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Anyone thinking of starting a business may be in good company. The U.S. Small Business Administration (SBA) reports that 99.9% of U.S. businesses are categorized as small businesses — those with fewer than 500 employees.

For anyone who’s dreamed of quitting their day job and gaining independence by becoming their own boss, here’s a step-by-step guide to make this a reality.

1. Conduct Market Research

Anyone who already has an idea for a small business is ahead of the game. But one of the first steps to starting a business is determining whether there’s a market for the idea. The SBA emphasizes the importance of understanding the market for a product or service before starting a business.

Some questions to answer during the market research phase of business development include:

• Who is the intended audience for the product or service?
• How large is this intended audience?
• What are the demographics of the intended audience?
• Where do the business’ customers live?
• Does the product or service provide customer benefit or solve a problem?
• Do other companies already offer similar products or services? If so, how much do they charge?
• What competitive advantage can a new business provide over similar companies?

Drilling down on market research

Even if the answers to some of these questions are known, a start up may need to do some fact-finding using market research methods — such as surveys, focus groups, and interviews. A thorough competitive analysis of similar businesses in the market will also help inform the direction of your new enterprise.

Create a simple chart with the name of each competitor and the following characteristics:

• The share of the market they currently command.
• Their strengths and weaknesses.
• Their location in proximity to the new business.
• Where and how they currently market their services.
• Their reputation in the market.

This may help provide a clearer picture of opportunities to enter the market as well as any challenges.

2. Write a Business Plan

A business plan is a written document that provides a comprehensive picture of a business and where an owner can take it in the future. A business plan is intended as a work in progress that’s regularly revisited, and modified as the market changes and the business evolves.

Writing a thorough business plan may take time. Business owners should take time for research and planning to create a specific business plan that details what the business does, who it serves, and how it plans to grow.

There are different ways to format a business plan, including:

Traditional business plan

A traditional business plan is a formal, detailed document that describes the business, its financial position, and plans for the future. This type of detailed plan is usually required for businesses that are seeking financing from banks or investors. Besides helping business owners communicate their vision and secure funding, a traditional business plan can also assist business owners to think through their plans, set clear and realistic goals, and regularly track and evaluate their results.

A traditional business plan usually includes the following information:

• Business description: Information about the company’s products and services, development timeframe, and background about its origins.
• Market research: Description of a company’s target audience, including who they are, what they need, and how the business will attract and build a relationship with them.
• Competitive analysis: Details about chief competitors, their offerings, and similarities/differences.
• Marketing strategy: Outlines how the business plans to reach its target audience.
• Leadership: Background information about the business owner and other company leaders.
• Financial projections: Projections for cash flow and details about current finances, such as profit and loss, a 12-month income statement, budget for expenses, and sales forecast. If the business is seeking funding, this section may also include a request to explain the potential use of the monies.

Lean startup plan

A lean startup plan, sometimes called a lean canvas, is much briefer than a traditional business plan — typically about one page.

A lean startup plan may work best for startup companies in rapidly changing markets or those that are experimenting to build the right product for the market. A lean plan is easy to change and modify as the company experiments and learns new information and allows the business owner to avoid wasting time and resources on building the wrong product or service.

Although they are brief, lean startup plans typically include these sections:

• Value proposition: A clear statement of the value the small business brings to its market.
• Key resources and activities: Information about the strategies and resources — such as partners, intellectual property, and funding — the business will use to create value for its customers.
• Market details: Detailed information about the company’s target audience and plans for reaching them.
• Revenue: Explanation of the company’s revenue streams and potential for making money.

3. Decide on a Business Structure

Not all business structures are the same, so it’s important to decide on one that works for a particular new business. Whether it’s best to establish a sole proprietorship, a partnership, a limited liability company (LLC), or a corporation depends on many factors. Consult an attorney to understand the pros and cons of different options.

4. Create a Budget

Whether business owners plan to minimize expenses with a lean startup approach, or they’ve already saved the funds to launch their business, they may want to estimate the costs associated with starting and running it.

Specific costs vary by industry, but business owners should account for the following possible categories:

• Startup costs: State and local business licenses and permits, equipment, legal fees, business insurance, brand and website development, market research, inventory, trademarking, rental lease, etc.
• Ongoing costs: Rent and utilities, marketing and advertising, production and supplies, travel expenses, employee salaries, etc.

Developing a business budget is an important step for determining whether the business will need funding from an outside source. A business budget could also help business owners avoid spending money unnecessarily and help make sure they have funds in place for emergencies.

5. Consider a Name for Your Business

Naming a new business can be one of the most fun parts of becoming an entrepreneur and also one of the most challenging. If the business won’t operate under the owner’s name, here are some places to start to develop the new brand:

• Think about what the business stands for and hopes to accomplish.
• Think about the mission statement and the message the business will convey.
• Consider whether to choose something that is easy to pronounce and remember or a unique name that will set the business apart.
• Have a brainstorming session that includes writing down every name that comes to mind, then testing favorites with trusted mentors, friends, and colleagues to get feedback.
• When there’s a finalist, let it settle before making the ultimate choice.

Once the possible name emerges, you may want to use the state’s business name search function to make sure it isn’t already in use. Even if the name is available, make sure to reserve the domain name.

6. Pick the Right Location

Depending on the location of your business, you will have to consider applicable permits, licenses, and taxes (for example state and local taxes).

These items can be more costly in some locations than in others, so it’s key to find a locale that suits your business.

On the flip side, some state and local governments offer tax incentives and credits for new businesses, while the federal government may make available incentives for new ventures in designated enterprise or opportunity zones.

7. Get the Paperwork in Order

Potential business owners may have to complete certain paperwork in order to operate. That paperwork could include filing to use a Doing Business As name, various government registrations, and business licenses or permits. Consider the following types of paperwork that might be necessary:

• Status of incorporation, if application
• An Employer Identification Number (EIN), also known as a tax ID
• Any licenses or permits needed to run the business

Consult an attorney to understand what obligations apply to your business.

8. Open a Bank Account for Your New Business

Part of starting a business is opening a business checking account. Banks offer checking accounts that are designed to meet the needs of businesses, so be sure to compare offerings to find the one that offers the features you care most about.

9. Explore Funding Options for Starting Your Business

Many businesses need cash flow to purchase inventory, equipment and supplies, pay staffers, and keep the bills paid. And there are a number of potential funding sources that a business owner may consider using, such as:

• Startup loans
• Grants for new businesses

After the business has been in operation for a year or more, there may be additional funding options available, such as a business line of credit.

10. Purchase Business Insurance

This critical step can help protect a business’ financial and intellectual investment from unforeseen circumstances, such as theft, customer lawsuits, or property damage. Remember to consult a professional before determining what insurance may be best for your business.

11. Create an Online Presence

After registering a domain name, a business can set up its website. For those who are new to website design, there are many free tools available — some are as intuitive as creating a Word document, with simple drag and drop functionality.

Businesses that plan to sell products online may want to consider using an e- commerce website, which may charge a monthly fee for a virtual storefront with online shopping cart functionality.

A business will also want to consider setting up social media accounts and an official email address for business use.

12. Open Your Business Officially

After completing these steps, a business owner is likely to be ready to fully open to the public. But once the doors open, a new business owner may still need help as they navigate the challenges of running and building a business. Business owners should be open to continuous education and optimization of their business as it grows and evolves.

The material made available for you on this website is for informational purposes only and is not intended to provide legal, tax or financial advice. If you have questions, please consult your own professional legal, tax and financial advisors.