PLAN & START

Step by Step Guide for Starting a New Business

There are innumerable reasons to side hustling while working full time but I am listing out the top 5 reasons here. These reasons have helped me vastly in my journey and I hope this will be a source of inspiration for others who are thinking of starting a side hustle but are not completely ready yet.

According to US Small Business Administration, there are over 30.2 million small businesses in the US, and over 600,000 new ones start each year. So why are we talking about starting yet another one and that too while working full-time? Read on, I will let you know why.

I can cite several benefits to starting your business, but what I want to talk about here is starting your business while still working full-time. If you are new to the world of entrepreneurship, one of the safest ways of getting started with a business is while you are still working full-time and have the safety net of a regular income coming in.

Your monthly pay-checks from your full-time job relieve you of the pressure of realizing immediate profits in your new business. You can be the master of your timeline. You can set up your business roadmap and gradually work your way into stabilizing and growing your business – all with steady income still flowing into your household.

So, if it is so rosy and easy, why isn’t everyone doing it? The reason is simple. It takes time. It takes grit. It takes patience. Not everyone has these and not everyone is willing to work towards these. There is no reason to wait any longer if you are ready to put in the effort. Here are 5 reasons for starting that side business now and not waiting until you retire or quit your full-time job.

Step by Step Guide

This 10 step guide is flexible and you can do some of these steps in a different order if you so choose. The biggest asset you use during this early phase of starting your side business is Time. Remember to take all the time you need for each step and plan accordingly.

For your convenience, there’s a handy infographic at the bottom of this post.

Step 1: Decide which business you want to start

This is probably the most important thing you need to do when you are starting a new business. The rest of the decisions are dependent on what you choose as your business idea. For the purpose of this blog, we will assume you are considering starting a business in the Services industry.

There are several service business types such as Professional Services, House Maintenance services, Marketing services, Health and Wellness services to name a few. Understanding what you want to focus on is critical in ensuring that you are investing your time and budget into something that you are passionate about. Check out our post which lists out the various business types if you want a refresher on it.

Market research, market research, and more market research. While this is something that you will be doing all through your business journey even after it is launched, this is one of the most crucial steps when starting your service business.

The rest of the decisions are dependent on what you choose as your business idea. There are several service business types such as Professional Services, House Maintenance services, Marketing services, Health and Wellness services to name a few. Understanding what you want to focus on is critical in ensuring that you are investing your time and budget into something that you are passionate about.

Market Research & Target Audience:

An essential part of this step is doing thorough market research. List out exactly the problem you are looking to solve. Then determine how your solution solves the problem and why should a customer purchase your service. You have to be very clear to yourself about the value of your service before you can even think of selling it to someone else. Another critical thing to do is to research and understand your competition. The more closely you know your competition, the more you will have insight into their wins and challenges. One of the best ways to do market research is by joining forums and gathering feedback via open-ended discussions.

As exciting as it will be to get started with launching the business as soon as possible, it is wise to take the time to ensure there is a need for your service and there are customers willing to purchase the service you will offer. This exercise will help you determine your target audience and the specific niche you should focus on.

Image showing market research in the form of graphs and charts

Mission Statement:

A mission statement provides the purpose and objective for the business. This is written in the present tense and should explain the reason for your business’ existence to not only members of your company but also customers and outsiders. It should be concise, clear, and powerful. While oftentimes business owners attempt to create the mission statement with the view of ensuring it will be relevant for the long term, it is important to remember that the mission statement is not written in stone and can evolve or change with time.

Name of the business:

You should come up with a name for your business, something that is simple yet memorable and effective. It is important to consider several other factors such as does the name convey the mission of the business, would the name resonate with customers, should you include the geographic location in the name amongst other things. Brainstorming different names is a great way of coming up with some options. Make sure that the name is easy to read and spell, as often times the business name is the first impression your company will make on the customer.

Step 2: Assessing your Finances

To set your business, you will need money. This section discusses the process of estimating funds you will need to start your business and to run it successfully as you build up and stabilize revenue. There are several questions to consider when assessing your finances. You need to know how much money you will need to start the business, will you require funding and how quickly will you be able to break even.

Determine Costs:

To plan and ensure you have adequate funds, you will need to estimate all the costs first. There are two kinds of costs to look at – Fixed Costs and Variable costs.

Fixed costs are just as the name suggests. These are costs that repeat month to month irrespective of how much you sell. Things to consider here are:

Rent for office space
Utilities (electricity, gas, phone service, utilities, internet to name a few). Some of these could be categorized as Variable costs based on usage
Software licenses and subscriptions
Salaries for full-time employees
Insurance
Interest for the loan (if applicable)
Office supplies

Variable costs, on the other hand, change month to month and are dependent on sales volume. Key costs to keep in mind here are:

Operating supplies, tools, and equipment
Wages and commissions (as applicable)
Credit Card fees
Marketing costs

Break-Even Analysis:

Once you have your fixed and variable costs estimates, next you need to determine the average selling price of your service. Using this data, you can then do a break-even analysis to determine your break-even point. The Break-even point is the point at which your total sales equal your total expenses. This is the point where you are not making any profit nor any losses in your business. This is extremely important to know for your business because this number gives you the minimum revenue you will need to make in order to avoid losing money.

