Rusted Root Co., Rockville, Parke County
1. Evaluate Your Business Idea
Ideas are everywhere. Successful entrepreneurs know how to identify an idea as a good business opportunity. Before you put all your eggs in one basket, take time to research the target market. Identify who will buy your product or service and how you will handle any competition.
If you have a specific question you need answered, let’s work together! Send us a little information about your question, and we’ll get back in touch with steps you can take.
To get started growing your idea, here are some questions to ask yourself:
- What kind of business do I want?
- What product or service will my business provide?
- Why am I starting a business?
- How simple or complex will my business need to be?
- Am I prepared to spend the time, money and resources needed to get my business started?
- What is my target market?
- Who is my competition?
- What is unique about my business?
- How soon will it take before my products/services are available?
- How much money do I need to get my business set up?
- How will I set up the legal structure of my business?
- How many employees will I need to startup?
- How will I market my business?
- How will I manage my business?
- Will I need to get a loan?
Before you start your business endeavor, you need to understand what you are signing up for. You need to understand your market, know your competition and research your idea to make sure you can turn a profit.
Here are a few suggestions to get started:
Learn the Language
Entrepreneurs have their own language, and if you want to speak to potential funders and other entrepreneurs, you’re going to need to understand a few key startup terms.
Research your market and current trends
It is critical to understand your consumer base. Market research lets you reduce risks, even while your business is still in the planning phase. The U.S. Small Business Administration offers helpful information regarding market research and competitive analysis.
Your local West Central Indiana Small Business Development Center has access to premier company information and many nationally recognized market research databases. You can work one-on-one with a business advisor to help leverage these tools to locate accurate and relevant industry information, such as market trends, best practices, current conditions, executive insight, industry opportunities, and future industry-specific technology. Example reports include the following:
- Consumer spending
- Market potential
- Industry analysis
- Traffic counts
- Competitor lists
- Local financial comparisons
Take advantage of free business classes
Many support organizations have classes and workshops for all types of entrepreneurs.
- Explore the West Central Business Hub’s calendar to find events and workshops for your business.
Meet with professional business advisors for free advice and guidance
Schedule time with the West Central Business Hub so you can receive free, one-on-one guidance for your business venture.
2. Develop an Entrepreneurial Mindset
What makes an entrepreneur an entrepreneur?
Let’s start by understanding the term entrepreneur. By definition, an entrepreneur is “a person who organizes and operates a business or businesses, taking on greater than normal financial risks in order to do so.”
Entrepreneurs not only run a business but assume all risks and rewards associated with the business.
Entrepreneurs are problem solvers. They are responsible for identifying and solving the problems of customers, partners, employees, and the company.
Am I an entrepreneur?
Many entrepreneurs have these eight qualities:
- INITIATIVE AND SELF RELIANCE
- Are you a self-starter who can push yourself to get things done?
- FLEXIBILITY AND ADAPTATION
- Are you able and willing to keep an open mind about the future of your business, changing the course when necessary?
- COMMUNICATION AND COLLABORATION
- Can you deliver your ideas or pitches clearly and concisely to your target audience, investors, etc., and persuade them to work with you or support your product or service?
- CREATIVITY AND INNOVATION
- Can you use your creativity to develop a creative business idea, and use that creativity to solve problems without a clear structure?
- CRITICAL THINKING AND PROBLEM SOLVING
- Can you examine a problem from multiple perspectives and develop a new solution, providing the best outcome?
- FORWARD-THINKING AND FUTURE-ORIENTED
- Are you able to look at the future of your business with optimism and a willingness to learn new things along the way?
- RECOGNIZING OPPORTUNITY
- Are you able to identify new opportunities to move your business forward?
- COMFORTABLE WITH RISK
- Are you comfortable with making tough choices, even if there’s a risk involved?
3. Plan Your Business
Create the framework of your business by putting together a detailed business plan
A business plan is a written tool which explains your business and establishes a roadmap for its future. This working document identifies goals for the next three to five years, along with how you plan to accomplish these goals.
