Knowing how much money you need to start your business is critical, especially if you’re looking to raise money from investors or get a loan from a bank. 

If you overshoot and ask for too much, you not only risk rejection, but you also risk paying interest on money that you’re not spending. Ask for too little, and you risk running out of money before you’ve really given your new business a fair shot to get fully up and running.

There is unfortunately no single solution or even a specific dollar amount for individual industries. Every business is unique and costs are different depending on location — but fortunately, it’s not too difficult to calculate your startup costs. 

Here are the three steps you should follow to help you figure out how much money you need to start a business.

1. Create a business plan

Having an idea for a business is just the start of your business journey. To make it a reality, you need a detailed business plan.

Your business plan will help you define your business strategy which will inform your spending plan.

For example, if you’re starting a food truck, you’ll need to think about the kind of food truck you need. Do you need just a trailer that will stay parked in one location most of the time? Do you need a full-blown truck? What size? What kind of branding do you need? What equipment will you need?

Your business plan will help you think through everything you need to get your business started and help you think about the types of expenses that you’ll have as you get started.

If you need help with your business plan, check out our step-by-step guide.

2. Create a detailed financial forecast

With a business plan in place, you can start crunching some numbers.

You’ll want to think about and plan for the following two categories of spending.

Startup expenses and asset purchases

Startup expenses include money that you’re going to spend on things like permits, business licenses, website design, improvements to your storefront, etc.

Assets are for tangible things that you need to purchase. For example, you may need to purchase inventory, computers, office equipment, vehicles, kitchen equipment, and other physical assets. A good way to differentiate an asset from an expense is to think about assets as something you could sell.

Ongoing expenses after you get up and running

Finally, you’ll need to plan for ongoing expenses and forecast those for at least the first 2 years of business. Ongoing expenses will include rent, payroll, taxes, insurance, utilities, and marketing costs. Of course, you may have other ongoing expenses as well.

With all of your spending planned, you’ll want to look at the total spending prior to getting your doors open, before you collect your first payment from a customer.

Then, you’ll want to look at what it costs your business to keep its doors open while sales ramp-up to cover those ongoing expenses.

Initial plus ongoing expenses provide a clear picture

Combine those two numbers and you’ll have a good estimate of how much money you’ll need to start your business.

A helpful tool in all of this is a cash flow forecast. You can use spreadsheets to generate your forecast, or you can use software like LivePlan to streamline the process. The idea here is to get a complete financial picture of your business and how much money is moving into and out of your business.

You can then add money to your financial forecast – loans, savings, and investment – to see how much is needed to keep you afloat while your business ramps up.

In the end, you’ll not only see how much money you need to start your business, but you’ll also see how long it will take to break even on your investment and start turning a profit.

3. Plan for the worst

Just because your cash flow forecast says you need $50,000 in startup funding doesn’t mean that’s all you’ll ever need. You should still plan for the worst. 

To be on the safe side, it makes sense to secure 130% of the amount your forecast predicts—an extra third or so of your expected need, to provide a cushion.

After all, starting a business never goes exactly to plan. Things typically take longer than expected and cost more than planned. You’ll want to have a bit of a safety net to cover the unexpected.

Knowing the amount of startup cash you’ll need is crucial when you go to a bank or chat with prospective investors. If you’ve followed these steps, you’ve done your homework and should be able to answer any questions that come your way about potential funding.

If you have some creative photography chops, you might want to open your own business. You’re not alone in wanting to turn your creative outlet into a money-making venture. Photography is a popular profession and hobby right now—and that’s the problem. As camera gear has become more affordable and consumer-friendly, and almost every smartphone now features a great camera, everyone’s a photographer. 

But, that doesn’t mean you should toss your dreams of owning a photography business aside. It just means you may have to work a little harder to set yourself apart from the flock of amateur shooters.

To help you find your photography foothold, we asked three professional photographers who started their own businesses to share their tips for success.

The planning stages

Before you buy a camera and create a website, you’ll want to do a little prep work.

1. Write a photography business plan

For starters, wedding and event photographer Peggy Farren says you need a business plan. Any serious entrepreneur will tell you that you need to organize your thoughts on paper. This detailed document serves as your roadmap, describing what your business is and how it will be profitable. It breaks down things like cash flow, expenses, ownership, and competition.

“Photography is one of the most competitive businesses out there,” Farren says. “You need to be a very good business person to make a decent living. You’ll get there much more quickly if you start out right.”

Creating a business plan may seem like a daunting task, but it doesn’t have to be if you have the right tools. Check out this free, downloadable sample photography business plan. 

2. Assess your photography business startup costs

As part of your business planning process, you’ll need to assess your startup costs. What are the essentials that you’ll need before you can really launch your business?

Camera equipment alone can cost upwards of $10,000, Farren says. You’ll also need business licenses, insurance, a website, and accounting software like QuickBooks or Xero.

What about a studio? 

Do you plan to start with a dedicated studio space or work out of your home? If you need office space, you’ll need to investigate commercial rental properties and figure that monthly cost, along with the cost of utilities, into your financial plan.

3. Secure startup funds

If you have enough money in your bank account to start your business you may not need to borrow money, but many entrepreneurs need assistance. Many people who are starting a business for the first time end up asking family or friends for help, or keeping their day job until their business is self-sustaining. 

Whether you ask friends and family for financial assistance or apply for a bank loan, you’ll need a business plan in place that lays out how you’ll spend the funds and when or how you’ll pay your lenders back. 

4. Figure out your personal finances

If you’re just starting out, realize that your business probably isn’t going to be profitable overnight. It took 18 months for Farren’s business to break even and make enough money to pay the bills. Like Farren, you might have to work another job to make ends meet until your business is generating enough money.

