Small business is one of the biggest drivers of economic growth in the U.S. The latest update from the Small Business Administration (SBA) still shows that 99.9% of U.S. businesses are small businesses. Those companies provide 47.1% of all private-sector American jobs, covering 61 million people. Small businesses have added nearly twice as many jobs as large businesses, with 10.5 million since 2000. In fact, the SBA reports that since the 1970s, small shops have produced 66% of the net new jobs in America.
ECommerce is one of the most significant factors in the rise of small businesses. With access to the internet, it’s easier than ever to start your own company. Whether you are a budding eCommerce mogul or just want a side hustle, it pays to do it right. Here are the tools and resources you need to get started.
Red Stag Fulfillment is a 3PL with ecommerce DNA. We’re committed to being a partner to businesses like yours, so we regularly update guides like this one. It has been refreshed with new information and republished on September 29, 2021.
4 questions to ask yourself before you begin your business
It may be tempting to plunge in headfirst, especially if you’re excited about your fantastic new business idea. However, your chances of long-term success will improve if you pause and get clear on your priorities.
Here are four questions to ask before you start a small business. The more honest and thorough your answers, the better your foundation will be. If you don’t know how to answer these questions, reach out for help from a mentor (more on that below).
1. What’s the market for my product?
Let’s say you’ve created a mug in the shape of a tree trunk. You love it. You feel great when you drink your morning coffee out of a tree trunk. You’ve given a few to your friends, and they seem to like the design. Although it sounds great, this is not market research.
You’ll need to know a few more things to understand your market. First, what is the market for ceramic mugs? How crowded is this market niche? Second, what’s the market for novelty or specialty mugs?
It’s a good idea to investigate market delivery as well. Will you sell to stores or market your mugs online? If your small business is primarily eCommerce, find out how much it will cost to box and ship your mugs. If the cost of eCommerce fulfillment doubles the cost of the mug, will the market bear this price? Can you still make a profit?
2. How will I finance my startup before it turns a profit?
If you’re planning a side hustle, your financing may be straightforward. You can continue to work at your current job, so you won’t need to worry about keeping a roof over your head. You may be able to scrape together enough funds for your initial production run from your savings.
If you want to build your business into your full-time job, however, you need to think about financing for your startup. This isn’t just your capital and overhead. At some point, your operations will get big enough that you’ll need to quit your day job.
Think about how soon you’d like to transition into working on your small business full-time. Ask yourself how soon you can realistically expect to see a profit. Then double that time estimate (entrepreneurs are optimists). Figure out your monthly living expenses. It’s a good idea to start a new brand with enough reserves to pay your bills for several months. Also, consider when you’ll need to hire employees to help you grow.
Do you have enough money to self-fund the startup phase of your small business? If not, you could plan to roll out your business slowly to ease the financial burden. Or you can look for outside financing—more on this below.
3. What kind of return do I want from my business?
Would you be happy with a few extra bucks in your pocket? Or do you need to support a family of five with three kids in college? Do you want your business to provide enough income to fund a private airplane?
The answers to these questions will help shape the direction of your new store. If your goal is to sell some of your tree trunk mugs, and that’s it, you can start with a simple business plan. If you want a business that allows you to cruise around on your yacht, you’ll need a ceramic mug empire. You might want to work with a designer to create more types of mugs. Or you might decide that the mug market is too small for your ambitions. You might need to find a different product to sell.
4. What kinds of help do I need to get started?
You don’t need an MBA to start your own small business; you don’t even need experience running a store. Everyone must start somewhere. However, you don’t have to learn by making lots of mistakes. There are tremendous resources available to shop owners. You can find a mentor, take a class, or join a boot camp (more below). You don’t have to go it alone.
Small business startup resources
As you prepare to start your business, the first step is to reach out for help. Fortunately, there are many great resources for small businesses in the U.S. Even better, many of these are free.
- SBA Office of Advocacy FAQ Sheet: This valuable collection of facts covers most aspects of small business. It answers the top 21 questions people ask.
- 20 Questions Before Starting: Here are some core considerations and questions to ask when you’re thinking about starting a small business.
- Business Structure: Do you want to be a sole proprietor, LLC, or S-Corp? Your tax status and other regulations depend on your business structure. This SBA resource will help you choose the right structure.
Small business training and resources
Everyone can use a helping hand when they’re starting a business. Even if you’re a serial entrepreneur, coaching and mentoring can be immensely valuable. Spending time with a SCORE mentor or taking business training courses can save you time and money as you start your small business.
Here are a few of the training resources you might want to consider. Pro tip: These resources aren’t just for startups. If your small business has stagnated and you want help to take it to the next level, these resources are for you, too.
Services
- SCORE: The Service Corps of Retired Executives is a non-profit association supported by the SBA. SCORE provides free and confidential business advice from experienced business owners. The organization offers webinars, mentors, workshops, blogs, and one-on-one mentoring. SCORE’s services are free.
- SBA: The SBA has support for businesses that want to learn how to sell to the government. SBA’s All Small program can match you with a mentor-protégé. The service is offered at no charge.
