Have a great idea? Here’s how to turn it into a business

You probably know that small businesses abound, but you might be surprised to learn that, according to the Small Business Administration, small businesses account for 99.9 percent of all companies. This statistic becomes even more surprising when you learn that the five-year survival rate for small businesses is less than 50 percent.

If you’ve been thinking about becoming an entrepreneur, it’s understandable if that data has you reconsidering. But remember, that also means that more than half of new businesses pass that five-year mark—and, with a great idea and a solid business plan, you can greatly bolster your chances of success. Here’s what you need to know before you launch your own small business.

Market research

While the very first step is, naturally, coming up with an idea for a business, you should quickly pivot to market research, which you’ll want to complete well before you launch. After all, without market research, how do you know if people even want what you’re selling, who your competitors are, or how to make your business stand out?

There are a few areas you’ll want to research prior to launch:

• Demand for the service or product. Just because you and your friends or colleagues think it sounds like a great idea, that doesn’t mean the general population is clamoring for it! Finding out if people outside your own social or professional circle need what you’re offering is a great place to begin.
• Market size. You’ve discovered that there is a desire for your product. Fantastic! But how many people does that include? Your business will look quite different if you’re aiming to capture millions of people across many demographics versus a niche clientele.
• Potential customers. Beyond just the numbers, you need to determine who you’d be selling to. Think of location, gender, economic indicators like income range and employment, age, and any other characteristics that would make someone your ideal customer.
• Who else is out there with a similar product? How well is it selling, and how can you make your business stand out from the others that already exist? Take note of what’s working for your most successful competitors, but also consider where they’re falling short—those are areas where you may be able to get a good foothold as a new business. You should pay attention to not only your direct competitors (meaning businesses offering something very similar to what you plan to sell), but also to indirect rivals who provide a different type of product or solution designed to solve the same problem.
• Average pricing. How much are people paying for similar products or services? Based on what you’re offering, how does it compare to your competition, and what kind of customers you’re aiming to attract. You can use that information to figure out how to set prices in your business.

Of course, to find this information, you need to know where to look, right? Fortunately, there are a number of publicly available (and free!) sources that can help.

For general business statistics, try trusted government sources, like:

• NAICS
• gov Statistics,
• Statistical Abstract of the United States
• S. Census Business Builder

And, to learn more about customer statistics and demographics, you might want to spend some time perusing:

• Consumer Credit Data
• Consumer Product Safety
• S. Census Bureau
• Bureau of Labor Statistics

However, there are plenty of other ways to get the information you need. For instance, surveys, questionnaires, focus groups, and in-depth interviews with people who are representative of your ideal customer can all be useful tools in helping you understand more about what they want and how to reach them. Not sure who your customer is likely to be? Take a look at the companies you consider your strongest competitors and see who’s buying from them.

If you don’t have the resources to reach those people for surveys and such, consider talking to a relevant trade association. Ask them for information about the market—and see what other resources they may offer for new business owners like yourself. You might also find it useful to reach out to local business organizations that you’d be a good fit for, like the Veteran’s Business Outreach Center or Women’s Business Center; information on those and other helpful organizations can be found on the U.S. Small Business Administration’s website.

Types of business plans

Once your research is complete, it’s time to use what you’ve learned to create a business plan. A good business plan doesn’t only give you a clear idea about what to expect as you create and grow your business, but it can make it easier for you to get funding, bring on partners, and more.

So, what makes a business plan a good one? For starters, it needs to be thorough, but it also must meet your needs.

There are two basic categories that most business plans fall into: traditional or lean startup. A traditional plan is quite detailed, can be dozens of pages long, and requires a fair amount of effort on the front end. This type of plan is great for detail-oriented people and can be a real asset if you’re planning to go through traditional sources for your business financing.

A lean startup plan is slightly less common and pares things way back to focus only on the most important points. They’re usually only a page long and can usually be completed fairly quickly. These can work well for simple business ideas or in cases where you plan to refine the plan as you go; they’re also useful if you’re in a situation where you need to be able to explain your business very quickly.

Building a traditional business plan

If you opt for a traditional plan, you’ll need to fill out nine standard sections:

• Executive summary. What does your company do, and why will it succeed? All the important, basic information should be easily accessible here, so include your mission statement, what you’re offering as a product or service, information about your team, and where you’re based, as well as a financial and high-level growth plan if you’re intending to seek financing. If the reader doesn’t go beyond this page, they should still have a solid idea of who you are and what you plan to do.
• Company description. Here’s where you delve into the details. Why is your company or product needed, and what kinds of problems will you solve? Don’t be shy—list out any competitive advantages you have on your side, including experts, location, or anything else that you believe will make you stand out from the crowd.
• Market analysis. Explain your takeaways from your market research, sharing who’s currently succeeding in the space—and why you’ll do it better—or, why your company will be able to succeed in that market.
• Organization and management. This is a great opportunity to brag a bit about your leadership and team, but also make sure to include information about your business’ legal structure. Understanding whether you’re planning to be an LLC, operate as a sole proprietor, incorporate as a C or S corporation, or form a general or limited partnership will help readers, such as potential investors, envision how your business will be run.
• Service or product line. What are you selling—and why? Discuss what the product is, what problem it solves, or how it helps customers, and share details about the product lifecycle. Information on intellectual property or research and development should also be included here.
• Marketing and sales. The best product isn’t worth a thing if nobody knows about it, so this is an opportunity to share how you plan to reach your customers. And once you reach them, how will you close the sale? What will that look like? Be as complete as possible when describing both your marketing and sales strategies, because later on, you’ll look back at this plan for guidance as you grow.
• Funding request. If you need funding, now’s the time to ask for it. Be clear about how much you need, how that money will be used (buying equipment, covering salaries), whether it will manifest as debt or equity, any terms you’d like applied, and the length of time this will cover. And offer any information you have about future strategic financial plans for paying off your debt.
• Financial projections. Here’s your chance to sell the reader on your business’ future financial success using projections, including forecasted income statements, balance sheets, cash flow statements, and capital expenditure budgets. These projections should match up with your funding requests.
• Are there any supporting documents or materials you need to provide, like credit histories, product pictures, or legal documents? Include them here.

