Set Your Small Business Up for Success: Strategies, Best Practices, Insights, and Tips

Part One: Mistake-Proof Your Business Idea

Nancy BilyeauUpdated August 15, 2022

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Editor’s note: Lantern by SoFi seeks to provide content that is objective, independent and accurate. Writers are separate from our business operation and do not receive direct compensation from advertisers or partners. Read more about our Editorial Guidelines and How We Make Money.

This is the first in a five-part series on small business success.

Mistake-Proof Your Business Idea

You’ve got a vision for starting your own small business, and you’re far from alone. Today in America, 32.5 million small businesses employ a number of workers that ranges from just 1 person to 500. For the last 25 years, small businesses have been gaining steam. It’s clear that more Americans than ever want to quit working for others and become entrepreneurs. The number of such firms just keeps increasing, from 15.4 million in 1997 to 26.5 million in 2018 and on to today’s total. While it’s an exciting trend and these numbers pack a wallop, you might also be wondering, “Ok, but what about the pandemic lockdown…inflation… supply chain … hiring shortages…?” It seems like there’s nothing but obstacles to launching a business right now—or if you have a business still in early stages, to keeping it alive. There’s no question that challenges exist to starting and running your own small business. Why else would nearly one in five U.S. businesses fail within the first year? However, what you might not know is that small businesses showed undeniable strength in startup numbers even during the worst of the COVID-19 pandemic. And post-pandemic, many businesses are reaching for success with more determination than ever. In this series, we will share insights, interviews, facts, figures, and tips for starting a small business that will help give you the best shot at success.

State of Small Business in 2023

If you assumed that the pandemic threw cold water on people’s initiative to start a new business, you’d be mistaken. In 2021, Americans applied to start 5.4 million new businesses—more than 20% higher than any previous year on record and more than two-thirds higher than the annual average of 3.2 million applications per year in the five years prior to the start of the pandemic, according to a report issued in April 2022 by the White House. People showed creativity and flexibility in what kind of business they launched in 2020 and 2021. According to the U.S. Chamber of Commerce, these are some of the most common types of startup businesses that popped up during the period when much of America was on lockdown:

Cleaning services
Delivery services
Drive-in movie theaters
Grocery stores and liquor and wine stores
Meal prep delivery services
Canned and jarred goods companies
Game makers and sellers
Fitness equipment companies
Landscaping and yard care companies
Tutoring businesses

Small Business: Regrouping and Moving Forward

While that list reveals a fascinating insight into what needs Americans had during the pandemic, a pressing question is: What about all the small businesses launched before the pandemic? The most popular types of business pre-COVID 19 were food service, health care, arts and entertainment, website design, auto repair, real estate, and pet services. (These categories are expected to spring back in popularity among brand-new startups.) There’s no question that lockdowns dealt a tough blow to just about every small business, but economists say many are staging a comeback. The Small Business Administration (SBA) said in a 2022 report that small firms had recovered 67% of the net jobs lost in the first half of 2020. The SBA said in June 2022 that forthcoming data is expected to “show that small firms have already recovered all or nearly all of their job losses from the 2020 economic shock.” In fact, many small businesses are busy pursuing new funding, including short-term small business loans for startups.

Portrait of a Small Business Owner

According to a SBA FAQ paper released in 2020, women own 41% of all small businesses. Other interesting statistics include:

In the same data group, 17.7% of employer firms were minority owned. Within that group, 5.6% were Hispanic-owned, 2.2% were Black owned, 9.7% were Asian-owned, 0.4% were owned by American Indians and Alaska Natives, and 0.1% were owned by Native Hawaiians and other Pacific Islanders.
In 2017, about one in six (17%) business owners with employees were immigrants. The industries with the greatest share of immigrant owners were Accommodation and Food Services (37%) and Retail Trade (23%).
Veterans owned 6.1% of U.S. employer firms.

Is It an Idea or an Opportunity?

People who’ve studied small business failure rates say that, unfortunately, some weaknesses are baked in from the beginning—it often goes back to the idea for the business. Being an entrepreneur holds great allure. For many of us, it’s irresistible. But before you take the plunge, it’s important to make sure your vision for a business is precisely that: a business. Ken Colwell, author of the bestselling book Starting a Business: QuickStart Guide, writes that aspiring entrepreneurs must make sure their idea is an opportunity and one that can be executed. “Opportunities are actionable, and they have the potential to provide value both to you and the customer,” Colwell writes. Instead of wracking your brain for an idea that will explode into overnight multi-million-dollar success, when coming up with a small business idea, try to focus on solutions to existing problems. Colwell says, “Simple solutions to common problems have a higher potential for success.” According to Colwell, a great opportunity has these qualities:

Solves a problem for a customer
Exists in a space that isn’t too crowded
Can be executed in a strategic space where you will hold an advantage
Fills a critical customer need that may not be obvious to them
Is not obvious to people who don’t have your background, experience, or insight

Starting a Small Business: The 10 Essential Steps

Ok, so say you’ve come up with your perfect opportunity, and you feel ready to launch. Now you’re truly ready for those tips for starting a small business. To mistake-proof your business idea, it’s crucial to follow best practices. A lot of people have a dream, but they may lack financial background and experience. To help, the SBA offers many mentorship programs, as do other organizations. Here, based on the agency’s years of experience, are the SBA 10 Steps to Success:

Conduct Market Research

Is your idea really a business? You must gather information about potential customers and businesses already up and running in your area. Use that information to find a competitive advantage.