5. Get professional experience

You’ll need to show your prospective clients what you can do, and working alongside a professional photographer is a great way to get some experience and start to build a portfolio. Farren worked as a photographer’s assistant while starting her own business. 

Equally important is using that experience to put together a photography portfolio that demonstrates your skill. Consider your audience and build the portfolio around what they want to see. Keep it updated, so new potential clients can see current and relevant work.

6. Buy camera gear

When it comes to camera gear, Farren says you’ll need two cameras, two high-quality lenses, two flashes, and Photoshop and Lightroom to edit the images. Why two cameras? You need backup equipment. Even new equipment breaks, Farren says.

If you buy used gear, you can get everything for about $5,000, but Farren says $10,000 is more realistic. Of course, you can always upgrade gear as you go.

7. Come up with a pricing plan

How much will you charge for your services? It’s a tough question for every photographer, especially when you’re just starting out. Figure out what one hour of your time is worth. Let’s say your time is worth $50/hour. 

For every hour you spend shooting, you’ll spend about three hours editing. You need to factor that into your pricing. So, in this equation, you would charge $200 for a one-hour photo session. Of course, your pricing structure is your own, this is just a way to come up with a starting point.

8. Invest in a killer website

Once you’ve come up with a name for your photography business, you’ll need a website. There are free website templates out there, but your website is like your storefront. You want it to be impressive, so think about whether it’s better to have your website professionally created.

Your website should, of course, showcase your work. That’s what your clients will want to see. Keep your site organized by breaking your galleries up by category. Include a picture of yourself and a page that describes your background and experience. 

Contact information is also a must. It’s a good idea to list at least some of your prices. This helps manage customer expectations and keeps people from trying to negotiate for a lower price. Here’s what Farren uses as a pricing guide on her website.

Include some pricing information on your website.

 Ok, you’ve got everything in place and you’re ready to start shooting pictures. Now, how do you get customers?

9. Create your own brand

Jason and JoAnne Marino have a unique brand for their photography business.

You need to set yourself apart from others, according to husband and wife photography duo Jason and Joanne Marino. The pair own Imagine Photography, a company that attracts couples who are interested in unique wedding pictures, not the conventional altar photos.

“You can’t be everything to everybody or you’ll fail miserably,” Jason Marino says. “To attract customers you must carve out a brand and style.”

Start by identifying your target market. Do you prefer to do maternity shots? Newborns? Senior portraits for high schoolers? 

Figure out what makes you unique as a photographer and use it to brand your business.

10. Make time to network

As a photographer and a new business owner, you need to network your heart out, Marino says.

“You can be the greatest photographer in the world, but unless people know about you, it won’t do you any good,” he says. “Join groups, forums, clubs, collectives, whatever you can. Make sure these people know about you and respect you, and you’ll get referrals.”

11. Be a people person

As a photographer, you don’t just need mad composition skills, you need people skills too, Marino says. You want to make sure the client has a great experience. Not only will your client trust you, which results in great shots, but a good experience also means your client will refer you to others.

If appropriate, meet with your clients before the shoot. Wedding photographers set up engagement photo sessions as a way to get to know their clients before the big day. If you’re not offering wedding photography, make sure you sit down and talk with the client before you start snapping pictures. 

Make a little small talk and chat about expectations. Remember, you’re not just selling great pictures—you’re selling an experience.

12. Have a friends and family rule

Your friends and family will probably be some of your first customers, which is great. You’ll be extremely grateful for the opportunity and probably feel inclined to give them a discount. There’s nothing wrong with that, but remember, you’re trying to make a living. You should come up with a standard friends and family plan and stick to it.

13. Use social media to promote yourself

Social media is a great promotion tool, but it’s best to start out with one or two sites and use them consistently. Facebook might be a good option, but you might want to lean towards one of the more visual social media channels like Instagram. One of the most important pieces of keeping whatever channel you choose to use active and updated.

When the Marinos are working on a shoot, they share teaser pictures on their Facebook page like the example below. It’s a great way to showcase work and keep customers interested.

Use social media sites to promote your work.

Grow your business

Now that you’ve got the wheels in motion, let’s talk about how to pick up the pace.

14. Up your marketing game

Jane Goodrich, a New York-based children’s photographer, says one of the best ways to grow your business is to invest more in marketing.

Google ads

Goodrich swears by Google ads. She uses some of her marketing budget to buy keywords that generate more website traffic. 

Team up with charities

Farren uses other unique techniques to grow her business. For instance, she teams up with charities that run high-end silent auctions.

“Not only are you getting your name in front of wealthy people, but in most cases, the clients will purchase much more than the free prints that come with the package they bought at the auction,” she says.

Generate an email list and add to it constantly

Through the years, Farren has also generated an impressive email list. She uses that list to send clients a monthly newsletter, which she says is her best marketing tool. She credits a lot of her repeat business to the newsletter as it keeps her business top of mind to her customers.

Whenever you’re at an event, set out an email sign-up form for people to opt into your newsletters.

Maintain a blog

A blog is a great way to establish authority in your field. It’s an open platform to showcase your talent, tips, and opinions. Write about your experiences, your work process, your equipment, how you plan the shots, etc. The topics are endless!

15. Make a savings plan and pay attention to cash flow

It takes time to draw profits from your business, and it takes even longer to put a few bucks in the savings account. But saving money should be a priority as you grow your business. No matter what kind of photography you do, you will sooner or later hit a slow month, Goodrich says. Save money when you’re busy so the lean months are easier to handle. This is about paying attention to your cash flow, or when cash comes into and out of your business. 

On that note, make your payment terms clear. Many photographers will require a deposit upfront and the balance before releasing photos to the client. Whatever your payment terms, make sure your clients know what they are. 

