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The First Year: A Comprehensive Guide To The First Year of Your New Small Business (Part 1 of 2)

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The First Year: A Comprehensive Guide To The First Year of Your New Small Business (Part 1 of 2)

It’s 2021. New year. New you. New business.

All you have to do is get online and start picking up clients, right? 

Wrong.

While starting a small business online has never been easier, an incredible amount of work still has to go into it. 

And skipping steps can make it or break for you (like, you could get sued, ya’ll 😨). 

👎🏽 Don’t lose money before even making it. 

👍🏽 Do take our advice.

In Part 1 of our guide, we walk you through the preliminary stages for the first year of your new small business, showing you how to properly research and create a business plan FTW 🙌🏽 

We also show you how to choose the right business structure and take care of your finances because ya know, they’re also kinda important. 

Make sure to put it all into practice in Part 2, where we’ll discuss how to legally register, promote, and run your business. 

You CAN start and build your side hustle into a profitable main gig with confidence. 

Let us show you the way 👇🏽

But First, Should You Switch from Freelancer to Business Owner?

You became a freelancer to drop the 9-5, be your own boss, and do things your way.

So, what could owning a business do for you that freelancing hasn’t already? 🤔

We could just give you the answer right about… now. 

But we think it’s more powerful for you to come up with the answer yourself

(Yeah, we just did you like that 😜)

What we will do for you is give you some things to keep in mind when making the transition

  • 💪🏽 Be prepared. As a business owner, you’ll be thrown headfirst into finance, leadership, management, hiring, firing, the whole shebang. 
  • 📖 Do your research. We knock you hard over the head with this down below. We’re just dropping it here, too, to let you know it’s coming.
  • 👩🏽‍🦱 Consider finding a co-founder. Partnering with someone who has complementary skills not only helps you offload some of the decision making, but he/she will be your right-hand person in everything. Choose wisely.
  • 🤔 Think about scalability. As a freelancer, you charged for the time it takes to complete one particular activity. As a business owner, you have to think about scaling, which could mean selling a product or service at a fixed price (at mass). Less effort for you. More profit in the end.
  • 👩🏽‍⚖️ Remember legalities. As an independent contractor (a.k.a. freelancer), you don’t have to worry about half as many legal obligations as business owners do. Stay on top of what’s needed legally every step of the way so no unexpected fines occur.

(Pro tip: As you’re going through both parts of this comprehensive guide, think about what these will look like for you in your new business.)

Now, Start with Your Research

You’ll notice a trend across our guides. Research is always first. Always. 

Yes, it can be boring. Yes, it takes time. But you’ll be SO much more prepared if you actually do the d*** work. Trust us. 

Let’s dive in. 

Get details on your target customer and market

In case you haven’t caught our Ultimate Guide To Becoming A Freelancer In 2021, creating buyer personas is the way to go

Age, occupation, education, and other lame demographics usually make up the brunt of these semi-fictional representations of your ideal customers.

However, to get the most out of them, you have to dig deep into the minds of your target customers and identify things like: 

  • 📱 Their communication channels 
  • 💪🏽 Their personal and professional goals 
  • 🤩 What motivates them
  • 😫 Their problems and pain points
  • 💲 Why they would purchase from your business

Put all of this in a nice little template, and you’ve got yourself a buyer persona. 

Actually putting in the work here will help you better serve the real people they represent — uhm, hellooo, your customers!

So, even though your target customers got 99 problems, what you solve for them won’t be one 😏

*Cue Jay-Z*

But in all seriousness. We want you to realize that last point on the list is key 🔑

What will make your ideal client buy from you instead of the competition? 

What’s your secret sauce? What value do you bring to the table? 

These are all incredibly important questions to ponder.

Moooooving on 🐄

Find your niche (or nah)

Now that you have target customers, it’s time to narrow it down even more 😁

Find your niche.

Again, as we mentioned in our Ultimate Guide to Becoming a Freelancer in 2021, you don’t necessarily need a niche starting off, even as a business owner.

You may have absolutely no idea what you want to specialize in, or you want to be a catch-all, and that’s OK!  

But if you’re ready to choose a specific industry, we promise you won’t go back. 

Having a niche increases your perceived value and gives you a leg up over competition as well as a competitive advantage. 

For example, if you start a marketing agency, maybe you only target selling services and products to environmentally conscious brands 🌳 Or, maybe you start an accounting firm solely for local, family-owned small businesses in your area 🏢

A tip here is to take those buyer personas from the step before and backtrack a bit. 

