In America, small businesses make up nearly half of all the workforce. There are approximately 142 million individuals working in the private sector, and of that, 42% work for companies which employee less than 100 employees. This paper is going to focus on the steps needs to successfully create, finance and market a small business.
Creating a new business may seem daunting and intimidating, however there are a lot of resources out there to assist new entrepreneurs wishing to start up a new company. The first step in creating a new business is to visualize the business concept, and then to write out a general outline, which is also known as a business plan. Companies are created for the sole purpose of making profit, and a small business is no different. Unfortunately the odds are against small businesses as 60% record no profit, and only 9% of all small businesses will be operating after 10 years.
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This is why it is very important when writing a business plan to create a 3-5 projection, showing estimated profits for your business after the two year mark. It is already expected and widely accepted by business analysts that a small business will either break even or show no profit for the first 2 years. Other important things to consider when creating a small business are: determining the legal structure of the business; i.e. what kind of partnership works for this business.
There are three kinds of partnerships available to business owners, each with their own set of pros and cons. The first is the General Partnership which consists of two or more parties. The pros are that it is inexpensive and relatively easy to set up. You can also deduct losses from your own personal income, and there is no taxation on the business itself. However the cons are that each partner is personally liable for any debts incurred by another partner. It is also harder to attract potential investors due to the risk of personal liability.
Limited partnerships are a popular one with small business startups because they keep one person personally liable, but allow for a limited partner who is most likely the investor to get involved without risk of personal liability and taxation on their individual taxes. A limited partner is not allowed to make management decisions but is allowed to garnish profits and revenue from the business. One of the biggest cons in this is that it requires much more filing of paperwork and the taxation becomes more complicated.
The last type if the LLP, or the Limited Liability Partnership. This is for businesses whom would like to operate with no assumed personal liability. This takes all personal liability away from all invested parties and profits and losses are passed to all partners. The biggest disadvantage with this is that much like its name it is limited as to whom this available to. LLP’s tend to cater to occupations such as physician’s or attorneys.
After the type of partnership has been selected it is important to understand and know what kind of funding options are available to small business operators. One of the greatest resources publicly available to any aspiring entrepreneur is the U.S. Small Business Administration. They offer an immense amount of information and outlets in all things related to starting a small business and can get the business owner pointed in the right direction in securing financing.
There are various loan types and one caters to specific business needs. It is up to the business owner to determine which one is suitable to assist them in getting their business up and running. There is the General Small Business Loan 7(a) which is the most common type of business loan available. Microloan Program was established to provide small short term loans to business and certain non-profit organizations. There is also the Real Estate & Equipment Loans which is self-explanatory.
Once finances and loans can be obtained it is then very important to apply managerial accounting. Managerial accounting is data compiled to be analyzed by inside employees. Managerial accounting is the internal analyzing of all costs within a business. Some examples would be the cost of shipping, and the cost of a product. These reports helps in establishing the profit margin (if any) after all costs for running and operating the business have been established.
Marketing a business is a crucial portion of any business. The marketing budget depends on each business’ needs, however it is not uncommon for a new business to spend 50% of all gross sales on marketing, especially in the 1st year. There are numerous ways to market a business and the correct procedure depends on what the business is providing as well as what industry the business is operating in.
Some general ways to market which can work for nearly all businesses are to design a website. Run ads in local publications. Use word of mouth with the assistance of business cards. Network with other small, local businesses. In today’s fast paced society, it is also highly recommended to get involved or hire a firm who knows about social media.
Social media experts specialize in finding your businesses target demographic, and then making sure to get your business services or products to them. They use outlets like Facebook, Twitter, and email blasts and have the ability to develop clever marketing campaigns. America now operates as a service industry, with customer satisfaction and service being at the fore front of nearly all marketing campaigns. It is not uncommon now for even large businesses engaging with clients and interacting with customers in the hopes that they are satisfied and will become repeat customers. These are all the benefits that social media can provide.
- Wallace, D. (2013, March 25). Infographic: The Most Tried and Failed Small Businesses. Smallbiztrends.com.
- Paul, S. (2008, September). Partnerships Pros and Cons. Legalzoom.com.