The Small Business Administration compares a business plan to a GPS; it helps you get your business going to where it needs to be. A good business plan will get you through each stage of your business, from start to growth to development. It will help you take a step back and think objectively about your business’s key elements and informs decision-making as you move forward.
Your business plan is also used externally, as it is the hook that entices others to work with you or invest in your business. Most investors require a business plan to even be considered for funding.
There’s no wrong way to write a business plan. Keep it simple by breaking your plan down into mini-plans – one for sales and marketing, one for pricing, etc. To begin writing your business plan, review a sample outline or use our resource navigator to get connected. If you are in the beginning stages of validating your business, we recommend you start with the lean business model canvas, a one-page business plan meant to help you organize and validate your idea quickly.
- Outline for Building Your Business Plan (U.S. Small Business Administration)
- Business Plan Outline (SCORE)
Come with a good business name, make sure it isn’t already taken
Take the time to get it right from the start. Your business name should be brandable and connect with how your business impacts the target market. Having the wrong business name can severely hurt your business. Before you begin brainstorming business names, review naming tips from the experts.
Once you have a potential business name, it is important to make sure the name is available to be verified. If not, you could subject yourself to severe business and legal hurdles. Visit the Indiana Secretary of State website’s Check Name Availability Search.
Form your startup team (if applicable)
If you will be needing a startup team for your new business, it is important to find the right team that fits your business needs. Finding the perfect startup team might look different than a traditional new hire. Read best practices on finding your perfect startup team:
- What Makes Great Startup Teams, and How to Find It (Forbes)
- Five Ways to Find the Right Business Partner (Inc.)
Have you thought about what aspects of your business will be outsourced? While we like to think we can do it all, outsourcing can be very valuable to your small business. Wise outsourcing can provide several long-term benefits, including control of capital costs, increased efficiency, reduced risk and more time for you to focus on the core of your business. To help you start thinking about outsourcing, take a look at Five Things Small Businesses Should Outsource.
Develop a marketing plan
A complete marketing plan is a vital piece of your new business. This plan focuses on attracting and retaining customers. A well-developed marketing plan will identify the tools and tactics you will use to achieve your sales goals, along with your plan of action to generate leads that will turn into sales.
Unlike a business plan, a traditional marketing plan does not need to be lengthy or written with professional elements. Use bulleted sections to clearly identify your point. To get started, take some ideas from the experts by reviewing the articles below or use the West Central Business Hub resource navigator to find an expert.
- 26 Ideas for Your 2020 Small Business Marketing Strategy (HubSpot)
- The Ingredients of a Marketing Plan (Entrepreneur)
Identifying sources of financing
A plan in your head is good. A plan on paper is even better. Having a complete business plan will help you steer your business and identify concise financing as you start and grow.
4. Build Your Social Network
A solid social network is the backbone of your business
Human capital. The relationships you keep and cultivate are the largest investment you can make in your business.
At the beginning of your business, you probably don’t have much. Most startups don’t have customers, capital, or even a performance record. Having people in your network – your friends, family, former colleagues – will provide you with insightful feedback. Consider these people your coaches, your employees, your mentors, your customers and your investors.
How to network for your business
Building your social network takes time, effort and strategy. Anyone can walk into a room and hand out a stack of business cards. Cultivating a true network will help you grow your business. You need to be intentional about each relationship you build. Consider this, we do business with people, not business cards. Be the person everyone wants to talk to and know.
While considering how to network and build connections, use the following points.
- Before you arrive at a networking event, ask yourself who are three people you want to connect with. What can you offer to these people?
- Practice your elevator pitch. Have a 30-second and 1-minute description of who you are and the value you bring to your customers. It’s not about what you do; it’s about why you do it.
- Be ready to share! Networking is about being generous with your time, information, and resources. Come with a valuable piece of information – perhaps your favorite restaurant, movie, or book.
- Bring quality questions into your conversations that help build a connection. You could ask, “What do you do?” Or you could ask a more memorable question, like “What’s your story?” or “What’s your favorite app?”
- Open your network. Look for opportunities to introduce a fellow entrepreneur to someone who can help them.
Opportunities for networking
- FIND AN EVENT
- Keep up with community calendars in West Central Indiana.
