<#-- Rebranding: Header Logo--> <#-- Rebranding: Footer Logo-->
  1. Starting A Small Business: Introduction
  2. Starting A Small Business: Choosing Your Business
  3. Starting A Small Business: Financing Your Business
  4. Starting A Small Business: Business Structures
  5. Starting A Small Business: Making The Leap
  6. Starting A Small Business: Location And Licenses
  7. Starting A Small Business: Hiring Employees
  8. Starting A Small Business: Taxes
  9. Starting A Small Business: Record Keeping
  10. Starting A Small Business: Conclusion

Often, the best way to strike out on your own is to do it gradually. This approach reduces the risk that you’ll be without an income and allows you to test the waters and see how much potential your business idea has before you give up your regular paycheck. If you’re currently employed full time, it may seem impossible to muster the time or energy to work on a business plan. But the excitement you feel about becoming independent can motivate you to use your nights and weekends to get your business up and running.

If you can find the time to do the work and if it doesn’t create a conflict of interest with your existing employment, it’s smart to start acquiring clients and customers and providing your product(s) or service(s) to them while you still have your day job. You’ll start generating a revenue stream for your business and get an idea of whether your business has the potential to sustain you if it becomes your only source of income. But before you do anything else, you should create a business plan.

Developing a Business Plan

Every business should have a business plan, but it doesn’t necessarily have to adhere to a specific template. The complexity of the business you’re starting, the type of business you’re starting and your funding needs will determine what kind of business plan you need. (Find out how to put this important document together in our tutorial, How To Write A Business Plan.)

For a simple business that you will be funding yourself, the purpose of a business plan is not to create a formal document, since you don’t need to attract lenders or investors. The goal is to think through the details of how you will make your business a success. You will be much more likely to succeed if you consider every aspect of your business before you jump in. To get started, ask yourself these questions:


  • What problem will I solve for others through my business?
  • What product(s) or service(s) will I provide to solve that problem?
  • What makes me qualified to solve that problem?
  • What makes me qualified to run a business?
  • Do I need additional education, training or credentials?
  • Is there a demand for my product(s) or service(s)?
  • How have I determined that this demand exists?
  • Who are my primary and secondary target customers/clients?
  • How will I get them to purchase my product or service?
  • If I am providing a product, who will my suppliers be?
  • What will my business hours be?
  • Where will my business be located?
  • Will I have any employees?
  • What will my business name be?


  • What will my business expenses be?
  • How much money does my company need to make annually for me to stay in business?
  • What price will I need to charge for my product(s) or service(s) to meet my financial goals?
  • Is that a price I can realistically charge?
  • What assets do I already have for my business? What assets do I need to acquire? How much will they cost?
  • What other startup costs will my business incur?
  • Do I need to borrow money? If so, how much, and where will I get it?
  • Can I afford to put my own savings into this business? If so, how much?
  • How long might it take my business to break even? To turn a profit? Can I afford to wait that long?
  • What is the worst-case scenario if my business fails? Can I handle that scenario?

(Read 7 Unusual Ways Businesses Can Borrow Money to find out how your business can get the money it needs — even when the bank says “no.”)

Work/Life Balance

  • How many hours a week will I need to work for my business to be successful?
  • How many hours a week can I realistically work given my energy level, focus, family commitments and other obligations?
  • How will I balance running a business with my other obligations and activities?
  • Will I have the support I need from friends and family? If not, am I making a mistake with my business idea, or can I find support elsewhere?

Staying in Business

  • Who is my competition, and how will I differentiate myself from them to gain market share?
  • How will I market my business?
  • What alternate product(s) or service(s) could I branch out to if my initial ones aren’t successful?
  • How will I maintain my business through tough times?
  • How much time or money can I afford to devote to my business in lean times before I might have to close shop?
  • If you need capital from outside sources, your business plan will have to be more formal and contain specific elements. The Small Business Administration website is a good place to start for information on formal business plans. It suggests that your business plan include the following financial information:

    A) Financial Data

  • Loan applications
  • Capital equipment and supply list
  • Balance sheet
  • Breakeven analysis
  • Pro-forma income projections (profit & loss statements)
  • Three-year summary
  • Detail by month, first year
  • Detail by quarters, second and third years
  • Assumptions behind your projections
  • Pro-forma cash flow

B) Supporting Documents

  • Tax returns of principals for last three years
  • Personal financial statement
  • For franchised businesses, a copy of the franchise contract and all supporting documents provided by the franchiser
  • Copy of proposed lease or purchase agreement for building space
  • Copy of licenses and other legal documents
  • Copies of resumes of all principals
  • Copies of letters of intent from suppliers

There are many excellent sources of business plan information online and in books. There are also many business plan apps and downloads that provide templates for all kinds of businesses. There is bound to be a template out there for a business similar to the one you plan to start. You can use this template as a guide instead of starting from scratch. This way, you’ll be less likely to omit key information and you’ll have a professional format to work with. That being said, your plan needs to be sufficiently unique to your business to be taken seriously.

