Steps Taken to Start a Small Business


A small business is defined as a self-governing business which has a workforce of not more than five hundred employees (Office of Advocacy, Small Business Administration ‘SBA’). According to the U.S. Department of Commerce, small businesses represent 99.7% of the total employer firms and are instrumental in employing nearly 50 % of the total workforce of the private sector. They are of crucial importance to the economy because since the past ten years, small businesses have created 60 % to 80 % new job positions, giving a direct boost to the economy (United States Department of Commerce).

The census report of 2006 indicates that there were 26.8 million small business firms in America in the year 2006 (Office of Advocacy estimates based on data from the U.S. Dept. of Commerce, Bureau of the Census, and U.S. Dept. of Labor, ‘Employment and Training Administration’).

Very small business firms that have less than twenty employees are known to spend forty-five percent more per employee, as compared to the large business firms, in accordance with the federal regulations.

The U.S. Dept. of Commerce, U.S. Bureau of the census affirms that the small business enterprises of America employ nearly half of the workforce of the United States.

(U.S. Dept. of Commerce, U.S. Bureau of the Census). The census confirms that nearly sixty-seven percent of the new business enterprises have a low survival rate of a minimum of two years, while forty-four percent of the small businesses survive for a minimum of four years (Amy E. Knaup, 2005, Brian Headd, 2003).

It has been researched and proved by the ‘Small Business Administration’ (SBA) of the United States that more than half of the new business ventures initiated by entrepreneurs, are not successful, and fail in about a period of five years. It is therefore crucial to examine and estimate the factors that lead to the success of new small business ventures, a study of which will enable the new entrepreneurs of small businesses to achieve success, thereby diminishing the chances failure.

In order to elevate the chances of success of small businesses it is essential that the small businesses are initiated with an ideal business plan which will steer the business in the appropriate direction enhancing the chances of success and or simultaneously reducing the chances of their failure. There are numerous important factors that need to be considered in detail, before and while starting up small businesses in order to achieve success business enterprise. A potential owner of a small business must carefully study and evaluate the attributes of successful small business entrepreneurs which generally include confidence, a strong sense of hard work, commitment and responsibility, the knowledge that new businesses have a grater potential for risk, energy to work hard and most crucial of all, the capability to efficiently manage an organization.

A Business plan

A business plan is the first and one of the most crucial steps in the establishment of a small business. A business plan encompasses an idea or a guide in detail, elucidating the investigation and development of the type of business and is generally considered to be the ‘road map’ for a successful business. It enables the business entrepreneur to precisely study the potential industry of the concerned business, the potential customers as well as the potential competitors (The Business Planning Checklist, available at ‘SBDC’ website).

In order to draft an accurate and precise business plan, the entrepreneur must gather crucial information regarding the business, which may be done effectively by researching the available resources like books, newspapers and enquiring from people who are or may have been involved in similar business activities.

Once the exact business has been selected by the entrepreneur, he/she needs to make a list of the ideas and resources which will enable the correct establishment of the business. In making the plan, the entrepreneurs should also shortlist and select the business cards and stationary including the brochures required for advertisement.

The Legal Form of Business

After selecting the type of business, the next step involves the selection of the legal form of business, the choice of which has lawful as well as tax repercussions. The business may be any one of the several types depending upon the choice and financial and managerial resources of the entrepreneur.

  • Sole Proprietorship Business: This form of business is the simplest and the least regulated, where the entrepreneur is the sole owner of the business and as such is also entirely responsible for the liabilities including the claims and debts, in case of legal issues.
  • Partnership Business: In this type of business there are two or more than two partners or co-owners, who will bear the profits ad the liabilities of the business.
  • Corporation Business: In this type of business there are numerous legal issues involved in the initiating and filing of the business and the entrepreneurs or owners are known as the share holders of the company.
  • Sub-chapter ‘S’ or ‘C’ Corporation Business: This type of business necessitates the seeking of permission from the ‘Revenue Service Department’.
  • A Statutory Close Corporation business: This is a small corporation of one or two owners, with reduced paperwork and formalities.
  • An LLC (Limited Liability Company) Business: This type of business encompasses the features of general partnership as well as Corporation Business (The Fact Sheet for Starting a Small Business, available from the SBDC website).

Arranging and Obtaining Finance for Business

The small business could initially be started by using personal finance, or alternately a loan from a bank or even investors, popularly known as Equity or Debt. In the case of small businesses, the latter is more popular for acquiring finance, which may be obtained using personal contacts or resources such as the friends and acquaintances of the owner, family members or personal loans from private of even public banks.

Commercial banks and several depository institutions play a crucial role in lending capital to small business ventures and account for nearly sixty-five percent of the total credit to small business establishments. (Advocacy’s annual publication, Small Business Lending in the United States website: <>).