- GET AN INTRODUCTION
- Not sure who you need to know? Send us a message, and we will help develop your next introduction.
- NEED HELP DEVELOPING AN ELEVATOR PITCH?
- When networking, you need to be confident. If you need help developing or practicing your elevator pitch, visit the Resource Navigator to find a local resource.
5. Select a Business Structure
Once you’ve turned your idea into a plan, you will need to make a decision on how the business should be structured from a legal perspective. All businesses are required to choose a legal configuration that outlines the rights and liabilities of participants in the business as it relates to ownership, control, personal liability, life span and financial structure. It is recommended to consult with your accountant and attorney to help you choose the form of ownership that is right for you and your business.
In making a choice, you will want to take into account the following:
- Size/nature of your business
- Desired level of control
- Desired level of “structure”
- Anticipated vulnerability to lawsuits
- Tax implications
- Expected profit (or loss)
- Desire to re-invest earnings into the business
- Need for access to cash out of the business for yourself
An overview of the four basic legal forms of organization:
The four basic legal forms of an organization include Sole Proprietorships, Partnerships, Corporations and Limited Liability Companies.
Most small businesses start as sole proprietorships, owned by one person, who generally runs the business in all aspects. While sole proprietorships own all assets of a business and the profits generated, they also assume total responsibility for any liabilities or debts. As far as the government is concerned, you are one and the same with the business.
Advantages of a Sole Proprietorship
- Easiest to organize
- Least expensive
- Most control and decision-making power, from business owner perspective
- Profits go directly to the business owner’s personal tax return
- Easy to dissolve, if needed
Disadvantages of a Sole Proprietorship
- Unlimited liability
- Business owner is legally responsible for all debts against the business, putting their business and personal assets at risk
- Often limited to using funds from personal savings or consumer loans
- No opportunity for others to own a part of the business
- Some employee benefits (e.g. owner’s medical insurance premiums) not directly deductible from business income (only partially as an adjustment to income)
Two or more people share ownership of a single business in a partnership. Similar to proprietorships, the government does not distinguish between the business and its owners. The partners (owners) should have a legal agreement that determines how much time and capital each plans to contribute, how decisions will be made, how profits will be shared, how disputes will be resolved, how future partners will be admitted to the partnership, how partners can be bought out, and/or what steps will be taken to dissolve the partnership, if needed. While it may be hard to consider your partnership ending when you are only just establishing it, it is important to plan for the worst-case scenario. If there is not a defined process to handle this scenario, more problems may occur.
Advantages of a Partnership
- Easy to establish; aside from developing the partnership agreement
- Ability to raise funds may increase with multiple owners
- Profits go directly to the partners’ personal tax returns
- Incentive for employees to become a partner
- Common benefit of partners having complementary skills
Disadvantages of a Partnership
- Jointly and individually liable for the actions of the other partner(s)
- Profits shared with others
- Shared decisions equals more opportunities for disagreements
- Some employee benefits non-deductible from business income on tax returns
- Limited life if one partners dissolves or passes
Types of Partnerships to Consider
- General Partnership
- According to their agreement, partners divide the responsibility for management and liability, as well as the shares of profit or loss. Equal shares are assumed unless the written agreement states differently.
- Limited Partnership and Partnership with Limited Liability
- In this type of partnership, most of the partners have limited liability, depending on their investment, as well as limited input regarding management decisions. This type of partnership usually attracts investors for short-term projects, or for investing in capital assets. This type of partnership is not often used for operating retail/service businesses. A limited partnership agreement is more complicated and formal than a general partnership.
- Joint Venture
- This type of partnership is similar to a general partnership but is clearly for a limited period of time or a single project. If the partners in a joint venture repeat the activity, they will be seen as an ongoing partnership and will have to file accordingly and distribute accumulated partnership assets upon dissolution of the entity.
A Corporation is a legal entity that is separate from its owners. A corporation can make a profit, be taxed, be sued, and be entered into contractual agreements. The owners of a corporation are considered the corporation’s shareholders, which elect a board of directors to oversee the major decisions and policies. The corporation does not dissolve if/when ownership changes.