Choosing your business structure

Did you follow along with the organization and management section up there? If not, don’t worry. Here’s the breakdown of the five structures and what they mean.

• Sole proprietorship: The simplest option, this refers to a business that’s owned by one individual who reports their business profits on their personal tax return.
• Partnership: A partnership, as you might expect, includes multiple owners (which may be people or businesses). The profits get divided amongst the owners, who then report the profits on each of their tax returns. There are several types of partnerships, including general partnerships, limited partnerships, limited liability partnerships (LLPs), and limited liability limited partnerships (LLLPs).
• Limited Liability Company (LLC): Chances are good that you’re familiar with LLCs, which are hybrid structures that allows the owners (known as members) to have their profits taxed on a member or corporate level, all while limiting the personal liability of the owners.
• S or C Corporation: A business with an S corporation designation must have 100 or fewer shareholders and only one class of stock; those shareholders have limited liability, and the profits are taxed on their tax returns. A C corporation, on the other hand, can have any number of shareholders and multiple stock classes, but the profit is taxed once on the business level and again individually after shareholders receive their distribution of earnings. Shareholders also have limited liability in this case.
• Cooperative: In the case of a cooperative, the folks who utilize the business’ services are also the owners and operators. They do operate as a for-profit, but maximizing profit isn’t the goal; rather, they exist to help the members and owners. Have you ever shopped at a grocery co-op? There, employees have a personal stake in the financial wellness of the business, offering them an extra incentive to work hard and cooperate (hence the name).

How to finance your business

You have an idea; you have a plan. Now, you just need the money to make it happen.

There are a variety of ways to fund your small business. Some are more traditional than others, but there’s no one right way to go about getting the money you need to start, since each has pros and cons.

• Traditional bank loans: These are for sums of $250,000 and up, and you typically need a strong personal or business credit score to qualify. Rates and repayment terms vary quite a bit, and the turnaround time ranges from two to four months.
• Small Business Association loans: These loans can range from $2,000 to $5 million and may require a minimum business credit score. The rates, repayment terms, and turnaround time vary widely.
• Online loans: If you need between $25,000 and $500,000 and are looking for a rapid turnaround (two to seven days), an online loan may be for you. Be aware, though, that the rates can vary by a lot, reaching up to 30 percent, and the repayment terms are shorter, from one to five years.
• Business credit cards: For smaller amounts ($250 to $25,000), a business credit card may be useful, but because the rates are usually higher (13 percent to 25 percent), you need to start paying it off within 30 days, so it’s not ideal for everyone.
• Small-business grants: If you belong to a group or in an industry that qualifies, you may be able to fund your business with a small-business grant that doesn’t require you to pay back the funds. Of course, competition for these grants can be fierce, so be prepared to put plenty of time and effort into finding and applying for them.
• Crowdfunding: An option that’s become much more popular in recent years is crowdfunding. It works best for ideas and businesses that are eye-catching and exciting, and often offer investors some sort of perk or equity in the company in exchange for cash. While you shouldn’t consider crowdfunding a long-term financial solution, it might be just what you need to get started.
• Other options: Credit union financing, vendor financing, merchant cash advances, and more are also available, and it’s worth spending some time looking into a wide variety of options to make sure you choose the one that’s right for you.

Business essentials

Once you’ve secured that funding and are ready to get started, it’s time to shop for your business essentials—which, ideally, is something you accounted for in the financial projections section of your business plan! A few items you’ll probably want in your office right away are:

• Furniture: From your desk and office chair to bookshelves and more, a fully stocked office can require quite a bit of furniture; even a standing desk needs the right chair, after all. And, if you need to furnish a lobby or break room, be sure to add comfortable seating and tables to the list!
• Computers: Whether you’re operating a brick-and-mortar business or an online hub, you need reliable computers. Once you have your computers set up, make sure you know how to keep them running smoothly with the right software.
• Printers and scanners: No reason to run down to the copy shop when you have a high quality printer and scanner right at your desk.
• Paper: Perhaps not the most exciting item on your shopping list, but there’s no mistaking its importance in a place of business.
• Calendars and planners: Keeping yourself and your employees organized is a necessary part of a thriving business…and they can look pretty spiffy, too!
• Pens, pencils and markers: Your next great idea could come at a moment’s notice. Make sure you always have the perfect writing utensils within reach.
• Stationery and invitations: Having professional stationery and invitations on hand is always wise, whether you’re thanking investors or inviting future business partners to your kickoff party
• Desk organizers: A clean and tidy workspace is the key to productivity. A desk organizer will keep you and your team focused on the most important task: your business’ success.

Conclusion

It’s a crazy world out there, and there’s no shortage of entrepreneurs thinking they have the next big idea. Sure, competition is stiff, but with an organized, levelheaded approach (and the advice offered above) you may be the next great business leader.