abstracts
- contain information on popular and business periodicals
- National Newspaper Index, Wall Street Journal Annual Index, New York
Times Index - as the names suggest, indexes of articles from leading
- Bacons Media Directories - used mostly by public relations professionals,
lists trade and consumer magazines by subject category, while the newspaper
directory is categorized by region.
Use industry directories
There are a wide range of directories that can provide you with information
about specific companies and industries. Here is a sampling of some of
the more comprehensive:
- Duns Million Dollar Directory - identifies companies by SIC (Standard
Industrial Classification) code, geographic location, and size. Dun
& Bradstreet also publishes a number of other useful directories, including
State Sales Guides, Regional Business Directories, and the Census of
- Thomas Register - lists data on more than 100,000 manufacturing companies
by type of product, company name, and location. Also includes product
catalogs of many firms.
- Moodys Manuals - comprehensive information on companies listed on
the U.S. stock exchanges, including corporate history, income statements,
and balance sheets.
- MacRaes State Industrial Directory - includes product/service, SIC
and company name indexes arranged by county and city.
- Macmillan Directory of Leading Private Companies - contains information
on 12,500 privately-held companies
- U.S. Industrial Outlook - this Department of Commerce study includes
growth statistics for 200 industries, including 5-year projections,
background information, statistics and trend forecasts.
- Statistical Abstract of the United States - has more than 1,000 pages
of statistical information from government and private sources. Excellent
for reference citations.
Consult demographic/census data Federal, state and local
governments are excellent sources of demographic information. On the federal
level, the Census Bureau has details from the last U.S. census -- extremely
useful for viewing your regional market. Almost every state and county
publishes their own census tracts - population density and distribution
figures. These show you the number of people living in specific areas
such as precincts, water districts, and neighborhoods.
Also contact your local chamber of commerce of economic development
authority. Since they are looking to encourage businesses to locate in
their areas, they can provide you with information on population trends,
payroll statistics, income characteristics, etc. Utilities (the gas and
electric company) and banks may also have this kind of information available.
<< Back to Small-Business
Start-Up Guide Business licensing requirements vary from city to city,
county to county, and state to state. Some require all businesses to register,
and they collect annual business licensing fees. Others don't require
licenses or registration for unincorporated businesses unless you are
doing business under a fictitious name (also known as a DBA or "doing
business as"). This means that if you are operating as Alice Jones, caterer,
you may not be required to register, but if you do business as Gourmet
Delights Catering you will have to register.
Begin the process by calling the city licensing bureau, the county recorders
office, or the county registrars office to find out their licensing requirements
and the application procedure. This way, you will have all the necessary
materials ready when you go to fill out your application. Applications
are usually processed through your city or county clerks office, located
at city hall or the county administrative building (the same bureau that
processes documents like marriage licenses). Look in the government blue
pages of your local phone directory for the location.
When you visit your city/county government, be sure to describe your
business in detail and ask a lot of questions. This way, you will be sure
to find out about all the permits and licenses you will need. Remember,
it is your responsibility as the business owner to adhere to any and all
regulations that apply to your business -- even if it is only a part-time
Here are some other regulations you may need to be concerned with:
- Sellers permit - mostly for retailers in states with a sales tax,
this is also known as a resale permit; it allows you to avoid paying
sales tax on merchandise when you purchase it from wholesalers; this
permit is issued through the state entity that is responsible for taxes.
- Food permit - for businesses that make or sell food; may require inspection
by your local health department.
- Liquor license - necessary if you intend to sell alcohol; regulated
at the state level and sometimes the local level.
- Building permits, fire certificates, zoning permits - these are regulated
by your local planning department.
- Police permit - some businesses require police clearance or permit.
- State occupational licenses - some occupations such as doctors, lawyers,
day care facilities, general contractors, etc. require special state
or local licenses; your state consumer affairs office should be able
to help you.
<< Back to Small-Business
Start-Up Guide If you are a sole proprietor who has employees, or
you are a partnership or incorporated, you will have to get a federal
tax ID number, also known as an Employer Identification Number (EIN).
If you are a sole proprietor with no employees, your social security number
will serve as your ID number. You use your EIN for filing and paying the
various withholding and social security taxes you are required to make
as an employer.
To get an EIN, you fill out and file Form SS-4 with the Internal Revenue
Service. You can get this form from your local IRS office, or by calling
the IRS help line at 800-829-3676 (800-TAX-FORM).
You may also be required to get a separate state tax ID number. Check
with the state agency responsible for collecting taxes (often your state
department of taxation or state treasury department) for the correct forms.
