How to Become a Business Owner
Over 600,000 new businesses are formed in the US each year. About half will survive the five-year mark and a third will survive their tenth birthday, according to the SBA. Which means the fundamental question for business owners isn’t how to become a small business owner, it’s how do you ensure your business lasts?
There are universal practices that you can implement to ensure that your business is built for long-term growth. Today, we’ll discuss everything you need to know about how to become a business owner, and how to set it up for success, including:
- Identifying a problem in the marketplace
- Understanding your market
- Building a business plan
- Registering the business
- Positioning it for success
Step 1: Identify a Problem, Present a Solution
At this point, you may already have an idea for a business that’s been forming in your head over the years. Or, perhaps you’re starting from scratch and just want to become a small business owner. Regardless, there are some critical questions you should be asking and then addressing before turning your dream into reality as an entrepreneur.
The first and most critical question is: what is a problem that many people have and how would you solve it?
While this may seem like common sense, far too many people jump right into designing a website or building a business plan before actually taking the time to consider whether or not the business is needed.
“When developing new products, processes, or even businesses, most companies aren’t sufficiently rigorous in defining the problems they’re attempting to solve and articulating why those issues are important. Without that rigor, organizations miss opportunities, waste resources, and end up pursuing innovation initiatives that aren’t aligned with their strategies.”
Starting a business is a risky affair, even if you’re already a successful entrepreneur. It’s important that you’re directing your energy toward an actual problem.
Step 2: Understand Your Market
Once you have settled on the type of new business you want to create, it’s vital that you conduct rigorous market research. Considerations include:
- The market demographic – You have to extensively research your area and its demographics. Does your new business have competition? If so, who are the main rival businesses, and how could you do what they do, but better? If you’re alone in the market, how are people already solving the issue you’re attempting to address?
- Market size – How big of an opportunity is this? Are you trying to build something small and local, or something with potential to go global? Depending on the products or services you’re selling, technology has made it much easier to expand your geographic reach immediately.
- Your target audience – As you refine your idea, identify and understand your target customer. Who are they, what do they like, how do they shop, what type of messaging do they respond to? By taking the time to build out customer profiles, you’ll be better prepared to reach them.
Step 3: Build a Business Plan
Once you confirm your market, it’s time to strategize how to target them. A business plan can help you outline your plan of action, identify the challenges you’ll inevitably face, and entice potential investors to inject capital into the project.
Previously, we’ve gone into depth about how to build a business plan. The U.S. Small Business Administration breaks it up into six key parts:
- Executive Summary – Tells the reader what the company is and the reasons why it exists—namely, to solve the problem you previously identified. It will include a mission statement, a description of the product or service, information about the company’s location and leadership, and financial information (if you plan on obtaining a loan or seeking investment).
- Company Description – Provides a detailed, high-level view of the company, including the problems the business plans on solving, the target consumer base and demographics, and your competitive advantages.
- Products and Services – Describes the good or service you’re selling in detail, particularly in relation to the benefits it provides customers. This section will cover the key product costs and detail the product’s role in the market.
- Market Analysis – Offers an in-depth review of the market, starting with a detailed report on the competition. From there, it will delve into the historical, current, and projected market for your goods or service, and the projected customer segments (size and demographics).
- Operational Plan – Details the sales and marketing strategy, and how they’ll be implemented according to the operating plan. This should include how you plan to run the business, reach customers, and what resources (labor and capital) you’ll require.
- Financial Plan – Projects the financial statements, including income statements, balance sheets, cash flow statements, and accounts for any major capital expenditures going forward. Think of this as your initial budgeting process to evaluate the financial feasibility of your business.
Step 4: Register the Business
When learning how to become a successful business owner, you have to consider the legal logistics of owning a company. To begin operating as a legitimate business, you’ll have to register with the federal government for tax purposes. That means, you’ll have to choose a business structure. The structure you choose can impact your liability, taxes, control over the company, and the ease of finding investment.
The five most common business entities are:
- Sole proprietorship
- Limited liability partnership (LLP)
- Limited liability company (LLC)
- C Corp
- S Corp
Note: For further detail about the types of business structures. See our previous post on How to Choose a Business Structure.
Once you’ve settled on a business structure, you’ll need to apply for an employer identification number (EIN), also known as a Federal Tax Identification Number. This unique nine-digit number allows the IRS to identify your business for tax purposes.
You can apply for an EIN by visiting the IRS website.
Finally, you’ll need to set up a business bank account, and consider your funding options. Whether you require outside investment or the help of creditors, it’s important that you start that process immediately. That way, you’re ready to open your doors and hit the ground running.
Step 5: Position the Business for Success
Once the business has started, there are some business practices you’ll need to embrace to ensure positive growth, including:
- Get your name out there with marketing – There are several things you’ll need to do to market your business. For starters, that process includes building a website, optimizing it for search, and leveraging all applicable social media channels.
- Ensure top-line growth with good sales practices – To consistently grow your business, it’s critical that you embrace best sales practices. Common ways that businesses ferment top-line growth include: highlighting core performers, leveraging feedback and insights to increase conversions, focusing on repeat customers, and creating a referral system.
- Maintain control over finances – Finally, it’s vital that you have a tight rein over your company’s finances. For that, you need visibility over your cash flow at both a bird’s-eye view and at a granular level. You can achieve this with an automated expense management platform; ideally this comes built into your corporate card.
Ramp: The Corporate Card for Successful Business Owners
There’s one tool that every business owner needs to operate their business efficiently—a corporate card. The type of business card you choose can have a significant impact on your chances of success. Ideally, you want a card that has high limits, unlimited cash back, and integrated expense management and vendor management platforms to help you monitor and control your company’s spending.
This is where Ramp can help. Ramp is the only corporate card that’s purposefully built to help you save. Whether it’s simple 1.5% cash back on every purchase, automated expense tracking, or holistic vendor management capabilities, Ramp has all of the built-in tools you need to start a business and then make it last.
Experience all of Ramp’s capabilities today.