Small businesses are the backbone of the US economy. According to the Small Business Administration (SBA), small businesses account for 44% of all economic activity in the United States and create two-thirds of net new jobs. There are over 30 million small businesses in the US employing nearly 60 million people.
The vast majority of businesses in America are small businesses. The SBA defines a small business as an independent company with fewer than 500 employees. However, most small businesses have far fewer employees. The latest data shows that over 99% of US businesses have fewer than 500 employees. About 90% of businesses have fewer than 20 employees.
Small businesses drive innovation, economic growth, and competitiveness. They are major contributors to private sector employment. Small businesses also play a key role in local communities by providing jobs, generating tax revenue, supporting causes and organizations, and creating opportunities for entrepreneurship and economic mobility.
Despite many challenges, small businesses continue to be started every day in America. Entrepreneurship remains an attractive career path that allows people to be their own boss, pursue their passions, fill market needs, and create economic value. With care and dedication, small businesses can grow into thriving enterprises. This makes small business creation one of the key drivers for maintaining a healthy national economy.
Most Popular Business Types
When starting a small business, it helps to understand what types of businesses are popular and do well. This gives you ideas and helps identify opportunities. Here are some of the most common and successful types of small businesses today:
Service-Based Businesses
Service-based businesses provide expertise, time, and effort to clients for a fee. They are among the most popular small business types as they have relatively low startup costs and overhead. Examples include consultants, web designers, accountants, lawyers, personal trainers, cleaning services, repair technicians, and more. The key is providing specialized skills and knowledge that clients are willing to pay for.
Retail Businesses
Retail businesses sell products directly to consumers through both brick-and-mortar stores and ecommerce shops. While retail has high competition, the advantage is the ability to find specialized niches and local markets. Examples include clothing boutiques, gift shops, hardware stores, book stores, pet supply shops, and specialty grocery stores. Choosing the right products, location, and marketing approach is key.
Restaurants
The restaurant industry has a high failure rate, but remains hugely popular for small business owners who are passionate about food, hospitality, and serving their local community. Successful restaurants excel at providing great food, service, and ambiance. There are many concepts to choose from including cafes, fast casual, fine dining, bakeries, food trucks, and more. Managing costs and hiring/training a reliable staff are challenges.
Consulting Businesses
Consulting businesses provide expert advice and analysis to other companies and organizations. It can cover many areas including management, marketing, IT, HR, engineering, finance, and more. Consulting businesses have low overhead, flexibility, strong profit margins, and allow you to turn your knowledge into income. The key is specializing in an in-demand niche and demonstrating authority. Careful contracts are needed to define scope of work.
Choosing a Business Idea
When selecting a business idea, it’s important to choose one that aligns with your skills, interests, and the market opportunity. Here are some key factors to consider:
Match Skills and Interests
Think about your expertise, education, and work experience. Leverage skills you already have rather than trying to gain new ones.
Consider your hobbies, passions, and activities you enjoy. Turning a hobby into a business allows you to do what you love.
Focus on industries and topics you find interesting. Your enthusiasm and knowledge will give you an edge.
Meet a Market Need
Research market trends and demand for a product or service. Target growing markets and consumer demand.
Look for gaps or pain points not being addressed. Find ways to solve problems for customers.
Localize your concept to serve your community if you’re starting small. Provide value where people will notice.
Consider Startup Costs
Evaluate required startup costs and funding needed to launch. Target ideas with costs aligned to your budget.
Opt for ideas with lower overhead that are simpler to start. Things like online businesses or consulting.
Factor in ongoing expenses beyond just initial startup costs. Understand the full financial requirements.
Choosing an idea suited to your skills, interests, and the market can set you up for success. Conduct thorough research and planning before moving forward.
Business Planning
A solid business plan is essential for any new small business owner. Your business plan will define your business goals and serve as your roadmap. It’s important to spend time thoroughly thinking through and researching your business plan before launching your company.
Writing a Business Plan
Your business plan should outline your business goals and objectives. It should detail your company’s organizational structure, products and services, marketing strategy, and financial projections. A good business plan tells the story of your business and serves as your pitch to potential investors and partners.
Key elements of your business plan should include:
Executive summary: A high-level overview of your company and business plan. This is often written last.
Company description: Details about your business’ products/services, target customers, competitive advantages, etc.
Market analysis: Research on your industry, target market, competitors, and market trends.