If you do invoice clients after you’ve already done a shoot, make sure you invoice immediately and that you’ve clearly articulated when payment is due. Waiting for clients to pay you can create a cash flow problem, even if you have plenty of business, and on paper, your business is bringing in lots of revenue. Until you have cash in hand, you can’t pay your own bills. 

16. Reinvest in the business

Once you have at least three months’ worth of income socked away, then you can start thinking about reinvesting it. From new lenses to better editing software, new pieces of technology can improve your product. To make wise decisions, make a list of the items you want. Prioritize the list and shop around for good prices before you spend your hard-earned money.

17. Diversify

In time you’ll be able to add certain elements to the business that will help you diversify your revenue stream. Goodrich, for example, added maternity and newborn photos to her list of services. Rather than generating all of her income from children’s shoots alone, she was able to generate more money by branching out.

18. Keep learning

One of the best tips Farren says she can offer prospective photographers is to continue improving their skills. Take classes, watch educational videos, or schedule time to go take pictures of something completely unrelated to your career track—anything to keep your skills sharp.

19. Hire help

In the beginning, you’ll wear all the hats. You’ll set up shoots, take the shots, edit the pictures, and place the orders for prints. When you’re just starting out, you can’t afford to multitask. However, once your business is established, it’s not a bad idea to delegate responsibilities, even if it’s on an as-needed basis.

To do this, Joanne Marino says you need to recognize your strengths and weaknesses. Maybe you’re great at taking pictures but not so hot at editing, or you simply don’t enjoy it. If that’s the case, find a freelancer to help in that area. If you don’t know any freelancers, ask a colleague for suggestions or use freelance sites like Elance to post an ad.

As with any new business, you’ll have ups and downs, but if you’re committed to your craft and work to give each customer a great experience, you’ll earn a solid reputation as a go-to photographer.

Whether you’re kicking around a business idea or working through your first year, it’s never too early to start thinking about growth. After all, every entrepreneur’s goal is to grow a profitable business.

To make sure your business is slated for growth, start with a detailed business plan. Your business plan is an excellent tool for growth. It will serve as your road map for success, and it should help you think through the milestones you’ll need to achieve to build a thriving business.

But assuming you’re writing and regularly reviewing your business plan, what are the most common pitfalls that can still derail your business? Marc Meyer, a business professor at Northeastern University, has a few good suggestions. He’s been a part of several successful software startups, so he has firsthand experience. 

1. Not knowing your competitors

If you don’t know who you’re up against in business, you’ll have a hard time growing, Meyer says. Just about every business has competition, but if you don’t know what they offer and how they work, how will you set yourself apart?

“Customers need a reason to switch (and stay), and the only way they’ll do that is if you give them a clear reason,” Meyer says.

Bottom line? Failure to learn about your competitors and set yourself apart from them will halt your growth potential.

How to learn more about your competition:

• Do industry analysis so you have a general sense of what the market opportunity looks like in your sector.
• Put together a simple competitor matrix that will help you closely compare and contrast your business against your top competitors.
• Pay attention to what your competitors are doing and saying. Join their email lists, and shop online or in their stores. 

2. Poor customer insight

When you start a business, you need to know who your target market is, Meyer says. Are you selling to moms or men with a fitness obsession? How often will these customers make a purchase from you? If your product is only needed once every year, you’ll need a lot of customers to make ends meet. 

It’s not really feasible to do customer research once and then never do it again. Over time, as your business evolves, you might find that your ideal customer’s demographics have changed.  You have to know your customers if you expect to grow

How to gain insight into your customers in your target market:

• Talk to your existing customers—survey them or find other ways to ask them for feedback. 
• Look at other ways to gather data about your customers.
• Ask for (and respond to) customer reviews.

3. Lack of funds

You’ve heard the phrase, “You have to spend money to make money,” right?

Well, it’s true in business. You need enough money to make it through each stage of business. During your early stages, you need enough startup capital to keep the business afloat until it starts making money. Later on, when you’re ready to expand, you’ll need another pool of money to reach a new or bigger audience.

So, if you don’t have money before you need it, your business won’t grow. Whether you borrow money or get investors to support you, you need cash to go through successive stages of growth, Meyer says.

How to make sure you have the funds you need to grow:

• Review your financial statements every month, especially your cash flow, so you can see gaps early and make a plan for how to mitigate them. Using a financial dashboard tool like LivePlan can free you from the spreadsheets and make it easier. 
• If you invoice your clients, set up a strong system with clear terms to encourage on-time payment. 
• You’ll need a business plan if you’re seeking a bank loan or funding from investors. If you don’t already have one, get started now. 

4. Making decisions on your own, or “winging it”

A lot of entrepreneurs start with a team of one. That’s okay, but it’s not easy to start and grow a successful business all by yourself. You need some advice—some good advice.

Whether you get a business mentor, a business coach, or create a board of directors, Meyer says you need someone in your corner to bounce ideas off of, help you make decisions, and talk through problems.

A few resources for finding a sounding board:

• SCORE offers a free business mentorship program.
• An expert business advisor can help you make sense of your business financials and can help you model different scenarios for growth.
• Indie Hackers calls itself “a place where the founders of profitable businesses and side projects can share their stories transparently, and where entrepreneurs can come to read and learn from those examples.” 

5. Poor leadership

If your business is big enough to have a management team, you want to make sure every member is willing to think outside of the box, energize the company, and be willing to take a few risks to grow the business.

“Growth stops if the leaders are either too rigid or incapable of envisioning a new stage of growth and aren’t breathing excitement and new energy into research, development, and sales,” Meyer says.

In other words, you need leaders with vision and the wherewithal to make that vision a reality.

Resources for growing your capacity as a leader:

• This guide for founders who want to become better leaders.
• Performing a SWOT analysis that involves getting input from your whole team—not just leaders—is a great way to learn from different perspectives and even build team morale and buy-in for change. Check out this SWOT analysis template.
• Be honest and self-critical about your weaknesses and skill gaps. Hire people who are good at the things that you’re not an expert on. 

