Starting a small business requires passion, dedication, and hard work. Here are some pieces of advice I would give anyone considering starting a business:

Assess your passion and skills: Choose a business idea that aligns with your interests and strengths. This will help you stay motivated and engaged during the ups and downs of entrepreneurship. Consider your background, education, and work experience to identify areas where you can naturally excel.

To get more information about various types of businesses, check out our business library to get detailed industry information, trends, costs to start, tips, and lots more.

Define your idea clearly: Before doing anything else, define exactly what product or service your business will offer. A great business will solve problems, so what problems will your business solve?

Conduct market research: Once you know what you want to sell, conduct extensive research to evaluate whether there are enough people who would pay money for you to solve their problem. Also, look closely at the competition, pricing, promotion strategies, and customer behavior, among other things.

Test your idea: Validate your business idea by seeking feedback from potential customers, industry experts, and mentors. Conduct surveys or pilot tests to gather invaluable insights and make necessary adjustments before fully committing to your idea.

Develop a strong marketing plan: Even if you build a great product or provide an exceptional service, you won’t get very far unless customers hear about it. Develop a plan to raise awareness about your brand, reach prospective buyers, and convert leads into paying customers.

Build a strong team: Building a business alone is practically impossible. Finding mentors and talented individuals to help guide and execute your plans will increase the possibilities of turning your idea into a reality!

Once a solid business idea is in place, it’s time to start working on the business plan. While it’s not a requirement (unless you are looking for funding in most cases) don’t let the importance of a business plan go overlooked, as it is a crucial step in the journey towards creating a successful business. A few reasons to write a business plan include:

Clarify your business idea: A business plan forces you to crystallize your thoughts, articulate your goals, and define your value proposition. This process helps refine your concept and ensure its viability in the marketplace.

Sets the stage for growth: A business plan serves as a roadmap, outlining your company’s objectives, strategies, and tactics. This blueprint guides your actions and helps you measure your progress, enabling you to make informed decisions and adapt as needed.

Attracts investors and lenders: A polished business plan demonstrates your professionalism and commitment, making it more likely to secure funding from investors and lenders. By providing a thorough financial analysis and revenue projections, you can showcase the potential return on investment and instill confidence in your business’s ability to succeed.

Improves management and decision-making: A comprehensive business plan outlines the organizational structure, management team, and operational processes. This information helps you allocate resources effectively, assign responsibilities, and maintain smooth operations.

Identifies potential challenges and opportunities: A business plan requires you to conduct a SWOT analysis (Strengths, Weaknesses, Opportunities, and Threats), which helps you identify potential obstacles and opportunities for growth. This awareness allows you to develop contingency plans and capitalize on emerging trends.

Related: How to write a business plan

The next step to starting a business in Tennessee is selecting a business entity. In simple terms, a business entity refers to any organization that carries out commercial activities to make a profit. Choosing the right type of business entity can make a significant impact on how your company operates, personal liability, taxes, and more, so it is crucial to select the one which suits you the most.

Four primary business entities exist: sole proprietorship, partnership, corporation, and Limited Liability Company (LLC). A brief description of each is below.

A Sole Proprietorship is the easiest form of business structure where there is no legal difference between the person who owns and manages the business. The advantages include a low cost to start up and easy operation; however, the drawback is unlimited liability, meaning all personal assets are at risk if things go wrong.

General Partnerships consist of two or more people conducting a business together. Like the sole proprietorship, the partnership has unlimited liability. Advantages include shared workload and management decisions but disadvantages may arise from disagreements between partners leading to stalled decision-making processes or conflicts of interest.

A Corporation is a business structure that is a separate entity from the individual. While corporations are more expensive and difficult to form than sole proprietorships and partnerships, the major advantage is that the corporation provides personal asset protection for the shareholders (owners), should the corporation be sued. The downside is the compliance requirements and administrative burdens of having a board of directors, annual meetings for directors and shareholders, filing the annual report, appointing a registered agent, and more.

