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Starting your own small business: What, why & how

Updated October 2017

The Origins of Small Business

Small businesses have been a fundamental part of the American life and U.S. economy since the first settlers, before the industrial revolution started and when companies shifted from small farms to big conglomerates.

As the nation’s population grew, and cities increased economic importance, the dream of being in business for oneself in America evolved to include small merchants, artisans, and independent professionals. At the beginning all businesses were small and local, adapting to their own market needs and that has been their biggest competitive advantage. Small-business survived because they’re highly adaptable.

Americans have always held true that we live in a land of opportunity, where anyone who has a good idea, work ethic and willingness to success can start a business and prosper. The American Dream is alive and well in all of us, and while entrepreneurship has taken many shapes and forms, there’s no cornerstone more important to our country and our economy than that of small business. It’s electrifying to think that one idea, whether big or small can take you to places you have only dreamed of seeing.

So before you shoot for the moon, we’re going to bring it a bit closer, so you have more information about buying and starting a small business. Learning the ins and outs of small business may turn some away while driving others to hunker down and launch the journey. It’s just a matter of educating yourself before you take the dive.

What Is a Small Business?

The Small Business Association (SBA), for most industries, defines a “small business” either in terms of the average number of employees over the past 12 months, or average annual receipts over the past three years. In addition, SBA defines a U.S. small business as a concern that:

  • Is organized for profit
  • Has a place of business in the US
  • Operates primarily within the U.S. or makes a significant contribution to the U.S. economy through payment of taxes or use of American products, materials or labor
  • Is independently owned and operated
  • Is not dominant in its field on a national basis

The business may be a sole proprietorship, partnership, corporation, or any other legal form. In determining what constitutes a small business, the definition will vary to reflect industry differences, such as size standards.

Small business vs. startup

Startups and SMBs may look similar in that they are both built by entrepreneurs and are small in revenue and staffing; however, startups are looking into a large scalable model and SMB’s are more locally oriented.

Factors to Consider Before Starting a Small Business

The small business idea: what’s the idea? Does your product or service solution match precisely with a defined problem in the market? If not, what’s so different about your product that will make consumers flock to it.

Capital and resources: what’s going to be needed to make the business successful? That’s everything from employees to actual products, ingredients, materials, etc.

Time and cost investments as an entrepreneur: Do you truly have it in you to start the business? Is the passion there or are you just seeking a quick in and out? Make sure your heart, and you are in it, or else it may be a mistake

Steps To Starting a Small Business

  • Writing a business plan; this is where you define your vision, mission, goals, strategies and action plan
  • Determine your budget: figure out how much you’ll be able to spend and what your revenue targets are for the first 30-90 days and the first year.
  • Decide on a legal entity: when beginning a business, you must decide what form of business entity to establish. Your form of business determines which income tax return form you have to file. Common forms of business are the sole proprietorship, partnership, corporation, and S corporation.

Use Rocket Lawyer’s Find The Right Business Type tool to help you make the best decision.

Looking for more direction on starting your own small business? Check out Rocket Lawyer’s How-To Start A Business guide to help you through the equal parts excitement and stress that comes with creating your own gig.

If you feel prepared and ready to take the next step in starting a small business, check out Rocket Lawyers Small Business help center for all the necessary documents and tools for business start-up.

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