Small Business: what it is, ideas and how to start one

What is a Small Business?

A small business literally translates as a small business. There are three types of companies: micro, medium, and the last one, the one I will tell you about in this article, is the small business. The latter category includes companies that have fewer than fifty employees and have an annual turnover or balance sheet total that does not exceed EUR 10 million.

According to EU law, it is considered an enterprise:

“any entity, regardless of its legal form, engaged in an economic activity. Entities carrying on a craft or other activities on an individual or family basis, partnerships or associations carrying on an economic activity are also considered as such”.

In the following, I will give you some ideas on how to start a small business and all the steps you need to take to do so.

 

Eight ideas for your Small Business

Here are some good ideas for setting up your own business.

1. Owner of an E-commerce Shop

Do you create, collect or curate something special? Consider starting an e-commerce shop and turning your hobby into a full-time job. Whether you need a place to sell all the pottery you have made or an excuse to indulge in T-shirt printing, an e-commerce shop can make it financially viable for you to pursue your passion.

HOW TO START AN E-COMMERCE

2. Online Consultant

If you have significant experience or knowledge of a specific topic, consider becoming an online consultant. Perhaps you are an expert in the creation of e-commerce sites, have a talent for SEO, or have led some businesses to double their profits thanks to Google Ads. Make yourself available to everyone! If you want to know more about how to do it ask for more information.

3. Online Event Organizer

Are you very organized and pay attention to the smallest details? You might decide to start organizing events online. You can specialize in a specific type of event, such as concerts or exhibitions, or set yourself up as an organizer of events of all kinds. You will need a graphic basis for creating eye-catching posters and experience with Google and Facebook Ads to spread the event to as many interested people as possible.

4. Pet advice app

Create an application divided into different sections, each dedicated to a different animal. In each of these sections insert tips on how to care for a particular animal; include advice on feeding, litter box, vet check-ups, and general pet well-being.

app for pets

Don’t limit yourself to dogs and cats but range widely, to attract small niches of unusual pet owners to you. Attach a calendar, so that everyone can also organize themselves as they read, and update often, to make the app flawless.

5. Soap production

Play with colors, scents, and various ingredients to create the perfect, unique soap for each customer.

unique scented soaps

Moisturizing, purifying, aroma-therapeutic soaps… there really are all kinds! All you need is a nice paper package, a special dedication, and a bit of string and you’re done. Make your e-commerce user-friendly and, if possible, low-cost shipping.

6. Producer and distributor of audio-books

There is no point in denying the evidence, even in this sector, Amazon is the master. But if you choose a defensible niche, which you may even have already brought together through your own blog, and keep your overheads low, you could develop a decent business.

7. Take-away smoothie shop & blog attachment

Look for a place where you can get a regular flow of workers during lunch breaks or people doing their shopping.

To be successful in this business, offer a wide variety of flavors in the initial period and then narrow it down to what is most popular. Look very carefully for a location with high foot traffic.

smoothie shop blog

Of course, there may be a risk of having to pay high rent per square meter in an area with a lot of movement, but it is better to go for a small shop, saving in space than a larger one, losing in traffic. To promote your product, create a blog in which you post photographs of all your smoothies, accompanying them with a description of the benefits you might gain from drinking one or more of them regularly.

8. Customisable gift shop

Open e-commerce of gifts that are as customizable as possible. In addition, provide the customer with an assistant who can make appropriate suggestions based on the recipient’s tastes.

customize gift shop

Look for an assortment of cute, colorful items while trying to keep the Price Point medium-low and above all, differentiate yourself from the competition!

How to Start a Small Business in 8 Steps

Starting a small business involves planning, financial decisions, bureaucratic issues, and much more that will be explained below. Before diving into this rather chaotic world, you could enroll in a school for entrepreneurs, in order to be ready to face all possible unexpected events.

Market and competitor analysis

Even if your small business is only a fleeting image in your mind at the moment, doing an accurate market analysis reduces risk, so it is important to do it now. I recommend that you gather demographic information such as age, wealth, family, interests, and other information relevant to your small business in order to better understand the opportunities and limitations of acquiring customers.

In addition, to better understand your market, you may find it useful to answer the questions below.