6. Not tracking your cash flow

If you’re just paying bills and depositing what’s left into the bank, you’re making growth extremely difficult. After all, how can you grow if you don’t know how much money is going in and how much money is going out? That’s your cash flow, and keeping a good handle on it will help you.

You need a good accounting procedure in place if you plan to attract new customers, reach new markets, and boost sales, Meyer says. Whether you hire an accountant to help you or invest in software like Xero or QuickBooks, you need to track your money so you can plan for growth.

How to get better at tracking your cash flow:

• Transition your bookkeeping from Excel spreadsheets to a cloud accounting tool. It’s a way to keep things organized without doing double (or triple) data entry.
• Monitor your cash flow through monthly cash flow analysis. This is going to give you a good window into your accounts receivable, or the items you’ve invoiced clients for but that they haven’t yet paid. You want to avoid a situation where you’ve made a ton of sales, but you don’t have any cash in the bank because clients haven’t paid yet. 
• Beware common accounting mistakes that can be costly and affect your financial health. 

Whether your goal is growing sales, expanding to a new location, or scaling so your startup is attractive to buyers, paying attention to your customers, your competition, and your cash flow will help you make better spending decisions and more nimble strategic decisions. Good luck!

If your dream is to open a hair salon, now might be one of the best times to do it. According to Zion Market Research, the salon industry is growing steadily and is projected to continue growing. They estimate that the global spa and beauty salon market should reach approximately 190.81 billion USD in 2024. In the U.S. alone, the salon industry is estimated to be worth $47.1 billion, and the market size is expected to increase by 1.5 percent in 2019.

If you are planning to start a hair salon, this guide will give you the details you need to get started. Plus, we’ve asked two salon owners to offer some tips to get your shop up and running.

Dallas Alleman, the owner of Salon Du Beau Monde in New Orleans, and Avi Shenkar, the owner of Philadelphia-based BLO/OUT, have different backgrounds and different business models, but share similar strategies for success.

Alleman has a 40-year history in the salon business, as both a licensed cosmetologist and an instructor. He has opened three salons in New York, Santa Fe, and New Orleans, and his current endeavor is a high-end boutique salon that offers all the traditional services.

Shenkar, on the other hand, is an entrepreneur with business experience, but no salon background. However, he has opened two BLO/OUT locations in Philadelphia and is working on three other locations. 

While they may run different types of salons, many of their tips for success are the same. 

It’s important to have a plan in place before you open your salon. Here are a few things you’ll want to do before you open:

Create a business plan

No business can function properly without a business plan. A business plan acts like a roadmap, a document that will guide your business to success. 

But, business planning doesn’t have to be a long drawn out process. In fact, you’ve probably already put together a lot of the information mentally, or even scribbled a few notes on paper. The point of a solid business plan is to figure out what your business is, how it will be successful, and how you’ll troubleshoot problems.

Our article on How to Write a Business Plan is a good starting point if you need a formal business plan, and if you’re looking for a faster, lightweight planning option, check out our guide to Lean Planning. You can also download our free business plan template, and take a look at our salon industry sample business plans to see how other salons have approached the process. If you’d rather not start from scratch, you can also try LivePlan, our business planning software.

Figure out funding

Whether you’re seeking a traditional bank loan or borrowing money from friends and family, you need to figure out how much money you need to get started, and where it will be coming from. 

Most likely, you’ll be doing a combination of multiple funding methods, and you may be using your own money and bootstrapping your business. Regardless of what route you take, it’s important to have a clear idea at the outset of where the money is coming from. Our funding guide gives an overview of your options if you aren’t yet sure what funding options are right for your salon.

Find a mentor

As you’re planning your business, it’s a great time to find a business mentor. It’s best to find someone in the salon industry that can answer questions for you as you start and grow your business.

Put an accounting and inventory program in place

To keep track of your money and project growth, you’ll want to implement an accounting and inventory program. 

On the accounting side, you’ll need a program to track your revenue and expenses. You’ll also need to figure out how you’ll pay Uncle Sam, so it’s a good idea to sit down and chat with an accountant to help you get started.

You’ll also need a way to track inventory; Salon Today has some great tips on this particular topic.

Hunt for the right location

Choosing the right location is the difference between success and failure, Shenkar says. He admits that if he could go back and pick a location for his first salon, he probably wouldn’t pick the same spot. 

You want to select a spot with good traffic, high visibility, and is located where your target demographic shops or lives. Shenkar advises being fussy about your location, as it’s vital to the success of your salon.

Aside from touring around various locations with a realtor, Alleman suggests driving through the areas that you want to be located in and look for vacant properties. Just because there isn’t a “for sale” sign in the window doesn’t mean it’s not available. In his experience, people sometimes hang on to a property for sentimental reasons and are willing to rent it out if the right opportunity comes along. It never hurts to call and ask the owner if an arrangement can be made.

You don’t just want the right storefront—you want the whole package, says Shenkar. So, do your homework. Know the demographics, the local competitors, and think about how your customers will get to your salon. Is there ample parking? Is a construction project planned on your block? You want to know everything you can about the area before you select a location.

With the planning stages complete, you’ll move on to the nitty-gritty details of actually opening your salon.

Build your salon brand around the clientele you want

Before you start painting the walls and picking out furniture, make sure that your brand vision matches the kind of clientele you want to attract. According to Alleman, this is one of the most important lessons he has learned.

“You want your customers to feel comfortable in your salon, so make it a place they want to visit,” he says.

This means taking what you know about your target market, and working to create a brand for your salon based on their interests, tastes, and habits. Don’t overlook the importance of building a brand for your salon; the idea of “branding” might feel like something only big businesses do, but it’s necessary to tailor your look to your intended client base, and creating a brand is a key part of that process.

