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Before you can call yourself a small business owner, you’ll want to make sure your business solves a real problem, has a plan and can get funding.

To get you prepared, follow these five steps to turn your start up idea into a thriving small business. Then, when you are ready, First American Bank’s business bankers can help advise you how to jumpstart your big dreams for starting your small business.

1. Develop a Business Plan

Before kicking off any start-up business, you will need a realistic and balanced business plan. Start your plan by performing market research. Begin exploring the industry of your prospective business with a competitive eye by pinpointing your potential customers and already established competitors in the industry. The goal of your market research should be to find the unique advantage that you will leverage.

Once you have formed a realistic business goal, start putting together your business plan. The Small Business Administration (SBA) offers helpful advice on what should be included in your business plan. Then you’ll want to connect with a qualified small business advisor who can help you review and refine your small business plan.

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. However, some come at a higher risk than others. Before calculating your start-up costs, the SBA suggests that you identify your small business as one of the three following types:

  1. Brick and mortar
  2. Online business
  3. Service

There are a variety of factors to consider across all three types of business. These factors include, but are not limited to: office space, equipment, communication tools, salaries, marketing strategy, and printed and digital material. 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 the business you are pursuing.

First American Bank offers calculators to assist in assessing your start-up cost based on the above factors. Find out how much you can afford with our Working Capital calculator by comparing your start-up costs to your assets to see if you will need to raise capital from investors, are able to self-fund or need to borrow.

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 looking to bootstrap your own business, then you’ll need to tap into your own money from a checking account, savings account or 401(k). Some also 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 personally. If this is something you are considering for your business, it is important to add into your budget the costs of fees and damages that could come unexpectedly in the early years of your business. Consider opening a business savings account for these expenses and access our Retirement Planner calculator to discover how tapping into your 401(k) could affect your retirement plans.

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 that they might otherwise not be able to self-fund. Before applying for a business loan, it’s smart to meet with one of our business experts. 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.

Determine Your Legal Business Structure

Before you register your business you will need to determine the most appropriate legal entity structure, which may be a sole proprietorship, partnership, limited liability company (LLC), C-Corporation, S-Corporation, B-Corporation, or Not-For-Profit Corporation. How you structure your business will affect how much you pay in taxes, the paperwork you will need to file and your personal liability. You will need to do thorough research and compare the general traits of each business structure.

4. Choose a Location for Your Business

Whether you are a brick and mortar, an online business or a service, 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. The SBA provides a list of general federal licenses and permits. Begin checking if any aspect of your business activity is listed here, then check with the federal agency to see how you should apply. Use your state’s business website to search for related licenses. 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. There are many benefits to business bank accounts, including separating your personal and business finances and ensuring accurate bookkeeping. You may also want to utilize merchant services to accept debit and credit card transactions from your customers.

To open a business bank account for your new business, you will 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 are a sole proprietor then this would be your Social Security number).

Starting a business can be exciting and scary, but if you have solid plans in place, you can achieve your dreams. Lean on the First American Bank to guide you through the small business planning and funding process. Contact us today to set up an appointment.