💭 Think: What industries are these people working for? With that answer, you’ll know exactly where to find your ideal clients and others like them.

Either way, there’s a reason why they say the riches are in the niches.

Perform a competitive analysis

This is fancy talk for scoping out your competition

Start by handpicking comparable businesses to measure up. To make sure it’s fair game, ensure the other businesses are:

  • 👌🏽 Of similar size
  • 👩🏽‍🦰 Targeting the same customers
  • 🌎 Serving the same geographic area (if local)
  • 🏢 With the same business structure (more on this later)
  • 🐣 Young (You won’t go head-to-head with businesses that have been around for longer than you have, now would you?) 

The point of this is to see how you fit into the existing business landscape so you can adapt and pivot as necessary. 

Then, move on to your SWOT analysis.

Before starting, have a clear objective in mind

What’s your end goal with the analysis? Will you introduce a new product or service? Do you want to adjust how you’re currently doing things? 

When you have your clear objective, fill out the four areas of the analysis: 

  • 💪🏽 Strengths. What strong points does your business have? 
  • 😥 Weaknesses. Where are you lacking? How could you improve?
  • 💡 Opportunities. What could you take advantage of for growth?
  • Threats. Who/ what could be the end of your business as you know it?

Finally, develop a strategy to address key issues, putting all four areas of the exercise side-by-side for reference. 

For example, you can see how your strengths can help you maximize opportunities available in your field, or you can try to think of how you can minimize weaknesses to overcome potential threats. 

Going through this process will help you prepare the ground to “define a competitive edge that creates sustainable revenue.” (As said best by the U.S. Small Business Administration.)

Which leads us nicely into our next point… 

Determine your unique selling proposition

Your unique selling proposition (USP), or competitive advantage, is what makes you you.

It’s as much intertwined with your business, products, and services as it is with you as a person. 

A USP is a single attribute that is unique to you and no other competitor. It comes to mind as soon as a person thinks of your business or your brand.

👉🏽 Here’s a few: Walmart’s “everyday low prices,” Amazon’s 2-day shipping, and Nike holding the monopoly for… running shoes. That’s right.   

👊🏽 If you aren’t already known for something, take your competitive advantage into your own hands

Remember: What you say and what you do should align with that unique attribute you’re trying to be known for. 

With that USP, you’re effectively moving from a red ocean to a blue ocean (droppin’ some finance terminology on you here 😉).

But if you want to just keep swimming among the seas of competition, who are we to tell you otherwise? 

Sooner or later you’ll catch the drift.

Remember some final key points when researching

As we’re wrapping up on the preliminary data stage, we - and our friends at Entrepreneur - want to give you some final tips so you don’t stress as much: 

  • 🤑 While you may be tempted to research everything under the sun, it’s impossible. Concentrate on what gives you the biggest ROI, or return on investment. (Add it to your small business dictionary.)
  • 🤔 When starting a small business online, it shouldn’t cost you a lot of money. If you’re tempted to outsource the work to a consultant or market researcher, ask yourself: Whose dreams are these? Whose business is this? 
  • 😍 It’s incredibly easy to get side tracked when researching. Don’t do it. Don’t get shiny object syndrome. (Yes, it’s a real thing.) Focus so it’s more concise, usable, and valuable to you. 

Woohoooo! 🎉 We've reached the end of researching.

Now, let’s draft up a steadfast plan to get your new small business rolling.

Create a Business Plan


With research done, get ready to put pen to paper (or voice to Notes) to start developing an actual plan

Yeah, that’s right. We’re not just wingin’ it.

Why you need a plan

Think of your small business plan as a roadmap that will help you figure out where you’re even going 🚗 

With a good plan, you can sell the idea of your company and its long-term vision better.  

Actually, one survey found that those who take the time to create a business plan are two times more likely to “successfully grow their business and attract lenders or investors” in comparison to those who didn’t bother doing so. 

Kinda sounds like NOT creating one is like throwing money out the window.

Don’t be like the baby. Just make a plan. It’s really not that hard. 

Plus, we’ve already done the hard part for you - figuring all this stuff out! 

You just have to keep scrolling and reading... 

How to structure your plan

There are a million different templates and styles you can choose from to create a business plan. 

(We didn’t count all of them, but we’re pretty sure that’s how many there are. I mean, have you tried Googling it???) 