Provide excellent customer service

After you’ve created an environment that your clients will love, you have to follow through by offering excellent customer service.

“Provide an experience for your customers, not just a service,” Shenkar says. “The overall experience is what keeps customers coming back.”

Consider thinking through your customer service strategy early on, including hiring for emotional intelligence, rather than just skill set. And, you may want to look into tools to help you deliver better customer service, like a shared inbox tool to manage inquiries and booking requests. 

Set aside money for marketing

To be successful, you need clients. To attract clients, you need a solid marketing plan. Alleman suggests setting aside some money to market your business; without it, you’ll struggle to be able to really execute a marketing strategy. 

Create an attractive, well-thought-out website

For starters, you need a good website. Alleman suggests hiring a professional to create your site if you can afford it. That said, if you’re tight on cash, there are plenty of DIY website platforms out there. Your site should be attractive, easy to navigate, and ideally include helpful information for your customers, such as hours, location, contact info, and pricing. As most salons use an online booking system nowadays, that’s also an important element to look into (or you may lose customers to salons who do offer this convenience). 

When designing your website, it’s important to return to your brand vision and what you’ve learned about your target market. Your site is an extension of your brand, so it should be cohesive and match the image you want your salon to present to customers. 

If you’re building your website yourself, check out our guide to building a website.

Find creative, low-cost marketing ideas

You want to get the word out about your salon, and getting involved in your community is a great way to do that. Consider hosting an event like a ribbon cutting or a small charity event to attract more customers—for example, sponsor a school play or have the staff volunteer at a local baseball game. 

For more marketing strategies that can be relatively low-cost and will help you build your presence within your local community, check out our article on how to attract customers for your opening day. 

Set up and utilize social media accounts

Social media is an important component to your marketing plan, Shenkar says. 

If you wish to set up accounts on a variety of platforms, it’s not a bad idea to do so. However, make sure you can confidently say whether or not your target market uses the platforms, and that you have the bandwidth to post content on multiple platforms before you commit. 

At a minimum, it’s a good idea to build your presence on Instagram, as it lends itself well to a visual business. Start by getting a sense of what hashtags are popular within your niche and creating a content strategy, as well as following other local businesses and encouraging your customers to tag your salon when they visit. 

Don’t assume product lines will generate huge revenue

As an owner, you’ll need to select a product line. There are lots of options to choose from; while some shop owners sell a variety of product lines, Alleman advises against it.

“I find that choosing one brand to work with is less confusing for the client and the staff,” he says.

Some shops sell a lot of product, but Alleman says you shouldn’t look at it as a big revenue source. You’ll spend money up front to buy inventory, and even though you’ll sell it at a price to make a profit, that money usually goes right back into purchasing more product. So, it’s smart to consider starting small, and perhaps focusing on one product line in the beginning.

Once you’ve thought through all the details of how to open your salon to the public, you’ll turn your attention to how to grow your business. Here are some areas you’ll want to keep in mind. 

Hire staff based on personality

When you’re first starting out, you might be the only employee. But hopefully, your shop will be so popular that you’ll need to hire additional help, as well as bring on more stylists. When that happens, Alleman suggests hiring someone based more on personality than skill.

“I don’t hire for talent—I can teach a new hire the skills I want, but I can’t train someone to love and nurture my clients,” he says.

You want your clients to enjoy coming in. Of course, you want someone who is good at what they do, but you shouldn’t base your decision on skills alone. Personality matters.

Plan for finding new customers and retaining them

When a customer finds a stylist he or she likes, they usually become repeat clients. However, this doesn’t mean you should let up on your marketing efforts. Even if you have a steady stream of customers, you should build on the marketing efforts that you’re already using.

“I don’t believe in depending on any kind of business,” Shenkar says. “New client acquisition should be a full-time job and should never be overlooked. Contentment will kill a salon.”

Revisit your business plan regularly

A business plan should always be viewed as a work in progress. With each passing month, you learn more about your business and your customer base. 

It’s a good idea to go back to your plan, read it over, and make sure you’re still on track. A monthly plan review meeting can be helpful, as can running a SWOT analysis on your business. 

Look for ways to save on overhead

When you first open your doors, you may have splurged on a few things that you thought you needed, but really don’t. With your business established, review your inventory and see if you can make any changes or cuts to save money. Take a look at your monthly expenses too—is there anything you can trim back or get rid of? Maybe you can downgrade your internet service, or cut back on the amount of product you’re buying each month.

Opening a salon is a bold endeavor. As with any new venture, it’s important to plan as much as you can and be willing to adapt as you learn what works best for your business. You’ll spend a lot of time and money to get your salon off the ground, but Alleman says there is nothing like running a sought-after, successful salon.

You’re invited to take the SWOT analysis challenge—see if you can complete all five steps in five days or fewer! Then invite your network to do it too. Share this article on LinkedIn, Facebook, or Twitter and use the #SWOT hashtag.

If you’re looking for the rest of the steps in the series, find them here:

• Step 1: Strengths
• Step 2: Weaknesses
• Step 3: Opportunities
• Step 4: Threats
• Step 5: Actionable strategies

An example of a completed SWOT analysis.

If you’ve completed the first four steps of a SWOT analysis, your SWOT matrix should be complete. Congratulations! Now it’s time to take the ideas and information in your analysis and use them to create actionable strategies to guide your business. Here’s a quick overview of how to do it.