Developing a Budget and a Plan for Lean Times

Another key element of planning your business and transitioning from being an employee to a small business owner is budgeting. Just as you would create a budget to manage your personal finances, you must create a budget to manage your business finances. If you haven’t been keeping a budget for your personal finances, it’s time to start. The success of your business will depend on your ability to manage money, and your personal financial situation will be directly linked to your business’s financial situation. For example, the less income you can live on personally, the longer you’ll have to get your business off the ground or recover from a slump or economic downturn. (Refer to our Budgeting Basics Tutorial for more information.)

Tracking Inflows and Outflows

Your business budget will show you exactly how much money you have coming in and going out. It will show you where your income is coming from and what you’re spending that income on. It will help you make both short and long-term projections about your business’s income and expenses. It’s key for having a clear picture of where you stand financially and where you’re likely to end up, and it can help you see potential problems before they arise as well as help you set goals and timelines.

A budget can also help you plan for changes in your business and help you manage your money well enough that you can afford to give yourself time off once in a while. Budgeting will help you plan for making tax payments (more about those in section 8). And, while everyone should have a budget, managing your money is extra important if your business has investors or creditors to pay.

You can create your budget with a notebook and pen, spreadsheet or app. Track every expense, whether it’s $2 for a package of ballpoint pens or $300 for a laser printer. Track every dollar you bring in, too — that’s the fun part, plus you’ll need that information for your tax return.

Building a War Chest

Just as you have an emergency fund for your personal finances, you’ll need to create an emergency fund for your business. Budgeting will help you do that by letting you see how much you can afford to set aside in savings each month. The bigger your business’s emergency fund, the more stable your business will be.

If you’re used to earning a steady paycheck and having taxes withheld from your paycheck, the fluctuations in income and expenses you’ll experience as a small business owner may be shocking. Your income might be $1,000 one month and $10,000 the next month. Your expenses might be $2,000 one month and $5,000 another month. These fluctuations depend on how many sales or assignments you have, when you need to buy supplies, and when your customers or clients actually pay you. In the month when you bring in $1,000, you’ll need to rely on your savings. In the month when you bring in $10,000, you’ll need to set aside a chunk of that money to handle the next shortfall. Taxes can be a shock, too: as a sole proprietor with no employees, for example, you’ll pay no taxes in eight months and make large tax payments in the other four months.

As the months pass, your budget will help you see how your income and expenses are averaging out over time and what kind of profit or loss your business is seeing from month to month and overall. With that information, you can start to plan better, and you might notice patterns: did business boom in the summer and die off on December? Why do you think that happened? How can you change that or plan for it in the future to make your income and work-life balance more stable? (To learn more about weathering unexpected events, check out How to Keep Your Small Business Afloat During Hard Times.)

You’ve now determined how you will run your business and manage your business’s finances. But there are still more steps to take before you’re up and running. In the next section, we’ll explain how to find a business location and how to obtain the necessary permits and licenses. 

Starting A Small Business: Location And Licenses
Related Articles
  1. Personal Finance

    Advanced Budget-Cutting Strategies

    Once you've mastered basic budgeting, it's time to dig deeper into how you can use your budget to meet your goals.
  2. Small Business

    How to Start a Business While working a Full-time Job

    Do you have an idea for a business, but are struggling to find the time to launch it? Here's how you can start a business when working a full-time job.
  3. Small Business

    Is Your Business Model Viable? An 8-Point Test

    You have a great business idea, but now you wonder: is my upstart business model really viable?
  4. Small Business

    Top 6 Reasons New Businesses Fail

    Running your own business may be the American Dream, but it's become a nightmare for many entrepreneurs. Learn how to avoid the most common factors leading to bankrupt businesses.
  5. Small Business

    5 Expensive Small Business Mistakes

    Don't just open the doors and bring in the customers - consider these five factors before launching your own business.
  6. Personal Finance

    How to Master Your Personal Financial Plan

    Will the financial decisions you’re making lead to where you want to go? Time to stop wondering.
Trading Center