Anyways, most business plans fall into one of two categories: traditional or lean startup. Let’s break them down real quick:

  • 💼 Traditional. These are the most common types of business plan you’ll find. They’re super detailed and, thus, incredibly time consuming. They’re easily over 20 pages long. Lenders and investors drool over these.
  • 🚀 Lean startup. These high-level business plans touch on the most important elements. They’re typically just a page long and take a couple hours at most to whip up. They change as your business grows and scales, but future investors may ask for more info. It’s just not thick enough for them 🤭🤷🏽‍♀️

What to include in a small business plan

Whether traditional or lean startup, here are some key components to include in your business plan

  • ✅ Executive summary. As its name suggests, it is an overview of your business concept, including your mission statement.
  • 🏢 Company description. This includes the details of your company, such as who your customers are, the results of your SWOT analysis, and your USP. 
  • 🎯 Objective statement. Identify your short- and long-term goals as well as your strategy on how to achieve them. 
  • 👩🏽‍💼 Management and organization. Who runs the business, and what is each person’s involvement? Also, what is the legal structure? 
  • 🧠 Products and services. What are you selling to your customers, and how does it work? If you have intellectual property, include it here. 
  • 💻 Sales and marketing. How will you reach the eyes of your target customers to effectively sell your products/ services? What strategies will you use? 
  • 💰 Funding request. If you need money to start, this section outlines how much you’ll need and for what over the next five years (at least). 
  • 🔮 Financial projections. This is where you estimate your sales, income, expenses, and other business collateral, or anything that can easily be sold to satisfy a debt (equipment, real estate, inventory, etc.).   
  • 📖 Appendix. This section includes all other miscellaneous documents that may be needed for patent applications, contracts, permits, etc. It will more often be used by those seeking loans. 

Some final business plan pointers 

Before you finish, we beg your attention on the following: 

  • 🤥 Stay realistic. If you have high hopes for your new small business, that’s wonderful! However, your goals and figures should be realistic. (If you’ll apply for a loan or look at other funding options, investors can smell 💩 from a mile away.)
  • 🖋 Proofread. This one is really a no-brainer. Hire a professional copy editor if you’re not grammatically inclined. Any orthographic, punctuation, or grammatical errors could trigger red flags for lenders and potential investors. 
  • 📄 Keep it concise. Both traditional or lean startup business plans should be as concise as humanly possible. Forget about technicalities and industry jargon. If absolutely necessary, drop it in the appendix.  

Really, there is no right or wrong way to create a business plan. What’s important is that it fits your needs, and that you actually USE IT!

What’s worse than throwing money out the window? 

Wasting several hours or days creating a document that collects digital dust.

Decide on Your Business Structure

OK. You’ve done your research. You’ve made your plan. Now what? 

It’s time to look into how you’ll structure your business.

This is one of THE most important decisions you can make as a small business owner BY FAR.

It not only affects the taxes you pay, but also the amount of paperwork you file, how much liability you hold as a person, and how easily you raise funds

Roll up your sleeves cuz we’re diggin’ in deep on this one.

The most common business structures

Here are the most common types of business structures along with quick explanations and pros and cons of each: 

Sole proprietorship 

If you have not legally registered your business as a company, this is where you sit as a freelancer.

Truth be told, this is actually where most people begin because it’s so common and so easy to form. 

Basically, as its name suggests, sole proprietorships are owned by one person, and that one person reports all profits and losses on his/her personal tax return.

It is extremely straightforward and easy to start (Hellooooooooo, you don’t have to file any paperwork 👏🏽). 

Also, there is an abundance of free and cheap resources out there to make sure you’re doing it right. 

However, you’re responsible for your business’ liabilities, and raising money to fund yourself can be limited. 

Many sole proprietors rely on their personal savings or family loans to fund themselves, while others start making money right away and grow slowly. 

Partnerships

Partnerships are owned and operated by several individuals. There are a few to pick from:


  • ✅ General partnership. All partners sign an agreement outlining labor, money, skill, etc. contributed to the business. This includes how they’ll share management, profits, losses, and debt, too. It’s easier to form when everyone divvies up the work. (Don’t partner up with a Karen.) 
  • ✅ Limited partnership. This type of partnership has both general and limited partners. General partners are the same as before. Limited partners only invest. Because of that, limited partners have no liability in the company, and their losses are limited to how much they put down. 
  • ✅ Limited Liability Partnership (LLP). This is similar to the general, but each partner has no personal liability for negligence caused by another partner. LLPs are super common among doctors, who could get charged with malpractice of their partners.

Partnerships are 💣 for their tax benefits. Profits and losses are “passed through” to the individual partners, and each will report his/her share on his/her personal tax return. 

However, you’re not so easily off the hook when it comes to personal liability. General partners are liable for each other’s actions and debts. This means that if one partner takes out a loan, the other partners are legally bound to that loan as well. 