Before you develop actionable strategies:

• Your SWOT matrix should be complete. At the beginning of the challenge, you probably downloaded the SWOT matrix template. It’s easier to use if it’s in this format rather than on separate pieces of paper or computer files.
• Look at other examples. If you haven’t done so already, take a look at a few completed SWOT reports so you know what yours should look like. Here are a few SWOT examples you can look at.
• Use bullet points. Everything listed in your analysis should be in a bulleted format. You don’t need complete sentences.
• Boil down each point. Each bullet point should be short—a few words will do. If you need to, simplify your points.
• Refine your information. If you came up with a healthy list for each of your strengths, weaknesses, opportunities, and threats, it’s time to refine the information. Check for redundancies, combine bullets where necessary, and eliminate any information that isn’t vital.
• Prioritize your information. It’s time to go through each section and rank the information. Put the most important or pressing item on top of each square.

From SWOT analysis to TOWS analysis

A list of strengths, weaknesses, opportunities, and threats makes for a handy business guide, but you’ll want to take this exercise one step further to create strategies and plans to improve your business.

The exercise you’re about to do is called a TOWS analysis. It helps you make connections between each quadrant of your analysis. You’ll work around the square, combining information from two quadrants to create actionable strategies.

Here’s how:

• Strengths–Opportunities. Use your internal strengths to take advantage of opportunities.
• Strengths-Threats. Use your strengths to minimize threats.
• Weaknesses-Opportunities. Improve weaknesses by taking advantage of opportunities.
• Weaknesses-Threats. Work to eliminate weaknesses to avoid threats.

The chart below is a great visual explanation of the TOWS exercise:

As you answer these questions, you’ll start to create actionable strategies. For example, if one of your strengths is an experienced grant writer on your team, you should put that person in charge of taking advantage of new federal grant opportunities that are available this year. That’s a strategy that you can implement immediately to improve your business.

You can simply add a few blocks to your SWOT analysis to get these strategies down on paper. Here’s an example of a completed TOWS analysis from the University of San Francisco, which shows a TOWS analysis for Volkswagen. It shows you what the exercise looks like and gives you an idea of the strategies that can come from this analysis.

Your finished product

When you’re finished with the SWOT and TOWS analysis, you’ll have an insightful look at your business that’s accompanied by a list of strategies that you can implement to better your business.

Take this list of strategies and start implementing them. If some strategies are long-term plans, break them into steps with specific milestones and put each one on your calendar so you can implement the change over time.

Now that you have this business resource, you’ll want to keep it handy. Hang it on your office wall, or keep it on your desktop so you can reference it throughout the year as you make decisions. Your hard work will pay off.

Aside from strategic plans, here are additional benefits from your participation in the SWOT challenge:

• Improved focus. This analysis should put everyone on the same page. It identifies what you should be working toward this year.
• Strategic alignment. With everyone working on the same goals, managers and employees can build better strategies together.
• Identify unknown aspects. You’ll likely discover aspects of your business that you didn’t know about. From unknown strengths to hidden threats, uncovering this information will help you move forward.

If you are one of the many business owners who set aside time to finish each step of your SWOT analysis, we’d like to congratulate you. You have made great strides toward improving your business this year.

We’d love to hear how the process went for you. What did you learn? How will your SWOT analysis help you make effective business decisions? Tell us on Twitter @Bplans.

Editor’s note: This article was originally published in 2015. It was updated in 2019.

You’re invited to take the SWOT analysis challenge—see if you can complete all five steps in five days or fewer! Then invite your network to do it too. Share this article on LinkedIn, Facebook, or Twitter and use the #SWOT hashtag.

If you’re looking for the rest of the steps in the SWOT analysis series, find them here:

• Step 1: Strengths
• Step 2: Weaknesses
• Step 3: Opportunities
• Step 4: Threats
• Step 5: Actionable strategies

Small business owners are notoriously busy people. We understand that you have a lot of items on your daily to do list, but we’re about to suggest one more. Every business owner should sit down and conduct a SWOT analysis, which gives you an inside look at the strengths, weaknesses, opportunities, and threats that can impact your business.

If you’ve been working through each step along the way, you’re already up to speed on the finer points on why companies, whether they’re brand new or they’ve been around for 100 years, should make SWOT analyses part of their regular planning and review process.

But here’s something you might not know about yet—the history of SWOT, or where it came from and why. Then we’ll jump down to how to assess threats.

The history of SWOT analysis

We know you’re anxious to complete your SWOT matrix, but before you start brainstorming, we thought we’d look at how this process came to be.

Here’s the quick history:

While there is some debate over who came up with it, most research suggests that Stanford professor Albert Humphrey was the father of this process.

How did the strategy come about?

Humphrey led a research project at Stanford University in the 1960s and 1970s that tried to figure out why corporate planning failed within several big companies. The team started breaking the data into categories like opportunities and threats.

Eventually, other strategists tweaked Humphrey’s categories into the SWOT matrix that we know today.

O.K., history class is over. Time to pull out your SWOT templates and start thinking through the threats that your business is facing.

How to define your company’s threats

A threat to your company is an external factor, something that you can’t control, that could negatively impact your business. A threat is different than a weakness, which is internal, or part of your company as it exists right now.

Identifying threats to your business is a powerful first step to reducing their risk, or at least mitigating them enough that they won’t shut down your business. It’s all about being prepared and taking proactive steps to minimize the hurt.

Coming up with a list of threats can be difficult—you just don’t know what you don’t know. They might not spring to mind as easily as your strengths, but there are certain categories that most external threats fall into.

You can use these categories to brainstorm possible threats to your business:

• Economic trends: Examine the economic conditions that impact your business.
• Market trends: Think about changing or shrinking market trends.
• Funding changes: Think of donations, grants, or other shifting revenue streams that aren’t within your control.
• Political support: If political support is shifting, you’ll want to analyze its impact.
• Government regulations: Think of regulations that are changing that might hurt your business.
• Changing relationships: Consider shifting relationships with vendors, partners, or suppliers.
• Target audience shift: Your target market might be shrinking, aging, or shifting.