The formula for break-even analysis is: Total Fixed Costs/ (Selling Price per client – Variable costs per client)

You can use your break-even point to set your production goals.

Funding the Business:

Once you have assessed your costs, you need to decide how will you fund your business. There are several options here:

Self-funded / bootstrapping: Use your personal savings and revenue from your initial sales
Business loan: These are usually commercial loans through a bank
Business grants: These are similar to loans with the exception that they do not need to be paid back. As you would expect, these are also harder to get and way more competitive and may come with specific preconditions that the business might need to meet
Angel Investors and Venture Capitalists
Crowdsourcing: This involves raising smaller amounts of funds from supporters for your business

Step 3: Create a Business Plan

This is one area that can get very expensive very quickly if you are not being mindful of what you really need. In the current day and age, there is a tool or software out there to make any task more efficient and faster. Having such tools is great, but at the same time, they all cost money. If budget is not a concern, it is a good idea to invest in tools and applications that help you automate your processes.

There are several templates offered for business plans online. I have uploaded a template for a Services business here.

Yes, we did the same when we started thinking of our side hustle.

I will end this post by saying that for our side hustle we chose a Service based business and it was a franchise. In retrospection, I feel like both were good choices.

Step 4: Determine legal structure

It is essential for you to determine the legal structure for your business which is dependent on several considerations. I have listed the main four types below with an explanation of each and the tax implications for each.

Sole proprietorship: Simplest of the legal structures and involves one individual who is responsible for daily operations of the business. The business and owner exist as one entity. It is inexpensive to set up
Partnership: This type of legal structure comprises two or more individuals sharing ownership of the business. Similar to sole proprietorship, the owners and the business are treated as one entity.
Corporation: With this legal structure, the business is a separate legal entity from its owner(s). There are two main types of corporations: S corp and C corp. S corp is typically owned by shareholders and is taxed as separate entities. S corp on the other hand is more ideally designed for small businesses and also helps avoid double taxation.
Limited Liability Corporation (LLC): Think of this as a hybrid business structure that combines the best of both worlds, I.e., partnerships and corporations. combination of sole proprietorship/ partnership and corporation but it limits the liability to those involved

The table below provides an overview of the pros and cons of each.

Table showing different types of legal structures

Step 5: Register the company

Once you have decided the legal structure and legal name of your business, the next step is to register the business with IRS, state, and local authorities. It is a good idea to check on your local state government sites to ensure you are doing all the required steps. File for a Federal Tax ID, also known as the FEIN (Federal Employer Identification Number) or EIN (Employer Identification Number) with the IRS. All EIN applications are required to disclose the name and Taxpayer Identification Number or SSN of the Principal officer of the business. Register your business name with state and local government. If you want to trademark your business or brand, you can file with the US Patents and Trademark office. In addition, you may need to file for DBA (Doing Business As) if you are going to do business under a fictitious name.

The SBA provides a very comprehensive guide on registering your business and the various things to consider keeping in mind the legal structure of your company.

Step 6: Purchase Insurance

A very important aspect that usually gets overlooked or shoved to the side is the timely purchase of appropriate insurance policies. Insurance helps protect your business from any unforeseen issues that may arise once your business is up and running. Depending on the type of business and the number of employees, some important ones to look into include:

General Liability Insurance which covers property damage and bodily injury to yourself or others
Business Income Insurance: This type of insurance usually covers lost income due to fire, theft, and other reasons covered by the policy
Workers Compensation: An important one to consider especially if you have employees. This type of insurance provides benefits to your employees if there are any work-related injuries
Auto Insurance: If you plan to have business operated cars, you will want to purchase auto insurance which would cover your employees when they drive the car for business-related reasons

Step 7: Select office location

Image showing store front with striped red awnings

While I enjoyed all the steps of setting up and purchasing my business, this was one of the steps which I loved a lot. This is when things began to look real. I started to look around to see where should my office be located. Not every services business requires office space to be rented out. You may choose to start your business from home, which is also a great option but be sure to check your local government regulations on whether your business is acceptable as a home-based business in your area.