Related: How to form a Tennessee corporation

The Limited Liability Company (LLC) is a popular business entity choice because it provides the liability protection of a corporation with the sole proprietorship’s ease of operation. The Limited Liability Company does not have many of the burdens the corporation has and has the greatest tax flexibility of the four entities. Income can be taxed as a pass-through entity like the sole proprietor or partnership or as a corporation. The LLC and corporation are both liable for the state’s franchise tax.

Related: How to form an LLC in Tennessee

An essential step when starting a business in Tennessee is to ensure that your business complies with all necessary licenses and permits before starting. Here is a brief overview of common licenses, permits, and registrations.

State Business Licenses: The state of Tennessee doesn’t have a general business license; however, many cities require a business license to operate.

Local Business Licenses: Most businesses in Tennessee (even home-based businesses occasionally) need to purchase an annual business tax license with the County Clerk in the county where the business is located and possibly with the Municipal Clerk if the business is located within city limits. The two common licenses are the Standard Business License and the Minimal Activity Business License.

Employer Identification Number (EIN): An EIN is a unique identification number assigned by the IRS to your business for tax purposes. It is necessary for corporations, multi-member LLCs, and partnerships, as well as sole proprietorships and single-member LLCs with employees. You can apply for an EIN online through the IRS website at no cost. The application process is straightforward and usually takes only a few minutes.

Business Name Registration (for Sole Proprietorships & General Partnerships):
Sole proprietors and general partnerships in Tennessee wanting to operate a business with a business name that is different from the owner(s) first and last name will need to register for an Assumed Name, sometimes known as a DBA or Doing Business As with Register of Deeds office in the county where the business operates.

Sales Tax Permit: Businesses selling products and certain services will need to register for a Sales Tax Permit with the Tennessee Department of Revenue.

Professional Licensing: Some occupations, such as appraisers, home inspectors, barbers, and scrap metal companies, require licensing in Tennessee. Tennessee imposes an annual $400 Professional Privilege Tax to practice specific occupations.

Excise Tax – While not a license, it’s worth noting all businesses in Tennessee are subject to the state’s 6.5% excise tax, which is based on net earnings or income for the tax year.

Related: What business licenses and permits are needed in Tennessee?

Mixing personal and business finances can lead to a host of problems, including legal and tax issues. By keeping your personal and business finances separate, you can keep track of your business’s profitability and make informed financial decisions. Keeping these finances separate offers several benefits:

Legal protection: For business entities such as LLCs and corporations, maintaining separate business and personal finances is crucial to preserving the limited liability protection they provide. Mixing personal and business funds is called “comingling of funds” and could lead to “piercing the corporate veil,” putting your personal assets at risk in case of legal disputes or business debts.

Accurate financial records: Separating business and personal funds simplifies bookkeeping and helps maintain accurate financial records. This clear distinction makes it easier to track expenses, manage cash flow, and assess your business’s financial health.

Professionalism: Having a separate business bank account under the name of the business projects professionalism to your clients, vendors, and financial institutions.

Simplified tax preparation: Mixing personal and business expenses can make tax preparation more complicated and time-consuming. Separating these funds simplifies the process of identifying deductible business expenses, calculating tax liabilities, and filing accurate tax returns.

Improved decision-making: Keeping business finances separate from personal ones allows for a clearer understanding of your business’s financial performance. This clarity enables you to make informed decisions regarding investments, growth opportunities, and cost management.

Obtaining the funds to start a small business is often a huge challenge, and securing the right financing is crucial to the success of a new business. Here are some common funding options to consider:

Personal Funds: This is a common funding option for entrepreneurs who use their personal savings to start or expand their businesses.

Conventional bank loans: Traditional banks offer term loans, lines of credit, and equipment financing to eligible small businesses. To qualify for a small business loan, you’ll typically need a solid credit history, personal investment, a well-prepared business plan, and financial projections. While lenders can provide competitive interest rates, they may have more stringent approval criteria compared to other funding options.