Questions to ask to find threats

These categories should get your wheels turning. By thinking through each category, outside threats should come to mind. If you identify weaknesses, or internal challenges as you go, just add them to your SWOT matrix. And if you’re just getting started, download a free SWOT analysis template here.

We’ve also created a list of questions that coincide with the categories above to help you think critically about the threats that could be out there.

Economic trends

• Is the economy in your area in a recession?
• Will the economy negatively impact your customers’ ability to make purchases?
• Are economic shifts happening that impact your target audience?

Market trends

• How is your market changing?
• What new trends could hurt your company?
• Is there more competition in your market that’s pushing you out?

Funding or cash flow changes

• Do you expect to have any changes in your cash flow that might have a negative impact? Delays in payment, seasonal issues, etc.
• Will funding changes hurt your business? If so, how?
• Do you expect a decrease in grant funding or donations this year?

Political support

• Do you anticipate a shift in political support this year?
• Is there reason to be concerned over political shifts?
• What does your business stand to lose because of political changes?

Government regulations

• Are any regulations shifting that could cost more money or hurt production?
• What kind of damage could new regulations have?

Changing relationships

• Are any outside business relationships changing?
• Is there any turmoil with partners or vendors?

Target audience shift

• How is your demographic shifting?
• What threats accompany these changing demographics?
• Is your audience changing in a way that you can’t accommodate?

Tips to find threats

1. Do market research. As you’re looking into possible threats, you’ll want to conduct market research to see how your target audience is shifting.
2. List every threat you can think of. If you think of a threat, list it. Even if that threat has consequences that won’t be felt immediately, it’s still better to have it on your radar.
3. Threats exist, don’t panic. Listing threats may cause some anxiety, but remember that all businesses have threats. It’s better to know about threats than it is to turn a blind eye to them. Plus, we’ll give you some strategies in step 5 of this series on how to minimize these threats.

Once you’ve listed your threats, your SWOT template should be filled in. You’re almost done! The last step, number 5, is turning what you found in your SWOT analysis into actionable strategies.

Editor’s note: This article was originally published in 2015. It was updated in 2019.

You’re invited to take the SWOT analysis challenge—see if you can complete all five steps in five days or fewer! Then invite your network to do it too. Share this article on LinkedIn, Facebook, or Twitter and use the #SWOT hashtag.

If you’re looking for the rest of the steps in the SWOT analysis series, find them here:

• Step 1: Strengths
• Step 2: Weaknesses
• Step 3: Opportunities
• Step 4: Threats
• Step 5: Actionable strategies

A good entrepreneur is always on the hunt for new opportunities. One of the best ways to identify opportunities within your business is to complete a SWOT analysis. The acronym SWOT stands for strengths, weaknesses, opportunities, and threats.

In step one, you identified business strengths. In step two, you evaluated your weaknesses, and now you’re ready to consider your opportunities. Think of opportunities as things that are external to your company. Strengths, on the other hand, are internal, or existing aspects of your business.

The best time to conduct a SWOT analysis

Before we walk through today’s SWOT brainstorming exercise, we thought we’d take a second and talk about when you should do an opportunities analysis.

In some ways, opportunities analysis might seem like the easiest element of a SWOT matrix to complete, especially if you’re the type that enjoys entertaining the possibilities. But you’re missing out if you only ever look at your strengths and opportunities. Assessing your weaknesses and threats at the same time is guaranteed to give you some interesting and valuable insight.

A business professor will tell you it’s always a good time to conduct a SWOT analysis. Any time you can take to critically look at your business and see how it’s performing is a good thing. However, there are strategic times when a SWOT analysis is most beneficial.

Ideal times to conduct a SWOT analysis:

• At the beginning of the year: As a new year begins, it’s a natural time to review the past year’s business strategy and look ahead. By conducting an analysis at the beginning of a new year, you’ll be ready to make decisions in the coming months.
• Annually: Just like you should visit the doctor annually, your SWOT analysis should get a check-up at least once a year too. You’ll be amazed how much can change within a year.
• When a shift occurs: If something big is changing in your business, it’s time to fill out a new SWOT matrix. Maybe you just took on a big client and plan to increase your revenue, or maybe the political support that you once had is shifting. Maybe you’ve been comparing your sales forecast to your actuals, and you’re not sure exactly what to adjust—but you know you need to do something. When a noticeable change like this happens, it’s always a good idea to re-evaluate where your business stands.
• If you haven’t launched yet: If you’re planning to start a business, conducting a SWOT report is a great way to check the viability of your idea and your proposed strategic plan.

How to define your company’s opportunities

Ok, it’s time to pull out your SWOT template. You can download our template if you need it. Let’s talk about opportunities.

Here are a few categories to consider when looking for business opportunities:

• Economic trends: Look at the economy in your area.
• Market trends: Your target market could be driving new trends that could open doors for your business.
• Funding or cash flow changes: Think about that new big fish customer, or maybe you’ve received a business loan or some outside investment.
• Political support: Consider changes in political ties.
• Government regulations: Think of regulations that are changing that might afford you new opportunities.
• Changing relationships: Consider shifting relationships with vendors, partners, or suppliers.
• Target audience shift: Your target market might be expanding, aging, or shifting.

Questions to ask to find opportunities

To help you brainstorm possibly opportunities, we’ve created a list of questions to help. The questions are broken up by the categories that we just went over. If a question doesn’t apply to your business, simply move on to the next.

Economic trends:

• Is the economy in your area looking up?
• Will the economy enable your audience to make more purchases?
• Are economic shifts happening that impact your target audience?
• Is the price of sourcing materials going down?

Market trends:

• How is your market changing?
• What new trends could your company take advantage of?
• What kind of timeframe surrounds these new trends? Could it be a long-term opportunity?