You can find the address and phone number in the government blue pages
of your local phone directory.
For more information about what taxes your business may be responsible
for, click on the link below.
<< Back to Small-Business
Start-Up Guide Naming your business should be done carefully -- this
is a decision that you will have to live with for a long time. A successful
name gives people an idea of the nature of your business, and helps project
the image you want for your enterprise. It also helps your customers remember
who you are, and sets you apart from your competitors.
Once you come up with a name, you need to make sure it is not already
being used. Begin with a search of your local telephone directory and
local government offices. You can also check in various trade directories,
the Federal Trademark Register, or corporate name listings from your state's
Secretary of State office.
You can also hire someone to do the search for you. Firms such as Thomson
& Thomson conduct searches online or over the phone. Expect to pay anywhere
from $80 to $500 for such a service.
If you use a fictitious business name (also called a "DBA" or "Doing
Business As"), or if your name implies greater ownership (using words
such as "and company" or "& son/daughter"), you will need to register
it. You file your DBA with your country clerk. You will also likely have
to publish it in a general circulation newspaper once a week for four
weeks in the country where your business is located. You will then have
to file an affidavit of publication with the country clerk.
State registration will protect your business name only in the state
you are registered in. For national protection, you may want to register
your company name as a trademark or service mark. To do so, contact the
U.S. Patent and Trademark Office in Washington, DC.
For more information about trademark protection, click on the link below.
<< Back to Small-Business
Start-Up Guide The question of business structure is an important
one. The legal form that's right for you depends on a variety of factors.
First off, you need to determine the potential liability involved in your
business -- since only corporations and limited liability structures provide
you with this shield. You also will have to determine which form will
give you the most desirable tax situation, since each legal structure
calculates and pays taxes differently.
Many experts recommend that you begin with the simplest and easiest
business structure that meets your liability needs. The simpler the business
structure, the more flexible it is. For instance, during your start-up
phase, you might want to begin as a sole proprietorship or partnership.
This will make it easier for you to shift the direction of your business
or even change your name -- decisions which otherwise could make it necessary
for you to dissolve your corporation. Then, as your liability needs change,
you can evaluate incorporating or some other more complex business form.
<< Back to Small-Business
Start-Up Guide Conventional wisdom is that you should have up to 12
months worth of living expenses put away before you start your own business,
although the figure depends on the type of business you're starting, your
projected income, and your potential expenses. Service businesses, for
example, often require less of an investment than retail or wholesale
It's unrealistic to think that you must have this amount of savings.
Many successful businesses have been built on less. You ultimately have
to determine what your own comfort level is by analyzing your level of
risk and the flexibility of your expenses.
During your planning stages, you might want to sit down with an accountant
who is familiar with small business issues as well as the issues in your
industry. Ask this advisor how long they expect it will take you to generate
income. This will help you come up with realistic projections, since your
own projections may be overoptimistic.
You may need to think about alternative ways of earning money in the
short term. Is there some kind of part-time work you can do such as consulting,
bookkeeping or assistant work? Can you work a few days a week for a family
member or associate? Think about how "creative" people like actors make
ends meet -- they often take on these types of alternative jobs so they
can continue to hone their craft, go on auditions, and pursue their true
Take some time to determine your personal budget. How much do you need
to live on? You might want to analyze your personal finances by looking
at your various expenses, including (but not limited to) the following:
- Groceries and food
- Car payments
- Credit card payments
- Other loan payments and debts
- Home maintenance costs
- Tuition/educational expenses
- Savings/retirement plan/investments
<< Back to Small-Business
Start-Up Guide Planning is a critical part of starting any small business,
but unfortunately it is an area where many potential entrepreneurs fall
short. To give your small business a chance to succeed, you need to know
where you're going and how you'll get there. This is where your business
plan fits in.
Creating a plan forces you to set goals, determine the resources you
will need to carry out your plan, and foresee any problems that might
otherwise broadside you. Taking the time to do this exercise correctly
ensures that you research and learn about your business. It will help
you evaluate the viability of your enterprise, and assist you in setting
the right course.
To learn more about what goes into a successful business plan, click
on the link below.
<< To Creating Your Business
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The views and opinions
contained herein are not necessarily those of American Express and are
intended as a reference and for informational purposes only. Please contact
your attorney, accountant or other business professional for advice specific
to your business.
Copyright © 2002 American Express Company. All Rights Reserved
Copyright © 2002 Entrepreneur.com, Inc. All rights reserved.
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