Advantages of a Corporation
- Shareholders have imited liability for the corporation’s debts or judgments against the corporation
- Generally, shareholders can only be held accountable for their investment in the stock of the company; however, officers can be held personally liable for their actions, such as the failure to withhold and pay employment taxes.
- Additional funds may be raised through the sale of stock
- Cost of benefits the corporation provides to officers and employees may be deducted
- Can elect S Corporation status if certain requirements are met, which enables the company to be taxed similar to a partnership
Disadvantages of a Corporation
- Process requires more time and money than other forms
- Monitored by federal, state and some local agencies, and therefore may have more paperwork to comply with regulations
- May have higher overall taxes (i.e. dividends paid to shareholders are not deductible from business income; therefore, this income can be double-taxed)
Types of Corporations:
- Subchapter S Corporation
- A tax election only, this election enables the shareholder to treat the earnings and profits as distributions and have them pass through directly to their personal tax return. However, the shareholder, if working for the company, and if there is a profit, must pay his/her wages, and it must meet standards of “reasonable compensation.” This can vary by geographical region as well as occupation, but the basic rule is to pay yourself what you would have to pay someone to do your job, as long as there is enough profit. If you do not do this, the IRS can reclassify all of the earnings and profit as wages, and you will be liable for all of the payroll taxes on the total amount.
- Limited Liability Company (LLC)
- The LLC is a type of hybrid business structure that is now allowed in most states. The best of both worlds, it is designed to provide the limited liability features of a corporation and the tax efficiencies and operational flexibility of a partnership. The formation is more complex and formal than that of a general partnership.
- The owners are members, and the duration of the LLC is usually determined when the organization papers are filed. The time limit can be continued if members vote at the time of expiration. LLCs may not have more than two of the four characteristics that define corporations: limited liability to the extent of assets, continuity of life, centralization of management and free transferability of ownership interests.
- Federal Tax Forms for LLC
- Taxed as a partnership in most cases, corporation forms must be used if there are more than two of the four corporate characteristics, as described above.
In summary, deciding the form of ownership that best suits your business venture should be given careful consideration. Use your key advisors and connections to assist you in the process.
6. Register and License Your Business
Select a business entity type that best fits your business needs
First things first, you’ll want to make sure your business is legal. The first step is to decide what kind of business entity (legal structure) is best for you. Careful consideration must be given to the management, structural and tax implications of your decision.
- To register a business name for a sole proprietorship or general partnership: Contact your local county recorder where you intend to do business. Visit our County Resources page for specific information.
- To file a Corporation, LLC, LLP, or Limited Partnership, contact the Secretary of State’s office for application forms and filing requirements.
Get local license requirements
- Visit the Indiana Secretary of State to create an INBiz account for your business. This site will walk you through any state license requirements your business might need.
- To register a business name for a sole proprietorship or general partnership, contact your local county recorder where you intend to do business. Visit our County Resources page for specific information.
Obtain an employer identification number (EIN) from the U.S. internal revenue service
Employers with employees, business partnerships and corporations must obtain an Employer Identification Number (EIN) from the U.S. Internal Revenue Service. Even if you are a sole proprietor and don’t have employees, it is still good practice to obtain an EIN. You may need an EIN for some government forms. Banks often require it for loans, and it can be used instead of your personal Social Security Number to protect against identify theft.
Obtain the necessary tax information
There are various taxes you will need to explore to ensure your business in operating properly. You may have different taxes to consider at the local, state and federal level and they can vary based on the type of business. In addition to the taxes you pay as a business owner, there are certain taxes that you collect on behalf of the state and local government. These include sales tax, food and beverage tax or innkeepers’ tax. Your local West Central Indiana Small Business Development Center can help you determine what taxes you need to collect based on the type of sales activity you operate. If your business involves any sales activity that is subject to collecting tax on behalf of the state or local government, you must register before your first sale. You will register on the IN Biz site.
When it comes to taxation, small businesses have the potential to be simple or complex, depending on the size and business structure. The tax liability for each business will vary and you should consult your attorney and accountant regarding comprehensive tax planning.