(We’re warning you not to partner with a Karen. If you don’t listen to us, you’ll pay the price… literally 🤑)

They’re also just more expensive to set up since they require more legal counsel and accounting services in comparison to a sole proprietorship. 

Corporations

Next up we have corporations and their varying types

  • ✅ C corporation. Also called a regular corporation, a C corporation is considered an entity in itself. It holds certain privileges, rights, and liabilities that sole props and partnerships don’t have. It’s also taxed differently (more on this below) and allows you to have an unlimited number of people who own parts of the company - known as shareholders - in addition to multiple classes of stock, or equity in the company. In the U.S., this is the preferred entity type for tech startups and if you raise money and venture capital (specifically a Delaware Corporation, which is known for having some of the most founder-friendly laws). 
  • ✅ Not for Profit (nonprofit) corporation. This type of corporation is open to serve public interest. Therefore, it isn’t operational to make money for itself and has to follow certain requirements and activities in order to stay legal.
  • ✅ S corporation. Often considered more attractive to small business owners, S corporation profits and losses are passed through to shareholders, meaning owners avoid paying some taxes. There can be up to 100 shareholders, which is great for getting more funding, even if there’s only one type of stock allowed to be sold.

(Yes, we realize it’s starting to get complicated. So, feel free to bookmark this page and come back when you’re ready to expand your business empire 🚀) 

But just reading through the list, you can see how creating a corporation is definitely more complex and more expensive than other business structures.

It’s because it’s considered an independent legal entity separate from its owners. Therefore, it has to follow more regulations and tax obligations. 

Even so, the liability benefits of corporations are on point. Any debt incurred on behalf of the C corporation by its owners is not personal. This means that if you take a loan out for $500,000 under your C corporation’s name, your personal assets aren’t at risk if you fail to repay it. 

Owners of C corporations can also retain some of the company’s profits without paying taxes on them 😎

Hybrid

Limited liability companies (LLCs) combine the best of both partnerships and corporations, allowing there to be just one owner as well.

They were created to offer business owners liability protection - similar to a corporation - with profits getting taxed on the member level (a.k.a. avoid double taxation).

There is also no limitation on the number of shareholders, and owners of the LLC can all fully participate in business operations. (Remember this isn’t the case for limited partnerships.) 

What to consider when deciding on a structure 

We know. We knowww.

But honestly, we would rather lay it all out on the table for you now than have you come across this later and be like wtf, why did no one ever tell me this before?

Well, here we are, telling you. Because we’re always lookin’ out for ya 😘

Nice talk. Back to biz.

While it is possible to switch business structures later down the road, do your research and decide on what you want now so you can save yourself the headache. 

Not only would you waste time in legalities, but you’d also spend a pretty penny in the process, too.

Not tryna scare you, but doing this part wrong can cause you some serious financial distress, like steep penalty fees from the IRS if you miss quarterly tax payments.

So, do yourself a favor and answer the following questions before choosing which structure to open for your new small business.

  • 🚙 Do you want to risk your personal assets? You’re dealing with the real world. Lawsuits and defaulted loans can happen. If they do, you probably want to shield your car, bank accounts, etc. from any damage in the crossfire. LLCs and corporations limit members’ and shareholders’ liability. Sole proprietorships and some partnerships… not so much. 
  • 💲 How do you want your profits taxed? Sole proprietorships, partnerships, S corporations, and LLCs are “pass-through” entities, meaning that profits are reported on the owners’ personal tax returns (a.k.a. No double taxation). Because C corporations are separate entities from their owners, they’re taxed on the corporate level (a.k.a. Double taxation). 
  • 👨🏽‍💼 How formal do you want the management structure? The more owners involved, the more complicated the management structure. All corporations are required to have a board of directors that speaks on behalf of shareholders. Whereas, agreements between partners generally governs what happens in partnerships and LLCs. 
  • 📄 How heavy of admin do you want? Again, the larger the company, the more complex the administration becomes. Noncorporations generally require light paperwork and small fees to set up. The complete opposite is true of corporations. You have to jump through a lot of legal hoops if you want things done right. So, hire a lawyer and/or an accountant to help you.
  • 🔮 What do you see happening in the future? Will you be seeking investments from funders? Do you want to be publicly traded, instead of privately owned? Maybe a C corporation is best for you then. Also, what if you or your co-founder want to retire from the company, or someone passes away? Corporations also live on after these life changes.

If you’re feeling up for it, we recommend you wade through the IRS’ legal and tax considerations for each business structure. They won’t fail you.