  1. Demand: is there a big demand for your product or service?
  2. Market size: how many people would be interested in your offer?
  3. Economic indicators: what is the income bracket and employment rate?
  4. Location: Where do your customers live and where can your company go?
  5. Market saturation: how many similar options are already available to consumers?
  6. Prices: what do potential customers pay for these alternatives?

analyze competitors

Market research can be done on the basis of existing sources or by going directly to customers. Doing it on the basis of existing sources costs less and takes less time, but the information obtained may not be specific enough. By going to consumers the opposite happens: you have data on a more specific target group but this takes much more time and money, which would be more useful to use to understand elements strictly related to your small business such as customer reaction to the logo.

Some of the methods by which one can do direct online research are:

  • Online surveys
  • Online questionnaires
  • Video – interviews.

Competitor analysis, on the other hand, allows you to learn from companies that compete with your small business for the same clientele. I recommend you evaluate the following elements:

  • Market share
  • Strengths and weaknesses
  • Your window of opportunity to enter the market
  • The importance of your target market for your competitors
  • Possible obstacles that could give you difficulties when entering the market
  • Indirect or secondary competitors can affect your success.

Different industries may be competing to serve the same target market. That is why you should make sure to differentiate your competitive analysis by industry. There are many methods to do this, including Porter’s Five Forces analysis. Important factors to consider include the level of competition, the threat of new competitors or services, and the effect of suppliers and customers on price.

The Business Plan

The business plan is essential for opening a small business in an efficient and organized way. It is a kind of guide that will show you step by step how to start and run your small business, and if needed, it also becomes a great tool to convince people to invest in your small business!

I suggest to consider incorporating KPIs into your business plan for better tracking and management.

There are mainly two different types of business plans: a traditional one and a “lean” one for start-ups. The former requires a more detailed compilation of each section and can be up to a dozen pages long, while the latter requires a summary of the most important points, often represented by graphs, and is usually one page long.

Traditional business plans use the following nine sections:

  1. Summary: a brief description of what your small business will be and why it will be successful. An overview should also include your mission statement, the product or service you offer, your company’s location, employees, and financial information.
  2. Company description: you need to go into detail about the needs your small business fulfills and present information about the consumers, organizations, and businesses your company intends to serve. It is also good to focus on the advantages that will make your company a success such as having experts on your team or a perfect location.
  3. Market analysis: you need to convey knowledge of your industry and your target market. In particular, you must focus on what your competitors are doing, their successes and strengths, explaining why they work and how you can do better than them.
  4. Organization and management: explain how your small business will be structured and who will manage it. Make an organizational chart to establish who is responsible for each sector and consider attaching CVs of key members.
  5. Services or product line: explain what you sell or what service you offer and how this will benefit your customers. Go into detail in case you are doing research and development for your service or product.
  6. Online marketing and sales: describe above all how you will attract and retain customers, and how a sale will actually happen. Describe everything in detail because you will have to refer to this when making financial projections.
  7. Financing request: in case you need financing, at this point you should explain how much financing you will need for your small business and what you will use it for (equipment, materials, salaries, etc.).
  8. Financial projections: keep in mind that the goal is to convince the reader that your small business will be a financial success, otherwise you can kiss your investments goodbye right now. You must include budgets, financial statements, expenses, etc. in this section. For the first year, you can also make quarterly or even monthly projections.
  9. Appendix: this section is used to provide documents or other materials to prove your claims (CVs, product photos, licenses, patents, contracts, letters of reference, etc.).

business plan template

> As far as the lean business plan model is concerned, there are several versions. We will analyze one of the best known, the Business Model Canvas, consisting of the following nine elements:

  1. Key partners: list other activities or services with which you will collaborate to run your small business, such as suppliers, manufacturers, etc.
  2. Key activities: describe the ways in which your company will gain an advantage over competitors (e.g. direct sales).
  3. Key resources: list the resources you will use to create value for your customer. Such resources might include highly qualified personnel, relevant capital, or intellectual property.
  4. Value proposition: make a statement about the unique value your small business will bring to the market.
  5. Customer relations: describe how customers will interact with your small business. For example, in person or online? Imagine the experience from beginning to end here.
  6. Channels: list the most important channels through which you intend to interact with your customers.
  7. Customer segments: describe well the customer segments you intend to target.
  8. Cost Structure: define your strategy and list the most significant costs you will incur in pursuing it.
  9. Revenue streams: explain how your small business will actually make money. Some examples are direct sales, membership fees, and the sale of advertising space. If your business has multiple revenue streams, list them all.