General support
- Business boot camps: Business boot camps offer intensive training programs of a few weeks or months. A boot camp is an investment of both time and money because most charge tuition.
- Business incubator: Also known as startup accelerators, incubators combine the training and mentorship of a boot camp with opportunities for investor funding. These are popular in the tech sector and rapidly expanding into logistics, supply chain, and other beneficial areas for eCommerce. The big incubators are competitive; they get many more applicants than they can accept. If you want to work with one of these, be prepared to present your business well.
- Business coach: Business coaching is the most personalized small business training. It may also be the most expensive option. However, some business owners feel that business coaching fees are an excellent investment in their growth as entrepreneurs.
- Online video training: There are great online resources for business training. Many of these are inexpensive or free. Any question that you could have has probably been answered in a video on YouTube.
Top resources
- 10 Steps to Starting a Business: The SBA lists steps to take when starting a business, each with links for finding lots more information.
- 50 Free Resources to Help Grow Your Business: This webpage is the kitchen sink of small business lists. It includes everything from networking, operations, and funding to marketing, development, and branding resources.
- SmallBusiness.com: This site offers comprehensive resources for starting your business.
Business planning basics
Once you’ve done your market research and figured out how you’re going to fund your business, it’s time to write your business plan. Again, you don’t have to have an MBA to write a good business plan. The key is to figure out what’s important to you.
Your business plan should reflect the values you bring to your business, as well as your goals and your strategic plan. You can make your business plan as detailed or as simple as you want. Your plan doesn’t have to be perfect. In fact, if it doesn’t change over time, you might be doing something wrong. Think of your business plan as a living document that you will update as your vision for your business shifts.
The only business plan mistake you can make is not to write one. A business plan can double the chances of your small business succeeding. However, your business is likely to grow faster if you do have a written plan. In addition, if you want a business loan or investor funding, a well-written business plan is a must.
- One Page Business Plan: This company grew out of The One Page Business Plan, a book by Jim Horan. If you feel intimidated by the idea of creating a business plan, this is a great resource. Horan’s fast and effective approach makes business planning simple.
- Business Plan Resources: SCORE provides information on writing a business plan. You’ll also learn how to complete financial and cashflow statements or find listings for business planning workshops.
- SCORE Business Plan Template: SCORE offers a free startup business plan template. The template includes all the sections you might want in your plan, with detailed instructions and worksheets.
Where to start your small business
In our connected world, it’s easy to start a business at your kitchen table or on your sofa. If you’re going for the side hustle, a home-based business might be perfect. If you can earn extra money while curled up in your favorite chair, why not?
However, if you plan to expand, there are some limits to running a business out of your home. Your children and spouse may interrupt your workflow. As we’ve all learned during the pandemic years, the home is full of distractions. Anything from the laundry to the leftovers in the fridge can derail your productivity.
The caveat is that if your home is large enough to provide a dedicated operating space, this can be a cost-saving way to start. Just be aware of local zoning laws. These can affect your ability to base your business in your home. If your business is open to the public, it’s crucial to understand zoning and permitting regulations.
Some rental options give you a lot of flexibility. Co-working lets you use an office or conference room when you need it. This can be much cheaper than paying for a dedicated office space. If you’re starting an eCommerce business, you can contract with an order fulfillment warehouse to store and ship your products. This allows you to scale the warehouse space you use up or down as your demand fluctuates.
If you decide to rent space for your business, you’ll be in good company. According to the SBA, small businesses rent 30% to 50% of all commercial properties. That translates to 20 to 34 billion square feet. The SBA is an excellent resource for information about how to choose the right location for your business.
Relevant resources
- Tips for Choosing Your Business Location: This SBA page describes how to decide where to run your business. Factors to consider should include your brand image, the local labor market, and finances.
- Leasing Commercial Space: If you plan to rent a space, look for local business groups and support networks to help you find affordable locations.
- Home-Based Business Zoning Laws: This SBA resource helps you get up to speed on zoning and permitting for operating out of your home.
Financing your business
Your best financing option will depend on what you want to sell. Other factors include how you plan to enter the market and your business’s long-term growth strategy. Maybe you would be happy selling a few mugs a month to make some extra money. In that case, you can probably fund your startup by cutting back on lattes.
To grow, however, you will need more capital. You need financing for inventory, space, and equipment. In addition, you’ll need to pay yourself until the business becomes profitable. There are five broad categories of financing. Within each, there are many different variations.
1. Self-funding
Financing a small business from your existing resources is also called bootstrapping. The advantage is that your business doesn’t have the burden of paying off business debt. If your startup doesn’t take off, you won’t be stuck paying back loans for a business you no longer have. In addition, you don’t have to give an interest in your business to an investor.
The downside of self-funding your business is that lack of funding could limit your growth unless you have a lot of savings. Additionally, if you dip into your retirement savings or max out your home equity line of credit, you’re gambling with your financial future. SBA data shows that 30% of businesses don’t make it past the first two years. By year 10, only a third of businesses are still afloat.
It’s wise to hope for the best but prepare for the worst when opening a new business. Before you risk your retirement savings on your business idea, look at other financing options.