SBA loan guarantees: The Small Business Administration (SBA) offers loan guarantee programs to help small businesses obtain financing. The most popular program is the 7(a) loan, which provides guarantees for loans made by participating lenders. The SBA guarantees a portion of the loan, reducing the lender’s risk and making it easier for small businesses to qualify. SBA loans are known for their competitive interest rates and longer repayment terms.

Microloan programs: Microloans are small loans, often under $50,000, designed to help start-ups and smaller businesses with limited credit history. Organizations like Pathway Lending, and Kiva provide microloan options in Tennessee. These loans can be more accessible than traditional bank loans and often come with business training or mentorship opportunities.

Investors: There are various types of investors to consider, including:
– Angel investors: These are affluent individuals who provide capital to start-ups in exchange for equity or debt. Angel investors can be found through local networking events or platforms like the Angel Capital Association and the Nashville Capital Network.
– Venture capitalists: Venture capital firms invest in start-ups with high growth potential in exchange for equity. While venture capital can provide significant funding, it often requires giving up a considerable amount of control over your business.
– Crowdfunding: Platforms like Kickstarter, Indiegogo, and GoFundMe allow you to raise small amounts of money from a large number of people, typically in exchange for a product, service, or equity. Crowdfunding can be a useful way to generate both funds and market interest for your business.

Related: Understanding the different types of business funding

So far, you have navigated forming a business structure, getting registered, and financing and the next step for many small businesses is preparing to hire an employee.

Hiring employees is a complex and often overwhelming process for a new business owner as there are a number of responsibilities and agencies to register with, such as the Tennessee Department of Labor & Workforce Development, Tennessee Department of Human Services, and others.

Employers are responsible for reporting new hires, verifying employees are eligible to work in the U.S., income tax withholding, unemployment insurance, unemployment taxes, and payroll withholding taxes, including Social Security and Medicare.

Related: Steps to hiring your first employee in Tennessee

As a Tennessee business owner, it’s essential to protect your business from unforeseen events that can disrupt your operations and put your entire enterprise and finances at risk. That’s why it’s crucial to have insurance coverage that safeguards your business assets and provides financial protection against liability claims, property damage, or injuries that may occur.

Having insurance for your small business is important for several reasons, including:

Protection from potential claims or lawsuits: Accidents happen, and if someone is injured on your property, it could result in a lawsuit. Having insurance coverage can help protect your business from any legal claims and can cover the cost of your legal defense should you need it.

Mitigating business risks: Small businesses face a wide range of risks, including theft, property damage, and equipment breakdown. With insurance coverage, you can protect your business from unexpected losses that could be financially devastating.

Meeting legal requirements: Depending on your business type, certain types of insurance may be required by law. For example, workers’ compensation insurance is mandatory in Tennessee for businesses that have five or more employees, and failure to comply can result in significant penalties.

Related: Types of insurance your business may need

Bookkeeping is the backbone of every business, big or small. By properly tracking your income and expenses, a small business owner can keep their finger on the pulse of the business’e finances and stay compliant with tax requirements.

To efficiently maintain financial records, it’s important to keep track of all financial transactions, including sales receipts, accounts payable and receivable, and other important financial documents. This will allow you to have a clear picture of money coming in and going out of your business.

There are several methods to efficiently organize and record financial information. One option is using accounting software, such as Quickbooks or Xero, which allows you to easily track your finances and provides detailed financial statements. Another option is to establish a paper filing system, with different folders for different types of financial documents. Outsourcing the bookkeeping process is also an option, where a professional accountant can take care of the process for you.

By maintaining accurate records, organizing financial documents, and leveraging tools like accounting software or outsourcing, businesses can ensure efficient bookkeeping and contribute to their long-term success.

Related: Setting up accounting for a business