Growing up, we learned math, science, and social studies. These topics, while important, failed to address some of the essential real-life knowledge you need as an adult. For example, the skills for how to start and manage a business.
The American Dream used to consist of locking down a 40-hour a week job, working it until you’re 65, and then retiring. However, more and more, our society is leaning towards an entrepreneurial spirit.
Instead of spending 90,000 hours over a lifetime building someone else’s empire, why not build your own? Have you considered the benefits of creating a sole proprietorship?
7 Steps to Starting a Sole Proprietorship
A sole proprietorship is a type of business entity that is owned and run by one person.
The main advantages of forming a sole proprietorship—compared to LLCs or corporations—is that it’s extremely easy and inexpensive to get started. Very little paperwork is required. This is because there is no legal distinction between the owner and the business itself.
Creating a sole proprietorship takes dedication and know-how. However, there are seven wildly easy steps you can follow to get started. Keep reading for everything you need to know.
1. Identify Your Niche
A sole proprietorship is different than an LLC or S Corp because it is not a legal entity. You are personally liable for any debt or ensuing lawsuits that may arise. However, sole proprietorships are also easier to start, have fewer logistics to worry about, and often require less overhead.
To start a sole proprietorship, you need to have an idea. What are your unique skills and how can you monetize them? Just as importantly, what can you do by yourself that doesn’t require employees, managers, or business partners?
To find an appropriate niche in which you can stay motivated, you need to find something you’re passionate about.
This niche, while falling under a generic industry, must somehow distinguish itself from your competitors.
For example, if you’re a personal trainer who specializes in working with young athletes, you could market yourself as such. This could help you stand out in an oversaturated market. We recommend taking time to figure out what makes you different in the fitness industry or whatever industry your business falls under.
2. Do Your Due Diligence
Once you identify your niche, you need to dig deep into market research. As a sole proprietorship or small business in a local or physical setting, you must identify how your company will perform in your community.
Ask yourself the following question to get a better understanding of your local market potential:
- What value can you offer consumers?
- What problems can you solve?
- How many competitors do you have in your area?
- What are they doing right/wrong?
- What can you do better/differently?
- How much can you feasibly charge for your products/services?
- What is the demand for your products/services?
- What are your start-up costs?
- What are your operating expenses?
- What are your financial projections?
- What growth can you reasonably expect?
- Who is your target audience?
- What are the most effective marketing methods for your products/services?
- How much income do you need each month to break even?
No small amount of research is needed for creating a sole proprietorship. You need to know as much as possible about the industry you’re diving into. The weight of your success or failure will rest completely on your shoulders.
3. Choose a Business Name
Now, you need to start thinking about the logistics of your business. For example, now is the time to choose a business name if you haven’t already.
You’ll want it to be unique and original, so that you can control its brand presence on and offline.
To make sure you aren’t infringing on someone else’s business name, you will want to do a trademark search at the U.S. Patent and Trademark Office (USPTO).
4. Secure Your Domain
Next, you’ll want to check if you can secure the domain name for your business name. You can do this by typing it into your browser to identify whether an existing site loads.
Or, you can visit a hosting company, like BlueHost, and use their Domain Search tool.
Based on your established business name, you can purchase a URL or website domain. Don’t be surprised if the “ideal” website name already exists, you may have to get creative. Just don’t make your domain name overly complicated.
5. Register Your DBA
Next, you’ll need to register your DBA (Doing Business As) with the state to make sure you’re company is registered and is operating within the confines of local business laws.
If you haven’t already, you may need to register with your city to obtain a business license. Depending on your line of work, you may also need to provide proof of certifications or licenses necessary to legally provide your products or services.
6. Get Financed
Once you’ve created your sole proprietorship business plan, you can start applying for financing through various avenues. Be warned, however, that most small business loans acquired through banks demand a respectable credit score. There’s a difference between good debt vs. bad debt and your lender will scrutinize every line of your credit history.
If you don’t have the necessary credentials to get a small business loan through a bank, you have several other options. For example:
- Angel investors
- Private investors (friends and family)
- Venture capital investors
- Crowdfunding campaigns
- Business partners (silent partners with deep pockets)
- Trades (trade services or equity in the business for funding)
Regardless of how you get financed, remember that you are 100% responsible for that debt as a sole proprietorship.
Based on your market research, you may also want to create a business plan. A business plan serves two primary purposes.
First, it outlines the structure and function of your business and serves as a blueprint for your success. Secondly, if you’re planning to raise outside funds, your business plan will be the official document that investors and lenders use to determine whether or not they want to invest.
7. Ready, Set, Action!
Once you get the start-up funds you need to start your small business, you need to start taking action to get things moving. For most people, this will mean creating a website. However, if you want to start lean, you can likely begin with nothing more than a few social media handles.
For some folks, you may need to explore buying or renting a commercial space. If you’re choosing to work from home, you’ll save a ton on costs. However, if you’re using a dropshipping company for an online retail store, accept that you’re going to pay a lot of your revenue back to those companies.
Finally, start investing in the necessary supplies, equipment, and materials you’ll need to run your business. This can be anything from tools for contracting to electronics for online marketing.
Thinking About Starting a Sole Proprietorship?
Are you thinking about starting a small business? If your operation is small and your legal risks are low, then it may be a good idea to lean toward a sole proprietorship. This can be especially beneficial if you have low overhead and can work from home.
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