Starting a small business is a dream for many people. There’s nothing like being your own boss and the sense of freedom and independence it can bring. It’s not for everyone—there can be a lot of stresses involved, and for someone who’s risk-averse, it can seem like too much of a gamble.
But if you have a great idea for a product or a service you want to sell and you think you can deal with the uncertainty that running a small business can bring, there’s nothing like it. There’s no one way to do it right, but the following guidelines offer some guidance into best practices you can take to ensure success.
1. Specialize
Any chef can tell you that a restaurant with fewer items on the menu tends to serve higher quality food, prepared more skillfully than a place that advertises hundreds of dishes. It’s better to do one thing well than it is to do a hundred things poorly.
It not only allows you to focus on providing outstanding goods or services across a narrow category, but it also simplifies everything from accounting to marketing. It also makes it easier to identify your customer base—the people who can really benefit from what you’re offering—and maintain better relationships with them over time.
2. Structure Your Business
All businesses, no matter the size, require some kind of legal structure in order to obtain the proper registration, licensing and permits prior to opening for business. Structure can dictate a lot more than how you deal with your local or national government.
It will determine the kind of paperwork and taxes you’ll have to file and pay, the amount and kind of legal liability the owner(s) are exposed to and the kind of business insurance you’ll need to secure. Some business structures are even prohibited from having employees, so it’s best to be familiar with your options and which might be the best fit for your organization.
3. Accounting Is About More Than Just Numbers
Keeping track of the flow of money into and out of your business isn’t just necessary for taxes and basic bookkeeping procedures. Knowing your business’s financial realities can help identify areas that could cause potential problems down the road, as well as give you some insight into possible growth opportunities.
Knowing your overhead and production costs is important in charting the flow of money through your business. You’ll need those figures for break-even analysis and calculating profit margins, but understanding how the numbers change over time can also give you a depth of understanding you wouldn’t get if you just let an accountant handle everything.
Also Read: Top Small Business Accounting Software
4. Know Your Customer—and Your Obligations
Just as it’s a good idea to keep an eye on your accounts—who you owe and who owes you—it’s best to stay up-to-date on any new laws or regulations with which your business is obliged to comply. If you process electronic payments and especially if you accept cryptocurrency, you should know about KYC, or Know Your Customer, regulations.
Certain businesses, like accounting or legal services, fall under more stringent regulations, but any business that handles financial data or deals in things like Bitcoin will need to collect and maintain certain information to stay within the letter of the law.
5. Minimize Your Overhead
Even the most well-run business will have surprise expenditures from time to time—you can’t predict every challenge, and being able to absorb the costs from an unexpected event can be the difference between success and failure. Maintaining as much cash liquidity as possible is an important safeguard for any business, but for smaller or less established organizations it can be critical.
About half of all small businesses operate with a cash buffer of fewer than 15 days, which may be the reason so many smaller ventures fail. It’s not just about emergency equipment replacement or unexpected increases in the cost of supplies. Having more cash on hand can also guard against a damaging loss of revenue experienced if your business has to close for any length of time—such as in the event of something like the COVID-19 lockdowns, which no one saw coming.
6. Do Your Homework
Some people think having an entrepreneurial spirit means throwing caution to the wind and chasing down success with nothing more than determination and hard work. You need those things, too—but what you need more than anything else is a good idea. And it can’t just be an idea you think is good, but one that bears scrutiny and research.
You have to be able to prove it’s a good idea not only so you can secure financing from private investors or as a small business loan from a bank or other lending institution, but as an indicator of possible success. Numbers don’t lie and there’s nothing like data for determining the likelihood of success of any given business idea.
If you can identify a market that needs the goods and services you want to bring them, that’s an important first step. Knowing how big your potential customer base might be and how much those people would be willing to spend on what you’re planning on offering can help with a plethora of related business decisions, so doing diligent research is an important part of the process.
