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If you are looking to start your own small business, well done! Entrepreneurs are very essential in fueling the economy. Here is some information on the various types of businesses you can engage in and some pointers on the dos and don’ts of entrepreneurship to help you get started.
What is a Small Business?
A small business is a privately owned corporation, partnership, or sole proprietorship that has fewer employees and /or less revenue than a regular sized business or corporation.
Businesses are termed as small business based on the ability of a business to apply for government support and qualify for preferential tax, which varies from country to country and industry to industry.
In the US, any business with a minimum of fifty employees and not above five hundred employees is termed as a small business and qualify for most small business administration programs. In other countries like Australia however, small businesses range from fifteen employees.
The number of employees is one of the most widely used measures applied in the classification of small businesses.
Other methods that are usually used include; a business’ annual revenues, Shipments, sales, assets and/ or annual gross or net revenue or net profits.
Small Business Types
When looking to start a small business, the most common question entrepreneurs ask is regarding the type of business they should start.There is such confusion surrounding this questions and this confusion is enough to stop would be entrepreneurs in their tracks.
Here is a list of seven of the most basic types of businesses to help you answer this important question.
a) Sole Proprietorship
As the name suggests, a sole proprietorship is a business owned by just one person. It is the most popular among small businesses types. This is mainly because it is the simplest to form and it only requires one individual.
A key point to note is that there is no distinction legally or financially between the business and the busines owner. What this means is that you, as the owner of the business, take full responsibility and accountability for all the gains, liabilities and legal issues that your small business may be faced with.
The fantastic thing is that with a sole proprietorship, you are not required to fill out any forms or go through any legal procedures when declaring this kind of business. However, depending on your product or service and location, you may be required to acquire a particular license or other relevant documents.
A partnership is a business owned by two or more people. After all, there is strength in numbers, right? In this kind of business, business responsibilities both financial and legal fall upon each business owner. The amount of responsibility going to a particular member is determined by how the ownership is divided, either equally or unequally.
There are various types of partnerships that you can look in to from a legal view. With a partnership it is mandatory that you establish an official business name and that you register your business with your state. You will also need to acquire a business license as well as any other form of documentation that your state office can assist you with. In addition to that you will need to register your business with the IRS for tax reasons.
The process might seem long and complex but the advantages of a partnership are numerous.
c) Limited Partnership
A limited partnership or LP for short is a branch of the general partnership. Though not as common, it is a great idea if you are looking to raise capital from investors who aren’t particularly interested in participating in the day to day running of the business. There are two sets of partners in the case of an LP, a general partner and a limited partner.
A general partner takes part in the day to day running of the business and has personal liability. A limited partner, who is usually the investor, does not take part in regular management of the business and is not liable for debts.
As in the case of a regular partnership, you will need to register your business with your state, establish an official business name and register your business with the IRS for tax reasons. If what you are looking for is investment capital, then this is the ideal kind of partnership for you.
A corporation is a completely independent business. It is comprised of a number of shareholders who are provided with stock in a new business. A corporation is most common. This allows your business to deduct taxes just like an individual.
The only catch being that you get taxed both at corporate and personal level. Much as this might seem like a deterrent, it is common and if you are currently working in a company with many employees, they are probably using this business structure.
Starting a corporation requires you to file very specific documents with your state as well obtain the appropriate business licenses and permits.
e) Limited Liability Corporation (LLC)
This type of business is fairly new. It is a mixture between a sole proprietorship and a corporation. In an LLC, owners are known as members as opposed to shareholders.
The number of members notwithstanding, each LLC must have a managing member who is in charge of the daily operations of the business . Different from corporations, LLCs are not taxed as its own business entity. What happens is that all the profits and losses are moved from the business to the LLC members.
The members then can report profits and losses on a personal federal tax return instead of on a corporate return. What’s really nice about getting into an LLC is that members do not have liability for business decisions or actions of the company. There’s also much less paperwork compared to a corporation.
f) Non Profit Organization
As the name suggests, this is a business whose purpose is to promote educational or charitable purposes. The non-profit means that any money made by the company has to be kept by the organization to cater for its expenses and programs.
There are various types of non-profits available many of which qualify for tax exemption. You will be required to file paperwork, including an application, with the government for them to recognize your organization as a nonprofit.