Selecting your business location is a very key aspect of the success of your business. There are several factors to consider here but I have noted some key ones below:

Location of your customers: Since you are selling some type of service to customers, it will likely require either the customers to visit your location or you would need to go to the customer’s homes. In either case, you should look up the demographics of the geographic location and ensure your office is located close to your target market.
Location of your employees: This is probably the most important of all considerations. Ideally, you want to make sure you are centrally located for most of your employees. If your employees have to drive hours to get to their work every morning, they will soon want to change jobs.
Evaluate local zoning laws and taxes to ensure they are favorable and allow for the business type you are looking to set up
Parking considerations: Depending on the type of business, are you expecting customers or employees who will require parking. While not always possible, it is ideal to get an office space with at least some dedicated parking spaces.
Location of your competitors: It is good to be aware of where your competitors are located, what type of traffic they attract
Cost of Rent: Another extremely important consideration. It is important to be very clear on the square footage requirements for your facility. Rent a space that you need, nothing too big nor too small. It is a helpful exercise to map out on a paper what your office layout should look like:

How many office rooms would you need
Do you need a reception area?
Supplies Room
Do you need a Huddle / Meeting room?
Kitchen and break room?
Do you need space for Utilities (washer/dryer etc)?
Any specific requirements (big machines or equipment etc)

We hired a real estate agent to help find office locations and this was a great decision. Our real estate agent specialized in commercial spaces. They not only found several office locations in the desired zip codes but they also helped us with all the paperwork for a lease agreement.

Step 8: Purchase equipment / supplies

Think of this step as getting the tools you will need to do perform the services your business will offer. If you are starting a cleaning business, these will be the cleaning supplies, cleaning solutions, dusters, vacuum cleaners, rags, and mops. Research your business industry and create a complete list of all equipment and supplies you will need. Now mark anything that you consider a “Must Have”. These are the items you or your team members cannot perform their job without. Now research the best locations to purchase your operating supplies. Beware of some online vendors that offer products at discounted prices but have exorbitant hidden shipping fees.

Aside from operating supplies, also create a list of office supplies you will need for day to day operations of your business. While this list may be different for each business, here’s a comprehensive, handy checklist for you.

Step 9: Set up software and licenses

An important thing to remember is that there is always a cheaper alternative to any tool that you have to purchase, and by cheaper alternative, I mean being creative and using open source solutions such as Google Sheets and Google Suite. As your business grows, you can invest in upgrading your software.

Main ones to set up:

Website: This is probably the most important one. There are several website builders that allow you to build a website for free. Alternately, you can hire a web design team to build a website. It is a good idea to have the site Search Engine optimized (SEO) from the start. Your website is the very first impression you will make on a potential client. Ensuring your site reflects your personality as a business owner, the personality of your business and employees, and does justice to the services you provide is critical.
Customer Relationship Management (CRM): There are several powerful CRM solutions in the market, so you have a plethora of options to pick from. A CRM software allows you to have all information about your customers, their work orders, employees, and business performance in one place.
Payroll Processor: There are several companies that offer extremely intuitive tools for running payroll and managing tax information. Having payroll processing software is a huge timesaver and many of these Payroll Processor tools provide excellent reporting capabilities.
Scheduling Software: These could either be part of your CRM software or a separate one. If your CRM can also help with scheduling appointments, that is ideal since you would then have everything in one place. Oh, I should probably clarify. Scheduling can become tedious and expensive very quickly if you have several customers being serviced by several employees on a recurring basis. Your standard calendar will not cut it and you will need a smarter tool that can schedule multiple customers and generate reporting when needed.
Bookkeeping and Accounting: These can be done managed via spreadsheets or you could purchase a license to software to manage your books which is what I would recommend.
Software specific to the business: These are software needed for your specific business type. For example, a graphic design business would probably need to purchase the license for Photoshop or a landscaping company may want to purchase a design software that allows them to draft landscaping design

Step 10: Build your team

Once you have the key infrastructure set up, you move to build the most important asset of your service business, which is your people. This is the area that deserves your highest focus and attention. Before you hire team members, you should be clear on your company values. Document the key values you want yourself, your company, and your team members to adhere to and demonstrate at all times. These values are key in providing guidance to the team members on how they should operate and also help build the culture for your business.

Next, you will need to know what roles you need to hire for and the skill set you need. First-time business owners often get tempted to do everything by themselves. While it might make sense from a cost-cutting standpoint, it is important to ensure you are not over-allocating yourself. Having a small but mighty team can lay a strong foundation for a successful business. So take the time to assess the key roles you will need and what each role will do and the pay structure for these roles. Some roles may make sense to outsource such as Accounting and Bookkeeping, so determine which ones these should be.

You also need to create an Employee Handbook which outlines the policies and benefits offered by your business. Along with these, you will also want to create other required documentation such as Form for Signed Acknowledgement of Employee Handbook, Job Descriptions, Offer Letter templates, and Non Disclosure and Confidentiality agreements.

Once you are ready with these, post those job requisitions and start interviewing candidates!

Launch your Services business

There! These 10 easy steps to start a new Service business will set you on the track to success. Now it’s time to get going! While you may not feel you are 100% prepped and ready, get started and things will evolve as you go! Good luck!

Signing off with this quote:

“What if I fall?

Oh, but my darling,

What if you fly?”

Here’s a helpful infographic that you can download and share!

Infographic showing steps for starting a small business