The debt has to be paid according to the agreements which are decided mutually by both the concerned parties (borrower and lender).

Selection of an Appropriate Business premises

The choice of the location or site of the business is an important factor in the success of the business. The location of the business not only gives a certain degree of impression to a business, but also enables the smooth functioning of the new business. The staff (if any), the suppliers, the customers are all directly influenced by the locale of the business site.

There are several factors that need to be considered when selecting the appropriate site of business location. The kind of goods and services that are offered is an important factor. If the business is a retail business, then a sensibly selected site would do wonders to the success of the business. On the contrary, if the business only involves the wholesale supply of goods and services, then the business location should be in an area which will be suitable to the suppliers as well as the buyers, in terms of transportation and commuting g. space will also be an important factor in such cases.

The cost of the business location should fit into the budget of the entrepreneur and must not overburden him/her financially, so that the capital can be effectively spent on the marketing and proper administration of the business. (The Fact Sheet for Starting a Small Business, available from the SBDC website).

Business registration and licensing activities

Any Business activity necessitates a Business name and Registration. Once the name of the business has been successfully registered, licensing it becomes crucial to begin the conduction of the business. A business license is necessary to operate the business within the limits of the city, and can be acquired by paying the required fee to the department.

Different and particular licenses may be necessary according to the kind of business that the entrepreneur wishes to establish, for instance, a license to run a restaurant, or a shop license, or a license to run a business relating to alcoholic drinks etc (The Fact Sheet for Starting a Small Business, available at ‘SBDC’ website).

Drafting a plan for Business Promotion activities

Once the Business has bee chose and all the required study and research has been done, it is necessary to draft out an accurate and precise plan detailing the activities for the promotion and marketing of the business. The plan must include the details of the products or services involved, the potential customers and the capital required for the marketing purposes. This is an important step in establishing the business, as correct advertising and promotion strategies result in the rapid growth and progress of the business. The marketing or promotion activity can be developed by the entrepreneurs of the small businesses themselves, rather than taking the help of marketing companies. Small business enterprises can promote their business by utilizing the local media including newspapers, that radio, or even the internet, which is now a powerful tool to advertise effectively. The entrepreneurs need to keep in mind the budget of the promotion activity and can also reach the target market by means of donation to charitable institutions. (The Fact Sheet for Starting a Small Business, available from the SBDC website).

Managing the business and Maintaining records of income and expenses

It is essential to properly maintain all business records, including the expenses or the incomes related to the business activities. The records should include all the details of the transactions, with neat and precise date and time inclusions, for future references.

The management of the activities of small businesses must be efficiently monitored and assessed so as to ensure the optimal utility of capital and resources, both material and human. A constant check of the goals of the business must be undertaken to ensure that the targets are being achieved in a timely manner, or to revise the strategies and plan to enhance achievement of the goals. A business account in a bank enhances the transparency and efficiency of the usage of funds in small business enterprises. (The Fact Sheet for Starting a Small Business, available from the SBDC website).

Business Insurance

Several insurances must be acquired when establishing a small business, s as to reduce the risks to the entrepreneur. Fire insurance will effectively cover the potential damages to the business premises, caused due to blaze, smoke, storms or explosion. The financial losses suffered due to damage to property or even self, can be covered by means of a liability insurance. Keeping in mind the rising crime activities, the business may be insured for safeguard against theft, fraudulence or even damage caused by the staff.

If the business has a work force, it is advisable to insure the employees to cover injuries and unforeseen accidents at the place of work. (The Fact Sheet for Starting a Small Business, available from the SBDC website).

There are many more insurances that can be looked at when establishing a business, but these must be considered keeping in mind the availability of resources, or can be taken later once the business is successfully established.


To own and succeed in a managing a business enterprise is the desire of many individuals, which if undertaken in a correct and appropriate manner can be rewarding, both financially as well as personally. Starting a small business venture is an activity that has the potential to develop in to large business, if the correct approach and procedure are adopted. The steps mentioned above, along with expert advice and references to publications, can prove to be effective in achieving success in a small business activity.


Amy E. Knaup(2005), Brian Headd (2003): “Survival and Longevity in the Business Employment Dynamics Database” Monthly Labor Review, vol. 128, no. 5.

“Redefining Business Success: Distinguishing Between Closure and Failure” Small Business Economics, vol. 21, no. 1 (2003), pp. 51-61.

Office of Advocacy, Small Business Administration ‘SBA’. Web.

Office of Advocacy estimates based on data from the U.S. Dept. of Commerce, Bureau of the Census, and U.S. Dept. of Labor, ‘Employment and Training Administration’, Web.

The Business Planning Checklist, available at ‘SBDC’. Web.

United States Department of Commerce Bureau of the Census; Web.

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