For a business plan to be successful, it must also contain a risk management strategy, to map all potential risks to the company and limit their effects when they arise.

Calculate your start-up costs

The organization is the key to success. Remember that even before your small business opens its doors, you will already have a thousand bills to pay and only calculating your expenses in advance will help you start off with a bang.

Calculating launch costs helps to:

  • Attracting investors
  • Estimating profits
  • Making secure loans.

calculate startup cost

Most businesses fall into one of three categories: commercial businesses, online businesses, and service providers. The expenses to be incurred vary depending on the type of business, but there are some, listed below, that are common to all types. The expenses I discuss concern:

  • The office space
  • Equipment and supplies
  • Communications
  • Utility
  • Licenses and permits
  • Insurance
  • Lawyer and accountant
  • Employees’ salaries
  • Advertising and Marketing
  • Market research
  • Website

Some expenses are precise and defined while for others, such as salaries, you may need a hand.

After defining the expenses for each category, remember to add the unique costs of small businesses to the list, and break them down into one-off expenses and monthly expenses. The former is done initially to start the business while the latter is done monthly (rent, salaries, etc.).

You need to know that investors and lenders compare expected costs with expected revenues and based on them determine the profit potential of your small business, so you should make forecasts for at least one year, or even better, five years.

Finance your Small Business

You have to keep in mind that every small business has different needs and no financial solution is right for everyone. Once you, therefore, know how much funding you will need for your small business start-up, it is time to figure out how to get it.

There are three ways:

1. Self-financing: allows you to use your own financial resources to support your business. Self-financing can take the form of asking family and friends for support or using your own savings. With self-financing, you retain complete control over your small business but you also take all the risks yourself. Be careful not to spend more than you can afford!

2. Investors: they can give you funding to start your small business in the form of venture capital investments. Venture capital is normally offered in exchange for an ownership stake (i.e. shares rather than debt) and an active role in the company. Therefore, keep in mind that if you were to choose this option, you would have to give up part of the control and ownership of your small business.

The process for obtaining venture capital funding generally follows a standard order of steps:

  • Searching for the investor Once you have found him, make sure you do enough basic research to find out whether he is reputable and has experience working with start-ups
  • Sharing the business plan The investor will review your business plan to ensure that it meets its investment criteria.
  • Verification The investor will examine your company’s management team, market, products, services, and financial statements.
  • Establish terms If you want to invest, the next step is to agree on a contract describing the terms and conditions for the investment to be made.
  • Investment After agreeing on a contract, you get the investment! Once the investor has done his part, he becomes actively involved in the company.

finding investors

3. Crowdfunding: raises money for a company from a large number of people, called crowdfunders. They are not technically investors, because they do not receive an ownership share in the small business and do not expect a financial return on their money. They do, however, expect to receive a “gift” from your company as a thank you for their contribution. Often, that gift is the product you plan to sell. Crowdfunding is also popular because it represents a very low risk for entrepreneurs. Not only can you retain full control of your company, but if your plan fails, you are generally not obliged to repay your crowdfunders. Every crowdfunding platform is different, so make sure you inform yourself about all your financial and legal obligations.

4. Loan: If you want to keep complete control of your small business, but do not have sufficient funds to start, consider a small business loan. To increase your chances of getting a loan, you should have a business plan and financial projections for the next five years. These tools will give you an idea of how much you will have to ask for and help the bank understand whether it is making a smart choice by granting you a loan.

Choose your Small Business location

The physical location of your small business will determine the taxes, zoning laws, and regulations to which your business will be subject. You will have to make a strategic decision on which city to choose to start your business.

You will then have to register your small business, pay taxes and obtain licenses and permits in the place where you choose to establish yourself.

Keep in mind that the physical location should depend in part on the position of your target market, business partners, and personal preferences.

Costs that may vary significantly depending on location include:

  • standard salaries,
  • minimum wage laws,
  • property values,
  • rental rates,
  • company insurance rates,
  • utilities,
  • licenses and government commissions,
  • income tax,
  • sales tax,
  • property tax
  • corporate taxes

create online business

However, if you wanted to simplify things, you could decide to start an online business without fixed costs. You would work wherever you want, with the possibility of moving to any location, eliminating the various expenses (such as rent) and bureaucratic issues associated with a physical location.