Write Your Business Plan

Your business plan is a roadmap for how to structure, run, and grow your new business. You’ll use it to convince people that working with you—or investing in your company—is a smart choice. (More on the ideal business plan later in this article.)

Fund Your business

Your business plan will help you figure out how much money you’ll need to start your business. If you don’t have that amount on hand, you’ll need to either raise or borrow the capital. You’ll want to explore small business loans for startups.

Pick Your Business Location

You’ve heard it before: Location, location, location. Whether you’re setting up a brick-and-mortar business or launching an online store, the choices you make could affect your taxes, legal requirements, and revenue.

Choose a Business Structure

The legal structure you choose will impact your business registration requirements, your taxes, and your personal liability.

Choose Your Business Name

Don’t skimp on the effort put into this one. You’ll want a name that reflects your brand and captures your spirit. And make sure your business name isn’t already being used by someone else!

Register Your Business

Congrats, you’ve picked the perfect business name. Now it’s time to make it legal and protect your brand. If you’re doing business under a name different from your own, you’ll need to register with the federal government and maybe your state government as well.

Get Federal and State Tax IDs

You’ll use your employer identification number (EIN) for important steps to start and grow your business, like opening a bank account and paying taxes. It’s like a social security number for your business. Some states require you to get a tax ID as well.

Apply for Licenses and Permits

Keep your business running smoothly by staying legally compliant. The licenses and permits you need for your business will vary by industry, state, and location.Recommended: Apply for Small Business License

Open a Business Bank Account

A small business checking account can help you handle legal, tax, and day-to-day issues. It should be easy to set one up if you have the right registrations and paperwork ready.

Nailing Your Business Plan

Those 10 steps may sound like a lot—but while each and every one is important, coming up with a business plan could be the most critical advice point on the list. Not having one, or failing to put enough work into thinking your business plan through, is a chief reason that a small business fails, says DeLisa Clift, a certified mentor with SCORE, the nation’s largest network of volunteer expert business mentors. It’s not just that you’ll need a strong business plan to raise money. Your plan will serve as a road map, an outline, and a document that explains what your business is, what the goals of the enterprise are, and how exactly it will set about achieving those goals. It will definitely help keep you on track. Here, in an outline shared with Lantern by SoFi, Clift gives her advised business plan:

Executive Summary

Describe why the business needs to exist. What problem does the business solve?

Market

Describe the target customer or market segments.

Competition

Summarize the competition for your business.

Financial Forecast

Provide a brief overview of the financial targets. How much do you plan to sell in the next year? What are your long-term sales goals?

Financing

Needs (if applicable) for raising money for your business. Include a brief summary of what you are looking for.

Execution

Include a Marketing Plan that explains how you plan to get the word out about your product or service. And a Sales Plan that explains how you convert people who express interest in your product or service into paying customers.

Operations

Locations & Facilities: Describe your company’s physical location.
Technology: Describe any important software, hardware, or other information technology that you use now or plan to use later to operate your business.
Equipment & Tools: List any specialty equipment that you have or plan to acquire to do your work.
Milestones and Metrics: List your key milestones and the dates that you hope to accomplish them by.

Company Overview

Management Team: List the members of the management team, including yourself. Describe each person’s skills and experience and what they will be doing for the company.
Advisors: Describe any mentors, investors, former professors, industry or subject-matter experts, knowledgeable friends or family members, small-business counselors, or others who can help you as a business owner.

Financial Plan:

Key Assumptions: Describe how you came up with the values in your financial forecast.
Revenue and Expenses by Month. Include a chart that shows your projected revenue and expenses.
Use of funds: Explain what you plan to do with that money.
Sources of funds: Describe your financing plans, and include if you plan to invest your own money.
Projected Profit & Loss statement
Projected Balance Sheet
Project Cash Flow Statement

This is an outline that will put you on the right path. Now it’s perfectly okay to feel overwhelmed the first time you read it. Instead of backing away, though, get enough support to go forward. Clift says, “A sure way to mistake-proof any small business is to ask for help. After the business owner has tested their product/service in the market, create a strategy that incorporates a BAIL team. This means having a banker, accountant, insurance agent, and lawyer on your team. It will help the business create a business that is sustainable.” There are plenty of free resources offering mentors and subject-matter experts who can help anyone that doesn't have business training. As Clift points out, SCORE has over 10,000 mentors from diverse backgrounds and industries. “Surround yourself with other business owners that can support you,” Clift says.

The Takeaway

Starting and running your own business, you’ll want to make sure you have enough funding available. If you’re interested in exploring different types of small business financing, Lantern by SoFi can help. With our online lending platform, you can get matched with a small business lender without making any type of commitment. Next in the Series:Part Two: “You Built It, Why Didn’t They Come? 6 Reasons Small Businesses Fail”

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About the Author

Nancy Bilyeau

Nancy Bilyeau writes about student loans, mortgages, car insurance, medical debt and many other finance topics for Lantern. A veteran of the magazine business, she has edited stories on personal finance for Good Housekeeping and DuJour magazines and has written articles for The Wall Street Journal, Readers' Digest, Parade, Town & Country and Lifetime/A&E, among others. She is a graduate of the University of Michigan.

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