According to an annual report that tracks startup activity and trends over time, about 550,000 Americans launched new businesses each month in 2016.1 Better yet, today’s entrepreneurs are more likely to start a business because they spot an opportunity rather than do so out of necessity.
Do you have an idea that you would like to turn into a profitable business? Here’s an overview of some important first steps in the entrepreneurial process.
Research the market. Find out all you can about your industry. Does your idea fill a gap or improve on competitors’ existing offerings? Be sure to check for patents or trademarks on products that may already be in the works.
Make a test run. Taking your idea to several potential customers, before you invest too much time or money, may help you refine your product marketing and sales strategy.
Focus on funding. It could be months or even years until a new company is profitable enough to provide a stable income. In the meantime, where will the capital come from to get the business off the ground and pay your own living expenses? Bootstrappers may depend on their own savings and early company revenues alone instead of trying to raise money from outside investors.
Select a structure. What kind of business structure are you going to establish? Some of the most common operating structures are sole proprietorship, partnership, corporation, S corporation, and limited liability company. Each type uses a different federal tax form, and the one you choose also determines which business taxes you will pay: income tax, self-employment tax, employment tax, and excise tax.
Consider tax and legal responsibilities. The IRS requires businesses to use a consistent accounting method for the reporting of income and expenses, so choose a method carefully when you file for the first time. Keep good records to help support figures listed on your tax return. If you plan to hire workers, you may need a federal Employer Identification Number for tax purposes.
Write a business plan. Creating a document that outlines details of your new business venture — including the business model, costs, as well as the other aspects listed earlier — may help you anticipate and prepare for some of the potential challenges.