Buy an existing business or franchise

Starting a small business from scratch can be difficult. Franchising or buying an existing business can simplify the initial planning process.

Before deciding whether one of these options is right for you, make sure you know the basics of franchising and buying an existing business. The main difference between the former and buying the latter is the level of control you will have over your business.

Franchising offers you more guidance but less control. It is a business model in which an entrepreneur (the “franchisor”) sells the rights to its logo, name, and business model to an independent entrepreneur (the “franchisee”). Restaurants, hotels, and service-oriented businesses are commonly franchised.

There are two common forms of franchising:

  1. Product/trade name franchising: the franchisor owns the right to the name or trademark of a company and sells the right to use that name and trademark to a franchisee. This style of franchising normally focuses on supply chain management. Typically, products are manufactured or supplied by the franchisor and delivered to the franchisee for sale.
  2. Franchising in the business format: the franchisor and franchisee have an ongoing relationship. This style of franchising normally focuses on all-around business management. Typically, the franchisor offers services such as site selection, training, product supply, marketing plans, and even help in obtaining financing.

buying a franchise

When you buy a franchise, you have the right to use the name, logo, and products of a larger brand. You may benefit from brand recognition, promotions, and marketing, but it also means that your small business will have to follow the rules of the bigger brand.

Buying an existing business, on the other hand, gives you more control but less direction because the buyer generally assumes full ownership of the business. The biggest advantage is having an existing project that can include such important factors as an established customer base, defined operating expenses, and fully trained employees.

When you buy an existing business, you generally gain complete control over its direction. However, without an established vision, infrastructure, or external guidance, your small business may struggle to find the best way to run things.

Consider 3 factors that will help you determine whether you should franchise or buy a business:

  1. Quantify your investment: examine your financial landscape and decide how much you are willing to spend to buy and run a small business. This will help you determine which type of business or brand is best for your budget.
  2. Consider your talents and lifestyle: be honest about your skills and experience, as they can help you eliminate unrealistic business ventures. For example, if you prefer practical assistance, franchising might be the best solution for you. Conversely, if you are an experienced entrepreneur, you might consider buying an existing business.
  3. Review the complete landscape: look at the existing infrastructure and make sure you understand everything that comes with the purchase. Don’t be afraid to ask questions about contracts, leases, existing cash flows, and inventory. The more you know, the better equipped you will be to make a correct decision.

Once you know whether you want to acquire or buy a business, you will have to evaluate each specific opportunity. Your research should help you understand the business both financially and in the general landscape.

 

Choose the name of your business

We advise you to choose a trade name that reflects your brand identity and does not conflict with the types of products and services you offer.

choosing brand identity

Once you have chosen a name you like, you have to protect it. There are four different ways to register the name of your small business. Each way of registering your name has a different purpose and some may be required by law depending on the structure and location of your business.

  1. The name of the entity protects you at the state level, it is the way the state identifies your small business.
  2. The trademark protects you legally.
  3. Doing Business As (DBA) does not offer legal protection, but may be required by law. It is known as a trade name.
  4. The domain name protects the address of your company website.

Each of these name registrations is legally independent. Most small businesses try to use the same name for each type of registration, but this is normally not mandatory.

Insure your Small Business

Insurance protects you from the unexpected costs of running a small business. Accidents, natural disasters, and lawsuits could put you out of business if you are not protected with the right insurance.

getting right insurance

Below you will find four steps to obtain the most suitable insurance for your small business:

  1. Assess your risks. Think about what kind of accidents, natural disasters, or legal actions could damage your business.
  2. Find a reliable authorized agent. Commercial insurance agents can help you find policies that meet your business needs. They receive commissions from insurance companies when they sell policies, so it is important to find a licensed agent who is as interested in your needs as they are in their own.
  3. Look around. Prices and benefits can vary significantly. You should compare rates and terms for insurance offers from different agents.
  4. Re-evaluate everything every year. As your small business grows, so do your responsibilities. Every few years you should contact your insurance agent to discuss changes in your business and how they affect your cover.

At this point, you are ready to open the doors and start selling!

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