Or ya know, ask your accountant. (Yes, you should have your own CPA to make life easier for you as a business owner. Please don’t do this alone 😭) 

Figure out Your Finances

You should already have an idea of how much you need to build your business and what you’re going to invest in over the next five years. 

(That was part of the business plan 🙄)

Reminder: There’s more than the initial startup costs. 

Think about funding needed to bring you to a point of consistent profitability, like purchasing subscriptions to programs and apps as well as any website costs, to name a couple.

 

If you see you have enough to get things going today and in the future, you can skip this section and continue on to the next.

For those who need ideas on how to rake in the moolah, here are a few ways to fund your business endeavour

  • 👩🏽‍💼 Business loans. Head off to a bank or other credit union to ask for money from a lender. You’ll hash out the loan amount, length, interest, and other repayment terms. Our friends at Forbes fill you in on the steps to getting a small business loan.
  • 🆓 Business grants. These work exactly like a loan. The key difference is that you don’t have to pay the money back. Because they’re usually funded by the government and nonprofit research institutions, they can be incredibly difficult to secure. Competition, strict application requirements, ya know. The yoozh.  
  • 🤝🏽 Bartering. Ever swap your cookies for a pack of Koolaid as a kid? Bartering kind of works the same way. Maybe you’re a photographer and need someone to help you build your website. You could swap some photoshoots in exchange for a killer website.
  • 🏧 Self-funding. Dip into your savings, ask friends and family members, and withdrawing from your 401k (if you have one) are all ways you can self-fund your new small business.
  • 💳 Business credit cards. A business credit card works exactly the same as a personal credit card, but it’s associated with your business account, obvs. Just make sure whatever you purchase with your new card is paid on a month-to-month basis. Or you’re gonna rack up some serious interest. 
  • 🤘🏽 Crowdfunding. Popular crowdfunding platforms like IndieGoGo and GoFundMe are all the rage these days for those lacking capital to fuel their innovative ideas. With a legit profile and some possible collateral in exchange, you’ll receive donations in no time. 
  • 🦈 Venture capitalists. Remember the show Shark Tank? Yeah, the sharks are venture capitalists (VCs), or investors who choose to fund startups and other small companies in exchange for a percentage of the business. Definitely read up on them before putting your eggs all in their basket - in other words, banking on them to fund you (no pun intended).
  • 😇 Angel investors. Similar to VCs, angel investors are individuals who invest in small businesses in hopes to receive a great ROI in the future. However, because they focus more on helping people build their businesses versus immediately profiting, their terms tend to be more reasonable. They’re also more likely to invest in businesses just starting out.

Basically, the ways to secure funding as a new small business are as varied as your...

 

If that wasn’t enough for you already, we’ll just drop this here, too, before moving on: 

The Small Business Administration (SBA) offers some programs to help entrepreneurs fund their businesses and get things off on the right foot. 

So, if this sounds up your alley, check out the SBA’s investment programs to see if your business qualifies for any of them.

Name Your Business

Before we move along to Part 2, where we’ll show you how to register your business and make it official, you need to come up with a name. 

While yes, technically any name will do, here are some things to think about with the naming process:

  • 🍰 Easy. Go for names that are easy to spell and pronounce, not only for your sake, but for everyone else’s sake, too. 
  • 🌟 Original. If your business sounds like the million others out there, you’re gonna get lost in the sea of competitors. Don’t be bland. Be original.
  • 💭 Simple to remember. Along the same lines, your business name should also be one that doesn’t have your customers thinking: What was the name of that business again? 🤔 For example, for a web developer named Ash Smith, something simple and catchy could be “Websites by Ash.”  
  • 👏🏽 Leaves a good first impression. First impressions are hard to shake off. Like, period. So, your business name needs to give off the feelings you want (professional, trustworthy, innovative, whatever).
  • 💯 Reflects your business foundations. Pull out your USP, target customers, niche, etc. Those come into play here. Make sure your name accurately represents how you’ve set your business up to be.
  • 🌳 Gives air to potential growth. You did the five-year plan. You know where you’re heading. So, pick a name that reflects not only your current status, but your future direction as well. If you don’t, it could limit your business growth.

When you’ve come up with a few options, test the waters. Pass the shortlisted names to family, friends, potential customers, and others to see what their feedback is.

When you’ve chosen the perfect one, the next step is registering your business name to make it legal.

Or we we like to call it, pull a Beyonce and put a ring on it 💍😉

🐇 Hop on over to Part 2 of The Comprehensive Guide to The First Year of Your New Small Business to catch this and much more.

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