Starting a Small Business: What You Need to Know

What is the first step to opening a small business?

When thinking about starting your own business, the first thought that might come to mind is seeing your products on the shelves of stores or interacting with customers. But before you can launch, you need a plan that can help you lay the foundation for your business. 

A business plan lays out exactly what you’re selling and who your target audience is. Having those details clearly established should make it easier for you to estimate your startup and operating costs, as well as your revenue goals.

Even a simple plan can help you better understand how much income your business could generate over time and if you’ll need a loan to help you get started. 

How do I get a small business loan?

Securing funding is one of the biggest challenges for first-time entrepreneurs. Without the right amount of funding, you may struggle to ever get your business off the ground.

Depending on your timeline and current financial situation, there are several different types of financing options to consider.

Traditional business loans from banks or credit unions are a common choice and can be used to purchase inventory, equipment, or real estate. Term loans offer a large upfront lump sum which is then repaid through fixed payments over a specific period of time depending on the purpose of the loan. 

Other financing resources may also include crowdfunding platforms and grants. You can also consider online-only lenders. Typically, they can provide a faster approval process than traditional banks, though their interest rates and repayment terms can vary significantly.

In addition to these loan options, you may also want to look to the SBA.

Instead of working directly with business owners, the SBA partners with lenders to set loan guidelines and reduce risk. This makes it easier to gain access to financing.

Here are three common SBA-backed loans new business owners can consider:

SBA 7(a) loans: This is the SBA’s primary business loan program, which can be used for a wide range of business needs, including refinancing current business debt, acquiring commercial real estate, and purchasing equipment.

SBA 504 loans: This loan program provides long-term, fixed-rate financing of up to $5 million, which can be used for a range of major fixed assets that promote job creation and business growth. Visit SBA.gov for examples.

SBA microloans: This is an option for when business owners need a smaller amount of funding (less than $50,000) to rebuild, re-open, or enhance your small business. According to the SBA, the average microloan is about $13,000. These microloans are provided through SBA funding intermediaries.  

No matter which financing option you choose, understanding the loan terms is essential. For instance, you’ll want to pay close attention to the loan amount, interest rate, repayment rules, as well as any fees and/or prepayment penalties.

Make sure you take time to evaluate your options and needs carefully and set realistic expectations for repayment. This can help set you up for a successful launch and long-term stability. 

Quick tips to help manage small business cash flow

Cash flow can be hard to predict for a new business. That’s why having an emergency cash reserve is essential. It can help cover essential expenses such as payroll, rent, or loan repayment during a slow period or when faced with late payments from your customers.

Here’s an example: Imagine you own a small bakery with a team of five employees. One evening while closing up, you realize your deposits won’t clear before payroll is due at the end of the week. But instead of panicking, you know you can draw on the cash reserves you’ve built, giving you the flexibility to pay your team on time and avoid the stress of delayed wages.

Forecasting and tracking your regular cash flow can also help minimize unwanted surprises. Having a solid grasp on when you can expect customer payments, bills, and surges in orders can help you plan smarter and think about long-term financial goals for your business.

If you find that you need help managing business finances, working with a financial advisor or an accountant can be an option. They can help you plan ahead for busy seasons and provide essential services like budgeting, forecasting, tax-filing, and cash flow tracking. 

Small businesses are assets to local communities

Small businesses are often called the backbone of their communities. They provide much-needed economic growth to neighborhoods through jobs and offer safe spaces where people can connect, shop, and learn. Their impact often extends far beyond the financial success of the owners, helping to shape local communities and contributing in ways that can be felt for generations to come.

For instance, picture a local ceramics studio: Not only is it a storefront where the artist can sell their pottery, but it’s also home to weekly craft classes where employees educate students and community members about technique and design.

Building a business takes commitment, flexibility, and patience. But it can also be incredibly rewarding creatively and financially. With the right preparation and planning, first-time business owners can create something that supports their personal goals and uplifts the communities around them.