What Should You Do Before Starting a Business?

Do this before starting a business by Benchmark Ledger Solutions

I am a professional bookkeeper who works with new business owners daily, and I've noticed a pattern: entrepreneurs who prepare thoroughly before launching experience smoother starts and fewer financial crises than those who leap without planning. While enthusiasm and action are valuable, strategic preparation protects your finances and increases your chances of success. Here are the essential steps you should take before starting your business.

Validate Your Business Idea

Before investing time and money, confirm that people will actually pay for what you're offering. Talk to potential customers about their needs and whether your solution addresses real problems they face. Ask what they'd pay for your product or service. Research competitors to understand what already exists and how you'll differentiate yourself.

The businesses I work with that succeed most quickly are those where founders validated demand before launching. Spending a few weeks testing your concept saves months or years pursuing ideas without viable markets.

Calculate Your Startup Costs and Funding

Determine exactly how much money you'll need to launch and sustain your business until it becomes profitable. Include one-time startup expenses like equipment, initial inventory, licenses, and website development. Factor in ongoing monthly costs including rent, utilities, software subscriptions, insurance, and marketing.

Most businesses take longer to reach profitability than founders expect. Calculate conservatively, assuming revenue will start slowly. Add a cushion for unexpected expenses that inevitably arise.

Once you know your capital requirements, decide how you'll fund them. Will you use personal savings, take a loan, find investors, or start as a side business while maintaining other income? Each funding approach has advantages and limitations worth considering carefully.

Build Your Personal Financial Foundation

Starting a business often means irregular income initially. Ensure your personal finances can handle this uncertainty by saving three to six months of living expenses before launching. This emergency fund provides breathing room to build your business properly rather than making desperate decisions when money gets tight.

Pay down high interest debt before starting if possible. Credit card balances and other expensive debt create financial pressure that makes business building more stressful. You want maximum financial flexibility as you launch.

Understand your minimum income needs. Calculate exactly what you must earn monthly to cover personal obligations like housing, food, transportation, insurance, and debt payments. This number determines how much your business needs to generate and how quickly.

Choose Your Business Structure

Decide whether you'll operate as a sole proprietor, LLC, S-corporation, or another entity type. Each structure has different tax implications, liability protections, and administrative requirements. Sole proprietorships are simplest but offer no liability protection. LLCs provide liability protection with relatively simple administration. S-corporations can reduce self employment taxes but require more complexity.

For most new small businesses, sole proprietorship or LLC makes sense initially. You can always change structures later as your business grows and your needs evolve. Consult with an accountant or attorney if you're unsure which structure fits your situation best.

Handle Legal and Regulatory Requirements

Research what licenses, permits, and registrations your business needs. Requirements vary dramatically by location and industry. Some businesses need multiple licenses while others need none. Check federal, state, and local requirements to ensure you're compliant before launching.

Register your business name if required in your state. If you're operating under a name different from your legal name, you'll likely need to file a DBA or fictitious business name registration.

Obtain an EIN from the IRS if you'll have employees, operate as an LLC or corporation, or simply want to separate your business and personal identification. The process is free and takes minutes online.

Research insurance needs for your industry. General liability insurance protects against customer injury claims and property damage. Professional liability insurance covers errors and omissions in your professional services. Other insurance types may apply to your specific business.

Set Up Your Financial Systems

Open a dedicated business bank account separate from your personal accounts. This separation simplifies bookkeeping, makes tax preparation easier, and provides clear documentation of business transactions. Many banks offer business checking accounts with no monthly fees for small businesses.

Get a business credit card to use exclusively for business expenses. This creates clean separation between personal and business spending while building business credit history.

Choose bookkeeping software or hire a bookkeeper before making your first sale. Setting up proper financial tracking from day one prevents the nightmare of reconstructing records later. Even simple businesses benefit from organized financial records that show exactly where money comes from and where it goes.

Establish a system for saving receipts and documentation. Digital scanning apps make this simple, letting you photograph receipts immediately and store them securely in the cloud.

Create Your Basic Business Plan

Write a simple business plan covering your target market, competitive advantages, marketing strategy, pricing structure, and financial projections. This doesn't need to be elaborate unless you're seeking investors or loans. A clear two or three page document outlining your business model and financial expectations provides valuable guidance as you launch.

Your plan should include realistic revenue projections for your first year, estimated monthly expenses, and break-even analysis showing when you expect to become profitable. Conservative projections prevent disappointment and help you plan cash flow appropriately.

Develop Your Marketing Foundation

Before launching, establish your basic marketing presence. Register your domain name and create a simple website explaining what you offer and how customers can work with you. Set up social media profiles on platforms where your target customers spend time.

Develop your core marketing messages explaining what you do, who you serve, and why customers should choose you. Create basic marketing materials like business cards and a simple capability statement or service menu.

Plan your launch marketing activities. How will you reach your first customers? Will you leverage your personal network, advertise locally, use social media, attend networking events, or employ other tactics? Having a launch plan prevents the common mistake of opening your business then wondering how to find customers.

Build Your Support Network

Identify professionals you'll need as you build your business. Find an accountant who can advise on tax strategy and business structure. Consider whether you need an attorney for contracts, business formation, or other legal matters. Connect with a bookkeeper who can maintain your financial records affordably.

Join relevant business associations, networking groups, or online communities where you can connect with other entrepreneurs, find mentors, and access resources. Building your support network before launching means you'll have people to turn to when questions or challenges arise.

Test Your Operations

Before officially launching, test your operational processes. Can you deliver your product or service efficiently and profitably? Do you have reliable suppliers or vendors? Are your systems for taking orders, delivering services, and handling customer communication working smoothly?

Many successful businesses start with a soft launch, serving a few beta customers or friends before opening fully to the public. This testing phase reveals operational issues you can fix before they affect paying customers and your reputation.

Man meditating with headphones on

Prepare Mentally and Practically

Ensure you have time to dedicate to your business. If starting as a side business while employed, be realistic about available hours and energy. If leaving employment to start your business, prepare for the psychological adjustment from structured employment to entrepreneurial uncertainty.

Discuss your plans with family or others affected by your decision. Their support matters significantly, and they deserve to understand the time commitment and financial implications of your new business.

Set realistic expectations about challenges you'll face. Every business encounters setbacks, difficult customers, unexpected costs, and moments of doubt. Mental preparation for these realities helps you persist through inevitable difficulties.

Taking the Leap

Thorough preparation doesn't eliminate all business risks, but it dramatically improves your odds of success. The businesses I work with that launch after careful planning experience fewer surprises, make better decisions, and reach profitability faster than those starting impulsively.

You'll never have perfect information or conditions. At some point, preparation needs to transition into action. But taking that leap from a foundation of validation, planning, and proper setup positions you for sustainable success rather than avoidable struggle.

Benchmark Ledger Solutions helps aspiring entrepreneurs prepare financially for business ownership. Our tailored bookkeeping services ensure you start with proper financial systems from day one, giving you the clarity and organization needed to build a successful business. With affordable bundles starting at $35 monthly, we provide the financial foundation you need before and after launch.