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Do you have a great business idea and the passion to become an entrepreneur? Before you can call yourself a small business owner, you need to make sure your business solves a real problem, has a plan and can get funding. To prepare you, follow these steps to turn your idea into a thriving small business. When you are ready, Paducah Bank’s business loan officers advise you how to reach your big dreams.
1. Develop a Business Plan
Before kicking off any startup, you'll need a realistic and balanced business plan. Start by performing market research. Explore the industry of your prospective business with a competitive eye by pinpointing your potential customers and already established competitors in the industry. Your goal is to find the unique advantage that you will leverage.
Once your form a realistic business goal, put together your business plan. The Small Business Administration (SBA) offers helpful advice on what should be included in your business plan. Make sure you connect with a business loan expert at Paducah Bank who can help you review and refine your small business plan. A solid business plan is crucial in the startup phase and will become helpful in the growth phase. Our advisors will also help you prepare for funding, tax planning, risk management, estate planning, investing and more.
2. Estimate Your Business Expenses
Like the saying goes, it takes money to make money. When it comes to small business funding, there are several paths you can take to reach your goals. Some come at a higher risk than others. Before calculating your startup costs, the SBA suggests that you identify your small business as one of the three following types:
- Brick and mortar
- Online business
There are a variety of factors to consider across all three types of business, including office space, equipment, communication tools, salaries, marketing strategy, and printed and digital material, to name a few.
Capital expenditures and one-time payments will also play a role in financing a small business. For example, you may need financing for inventory or commercial property or vehicles, depending on the nature of your business.
3. Financing Options For Your Small Business
Most small businesses don’t have access to venture capital or angel investors and choose between self-funding their business or applying for a business loan. Here are the key things to keep in mind when deciding between self-funding or borrowing to launch your business:
Self-Funding Your Business
The SBA defines self-funding as taking on all financial risk yourself. If you’re bootstrapping your own business, you’ll need to tap into your own money from a checking account, savings account or 401(k). Some choose to fill in the gaps by borrowing money from family or friends.
Keep in mind that when you self-fund, you take on all of the risk. If you're considering this approach, add the costs of fees and damages into your budget that could come unexpectedly in the early years of your business.
Borrowing Money to Start Your Business
Another option to launch your startup is to get a small business loan. Small business loans give new entrepreneurs the opportunity to start a business when they can't self-fund. Before applying for a business loan, set up a meeting with one of our business loan officers. Prepare for this meeting by knowing your current credit score, business plan, list of expenses and financial projections for at least the next five years. The business loan officers at Paducah Bank can help you organize these in preparation for the application process.
Determine Your Legal Business Structure
Before you register your business, you will need to determine the most appropriate legal business structure: LTD, PC, Corp. or LLC. How you structure your business will affect how much you pay in taxes, the paperwork you will need to file and your personal liability.
Common business structures are sole properties, partnerships, limited liability company (LLC), Corporation C, Corporation S, Corporation B and Corporation – nonprofit. You will need to do thorough research and compare the general traits of these business structures. Talk to a financial advisor or your Paducah Bank business loan officer before you make your decision. It’s important to know that you can switch to a different legal business structure in the future, depending on your location.
4. Choose a Location for Your Business
Whether you are a physical business, a service or an online business, a location needs to be chosen for necessary licensing and permits. Choose wisely, because your business location determines how much you’ll pay in taxes, what federal and state licenses you will need, as well as permits and regulations that will apply to your business. Associated fees will vary based on the nature of your business, location and governments. The SBA provides a list of general federal licenses and permits. See if any aspect of your business activity is listed here, and then check with the federal agency to see how you should apply. Business activities that are commonly regulated at a state level include auctions, construction, dry cleaning, farming, plumbing, restaurants, retail and vending machines.
5. Open Your Business Bank Accounts
Before you begin spending or accepting money on behalf of your small business, you’ll want to open a business bank account. Business bank accounts allow you to separate your personal and business finances and ensure accurate bookkeeping. To open a business bank account for your new business, you'll need to provide proof of business identity and address, as well as proof of identity for all responsible individuals of your business. You will also need your Employer Identification Number (EIN) (if you're a sole proprietor, this will be your Social Security number).
6. Get Business Insurance
At Paducah Bank, we always encourage financially preparing for the unexpected, both in personal and business finances. While the protection that comes with your business structure protects your personal property in a lawsuit, business insurance can fill the gap when it comes to protecting business property.
Starting a business can be exciting and scary, but if you have solid plans in place, can achieve your dreams. Lean on our small business loan experts to guide you through the small business planning and funding process. Contact us today to set up an appointment.