Organization and management: Your company’s legal structure and details on the ownership and management team.
Products and services: A description of your product/service offerings.
Marketing and sales: How you will promote, sell, and distribute your products/services.
Funding request: If seeking funding or investors, include your funding needs and proposed terms.
Financial projections: Detailed projections including income statement, cash flow statement, and balance sheet.
Appendix: Any supporting documents or additional information.
Financial Projections
One of the most important parts of your business plan is the financial projections. This includes an income statement, cash flow statement, and projected balance sheet.
Your income statement should forecast your revenue and expenses. Expenses should be broken down into categories like cost of goods sold, marketing, payroll, etc. This statement shows your projected profitability.
The cash flow statement illustrates the inflows and outflows of cash each month. It shows if you’ll have positive cash flow and can meet obligations.
The balance sheet provides a snapshot of your business assets, liabilities, and equity. It shows the health of your business from a financial standpoint.
Be sure to include realistic assumptions and rationale behind your projections. Financial projections show potential investors you understand your cash needs.
Defining Your Target Market
Defining and understanding your target customer is also key for your business plan. Your target market analysis should include:
Customer demographics: Age, income, location, gender, education level, etc.
Customer psychographics: Interests, values, attitudes, behaviors, pain points, etc.
Market size: Estimated number of potential target customers.
Market trends: Developments impacting your target market.
- Buyer personas: Detailed profiles of your ideal fictional customers.
This market analysis will inform your product decisions, pricing, promotions, and sales strategies. Clearly defining your target customer is essential for connecting with your audience and growing your business.
Funding and Capital
Funding is one of the biggest challenges for any new small business. While bootstrapping with personal savings is always an option, most entrepreneurs need to secure outside financing to launch and grow their venture. Here are some of the main options for funding a small business startup:
Bootstrapping
Bootstrapping means relying on personal savings and cash flow from the business to cover costs. This allows entrepreneurs to retain full ownership and control of their business. Bootstrapping requires careful budgeting, scaling operations slowly, and minimizing expenses. Things like working from home, buying used equipment, and avoiding debt can keep costs low. Bootstrapping works best for simpler, asset-light business models that don’t require major upfront investment.
Loans
Small business loans allow you to access larger amounts of capital than possible through bootstrapping alone. Banks and alternative online lenders both offer term loans that can be used for various business purposes. Shorter-term lines of credit are also available to handle operating costs. To qualify for a loan, you’ll need a strong credit score, viable business plan, and sometimes collateral. Be sure to shop around to find the best rates and terms.
Crowdfunding
Crowdfunding platforms like Kickstarter and Indiegogo allow entrepreneurs to raise money from a large pool of backers. This works well for funding creative projects and products with a built-in fanbase. Backers are rewarded with perks but don’t receive equity. A compelling campaign page and marketing plan are vital for success. Crowdfunding requires a lot of upfront work but can generate buzz and validate demand.
Grants
Federal, state, and local government agencies provide grants to support small businesses. Eligibility criteria often focus on job creation, research and development, minority-owned businesses, women entrepreneurs, and rural development. Grants don’t need to be repaid but require extensive applications with strict compliance. Grants typically aren’t a major source of funding but can supplement other options. Researching available grant programs takes time but is worth exploring.
With careful planning and persistence, small business owners can find the necessary capital to turn their dreams into reality. Weighing the tradeoffs of funding options based on your needs and vision is key.
Legal and Regulatory Issues
Starting a small business in the USA involves dealing with some legal and regulatory requirements. Here are some of the main things to consider:
Business Registration
You’ll need to choose and register your business structure, such as a sole proprietorship, partnership, LLC or corporation. Each has its own rules around paperwork, fees, liability protection and taxes.
Licenses and Permits
Look into whether your business needs any licenses or permits to operate legally. Many states and local governments require special licenses for certain activities like food service, childcare, tourism and more.
Taxes
As a business owner you’ll need to register for federal, state and local taxes. This includes income tax, payroll tax, sales tax and any industry-specific taxes. You’ll be responsible for collecting and paying taxes regularly.
It’s a good idea to consult with an accountant or lawyer when starting a business to ensure you meet all legal and regulatory obligations. Navigating business registration, taxes, licenses and insurance as a new entrepreneur can be complex. With proper legal guidance, you can avoid penalties down the road.