2. Family and friends
Don’t discount your family and friends, both as customers for your business and as financial backers. Your nearest and dearest may be happy to invest in your startup. Just make sure you are transparent with anyone who backs your business. Put financial agreements in writing to avoid misunderstandings later. Also, make sure your investors understand the risk of investing in an untested venture.
3. Crowdfunding
Crowdfunding is an increasingly popular way to finance a new business. You can also use one of these platforms to launch a new product in an existing business. Some businesses find great value in the market testing that comes with this type of financing.
Two of the largest crowdfunding platforms are Kickstarter and Indiegogo. Their funding models are different. Indiegogo allows you to do flexible or fixed funding. Flexible funding means you get to keep whatever funds you raise, whether you have two investors or 2,000.
In the fixed funding model, you set a funding goal. If you don’t meet that goal, you don’t get any money, and your backers get refunds. Kickstarter only offers this funding model, which it calls all-or-nothing. Fixed funding ensures that you raise enough to manufacture the perks or rewards that you promised your investors. If your startup requires a minimum order to be profitable, this is a good crowdfunding model for you.
Both of these crowdfunding platforms charge transaction fees for processing payments plus a platform fee. However, you get to fund your initial production run by pre-selling your products. Your only obligation is to send the promised perks to your backers. You don’t carry any debt or pay interest. Plus, you have a great platform to market test your new product.
4. Business loans
There are several ways to get a small business loan for your startup. The SBA offers microloans of up to $50,000.
Another place to look for startup funding is a small business grant program. Grants, unlike loans, do not need to be paid back. Grants often target specific groups, such as grants for women in business. The pandemic shifted some of this landscape, so be sure you look through all of SBA’s different programs for your size, industry, and location.
You may also qualify for special funding or grants if you are a veteran. There are small business programs for people of color, people with disabilities, and felons, among others. The downside of grants or other special funding programs is that the amount of money may be limited. You may need to seek additional funds through another channel.
5. Investors
You don’t have to pitch your business on Shark Tank or to a venture capital firm to get investment capital. The SBA offers debt and equity investment through SBICs, a private investment firm that SBA regulates. SBICs provide startup capital for small businesses.
Startup financing resources
Here are some resources to help you navigate operational financing:
- Calculate Your Startup Costs: This SBA resource can help you figure out how much you’ll need to get started right.
- SBA Small Business Finance FAQs: This 19-question sheet covers many current aspects of small business financing.
- Ultimate List of Crowdfunding and Fundraising Websites: This webpage puts all the information you need to make an intelligent startup funding decision in one place.
- National Credit Union Administration: In partnership with the SBA, the NCUA offers loan and grant information as part of an initiative to help small businesses gain better access to financial help.
- Seed-Stage Funding Sources: Entrepreneur looks at seven options for your startup, including crowdfunding, super angels, venture funding, and seed funds.
Licensing and taxes
You still have a few more decisions to make to get your business off the ground. To protect yourself and your operations, you’ll need to make sure you comply with applicable laws and regulations. Failing to do this at the start of your business can lead to headaches down the road. This is especially true if you want to grow.
If the thought of dealing with the legal red tape around store ownership gives you a headache, it shouldn’t. The paperwork can seem confusing at first, but you’ll soon get the hang of it. At some point, your company may grow to the point where tax and regulatory filings are too much for you. That’s a good time to hand your bookkeeping over to a professional.
Here are some of the steps you may need to take to make sure your small business operates on the up-and-up.
Licensing
- Get a Business License from Your City or County: If you’re a startup with no revenue, the cost should be minimal.
- Get a Sales Tax License: Most states require you to register with their revenue department if you sell taxable goods. If you’re an eCommerce seller, you may need to get resale licenses in multiple jurisdictions. Remember that most locations are expanding the collection of sales tax on Internet-based stores and services.
- Register our Business Name: Protect the trade name of your business by registering it with the proper authorities.
- Apply for Federal and State Licenses and Permits: The SBA helps you decide if you need any federal permits. Consult the Secretary of State website for your state for state permits and licenses.
Operations and security
- File for Patents and Trademarks: If your product is a new invention or creation, you’ll want to protect it. It’s a good idea to at least file for a patent (the process is lengthy) or trademark your work.
- Filing and Paying Taxes: Does your company need a state tax ID? This SBA page explains your tax responsibilities and how to meet them.
- IRS Small Business and Self-Employed Tax Center: This page provides links to all kinds of tax information. You can educate yourself about tax ID numbers, forms, and publications for company owners.
- Learn About Business Laws: You’ll need to become familiar with the laws that apply to small businesses. This SBA page explains laws relating to privacy, finance, online stores , and intellectual property.
- Nolo Press: Nolo Press is a tremendous resource for legal matters. It sells DIY legal manuals and provides some free resources on its website.
Get ready to start your small business
In addition to the resources listed above, be sure to check for resources in your local area. Business associations, chambers of commerce, and clubs offer support, advice, and networking opportunities.
Now is a great time to start your company. The bar for entry is low, and the possibilities for success are limitless. Even better, you can draw on powerful resources for support every step of the way. Now get out there and make your mark!
And if your business needs fulfillment support, be sure to ask a Red Stag expert for help!