You will be advised on which category you best fall under based on the parameters of your new business.
A cooperative is a business that is fully owned and run for the benefit of the members of the organization that use its services.
Everything that the cooperative earns is shared out among the members and nothing is paid out to any external stakeholders. Cooperatives sell shares only to members, who then get a say in the operations and direction of the cooperative itself.
What stands out with a cooperative compared to other types of businesses, is that your organization must create bylaws, have a membership application and have a board of directors with a charter member meeting.
Small Business Basics And Tips
In most cases, success or failure in the start-up phase of a small business is mostly about knowing what action to take, how and why.
Below are 10 basic tips to help you run a successful a small business
It’s natural for first time entrepreneurs to feel like they need to jump at every “opportunity” that comes their way. Beware and remember to always think twice when the deal or in this case opportunity seems so good. It is important to not get side-tracked.
Don’t juggle too many ventures at a go as this will spread you thin and limit your effectiveness as well as your productivity. Strive to do one thing perfectly, as opposed to doing 5 things dismally.
If or when you feel a need to jump onto another project, think and try to figure out what this means about your original concept.
2) Do what you know And Know What You Do
Do what you love. Investing in a business idea because it seems cute or it could potentially make you tons of money is getting into it for the wrong reasons. Pursuing businesses that are in line with your strengths and talents will give you a better chance of success.
As much as creating a profitable business is of paramount importance, what’s even more important is that you feel happy when managing and growing it every day. Only way you’ll excel at your business venture is if your heart is in it.
3) Know what you know, what you don’t know and who knows what you don’t
Its impossible to know everything. So coming off as a know-it-all is just about the worst thing you can do. Find advisors and mentors who will help you become a better leader and businessman.
Seek successful, knowledgeable individuals with whom you share similar interests. Only individuals with mutual business goals will see the benefits of working with you for the long-term.
4) Less is always more
Always be prepared to pitch your business in less than 60 seconds in case of a chance encounter with a potential investor or a curious customer. Outline your mission, service and goals in a clear and precise manner.
5) Start small
Do remember that your wallet is your company’s life-blood. Bearing this in mind, start small. Don’t rush into getting that fancy sports car you always wanted or a that luxurious house.
Forget about all that for a while and concentrate on building your business. Keep strict tabs on where every penny goes. Keep your overheads as low as possible to effectively manage your business ‘ cash flow. Be thrifty by all means.
6) Learn from your mistakes
Remember that there is no such thing as the perfect business plan. Just as there is no perfect or less ventured route. No amount of reading will prepare you fully for your entrepreneurship journey. So, think through and plan your business idea before jumping in head first.
But also be careful not to take too long before executing your idea. Put yourself through the fire and learn as you go. Take lessons from past mistakes and ensure not to repeat them.
7) Start small
Nobody will invest in you without you proving what you can do. Does your business require large sums of capital to kick off? Then its time to back to the drawing board. Take out all those expensive ideas. Do away with huge expenditures.
Remember you can’t get to the end before you start. So focus on the beginning. Simplify your business idea so that it’s manageable as an early stage venture. Figure out a way to prove your business model on a small budget.
Prove your worth before you seek investment. You will be pleasantly surprised by how quickly your chances of getting investors will increase if you have a viable concept.
8) Put up or shut up
Talk is cheap. Don’t talk the talk if you cannot walk the walk. Seek to impress with action not talk. Be tastefully enthusiastic as you endorse your business. Be careful not to stretch truths. Don’t tout far reaching goals as sure things.
9) Watch your health
I may not be a doctor but I can assure you that when you take better care of yourself, you will be way more productive. Being an entrepreneur is a way of life not a 9-to-5 job.
You will burn out if you work till exhaustion. This will also make you less productive. Exercise, Eat right, and Have some ‘you’ time.
10) Know when to walk away
Know when it’s time to call it quits. Don’t go on a fool’s errand on account of your ego. If things don’t go the way you expected, contemplate on what went wrong and the mistakes you made along the way.
See what you would have done differently. Make a resolution to utilize the hard-learned lessons to make yourself a better entrepreneur. Prevail over adversity even in the face of failure and realize the true entrepreneur in you.
We hope this article has adequately equipped you with everything you need to know as you start your entrepreneurship venture. All the best!