Funding changes:

• Do you expect an increase in grant funding or donations this year (if you’re a nonprofit)?
• Did you land a new contract (assured new income)?
• Did you secure a loan or investment funding?
• How will funding changes help your business?

Political support:

• Do you anticipate a shift in political support this year?
• What opportunities could be created with new political partnerships?

Government regulations

• Are any regulations shifting that could lead to a positive change?

Changing relationships:

• Are there positive changes happening within any of your outside business relationships?
• Are vendors changing or expanding?
• Has your partner decided to move on, creating an opportunity to work with someone new?

Target audience shift:

• How is your demographic shifting?
• What opportunities can you think of that can move with these changing demographics?
• Is your audience expanding? If so, how can you capitalize on this increase?
• Is there a related product or service that you could launch that allows you to gain a new market share?

Tips to list your opportunities

1. Do your research. Finding answers to some of these questions might require some digging. Don’t be afraid to make some calls, set up meetings, and do some market research to gauge upcoming changes.
2. Be creative. To find an opportunity where your competitors cannot will take skill and creativity. Don’t be afraid to think outside the box when you’re listing possible opportunities.
3. Keep your list of opportunities handy. We’ll revisit all the sections of your SWOT matrix so you can develop actionable strategies in step 5. For now, go ahead and get started on step 4: Threats.

What opportunities did you come up with for your business? Share your insights with us on Twitter @Bplans.

You’re invited to take the SWOT analysis challenge—see if you can complete all five steps in five days or fewer! Then invite your network to do it too. Share this article on LinkedIn, Facebook, or Twitter and use the #SWOT hashtag.

If you’re looking for the rest of the steps in the SWOT analysis series, find them here:

• Step 1: Strengths
• Step 2: Weaknesses
• Step 3: Opportunities
• Step 4: Threats
• Step 5: Actionable strategies

Whether you’re new to the business world or a veteran, a SWOT analysis is a valuable tool to have in your toolbox. Doing a SWOT analysis is a well-rounded approach to evaluating your business, looking specifically at strengths, weaknesses, opportunities, and threats.

Looking at your SWOT weaknesses for business planning

There are some good reasons to include a SWOT analysis in your business planning process—funders will be interested in seeing your approach to handling the risks that you’ll face based on internal weaknesses.

You won’t get anywhere with pretending you don’t have any, so be honest with yourself about your company’s weaknesses. That’s a good first step to putting a plan in place to address them.

Looking at SWOT weaknesses as part of an ongoing strategic plan

If your business doesn’t need a business plan for a loan or because you’re seeking investment, don’t cross conducting a SWOT analysis off your list just yet.  

Many established companies include SWOT in their regular strategic planning. The end goal isn’t just documenting facts and information, it’s to use what you uncover to develop strategies for growth and mitigating risk.

The purpose of a SWOT analysis

Today you’re diving into the weaknesses of your business. Since cataloging your business’s weaknesses can be tough, we thought it was a good idea to recap why this analysis is important.

For existing businesses, a SWOT matrix will:

• Give you a new perspective about your business
• Provide valuable information about internal and external factors that can be used to make strategic decisions
• Allow you to assess the health of your business in real time
• Identify areas for improvement
• Give your team a chance to share insights and take a role in affecting business strategy
• Provide a framework for updating your strategic plan

For new businesses, a SWOT matrix will:

• Highlight the benefits of your proposed business
• Provide valuable information about internal and external factors that can be leveraged in your business plan
• Identify potential problems
• Encourage you to think critically about starting a business
• Provide valuable information that you’ll need to consider now and in the future

How to define your company’s weaknesses

Every owner wants to believe his or her business is running smoothly, so this element of the SWOT analysis might not be your favorite.

But, it’s vital. You need to truthfully assess your business’s weaknesses for this analysis to be a useful strategic tool.

Weaknesses are internal, threats are external

In a SWOT analysis, think of weaknesses are internal factors that take away from your business or leave you at a disadvantage. Resist the urge to list threats–or external risk factors. The same categories that applied to your strengths column from step 1 can be reapplied here.

So, your brainstorming session should include your team if you have one, or at least your business mentor or trusted business advisor.  

You can download the free SWOT matrix template here if you haven’t done so already.

You’ll start with brainstorming around the different aspects of your business.

Assess your business for weakness in the following areas:

• Financial resources: This includes revenue streams, investments, diversified income, and grants.
• Physical items: Consider the buildings and equipment that you rent or own.
• Intellectual property: Patents, copyrights, and trademarks fall into this area.
• Human resources: Think of your employees, volunteers, and mentors.
• Key players: Think of vital personnel to your business.
• Employee programs: Think of any programs that help your employees excel.
• Company workflow: This includes best work practices.
• Company culture: This is the environment that your employees work in.
• Company reputation: Think of how your business has grown its reputation.
• Market position: You’ll consider how your business fits in the overall market.
• Growth potential: Think of how your business is positioned for future growth.

Questions to ask to find your company’s weaknesses

Here are some questions that should help you identify weaknesses. They mirror the list of different aspects of your business that you’ll want to assess.

Keep in mind that some questions might not elicit a negative response. If that’s the case, just move on to the next question.

Starter questions:

• In what areas does your company struggle?
• Are there reasons that customers select competitors over you?
• Does something specific stop you from performing at your best?

Financial:

• Are financial resources holding you back? If so, how?
• Does your business get its revenue from one main stream? If so, is diversification a concern?
• How are you preparing for your financial future?

Physical:

• Are any of your physical assets creating a problem?
• What condition is your office in?
• What condition is your equipment in?

Intellectual property:

• Are any of your patents, trademarks, or copyrights in jeopardy?
• Is there any government red tape that’s keeping a patent from moving forward?
• Does your company take too long to file for patents, etc.?

Human resources:

• What kind of human resources do you have?
• Are there any departments that are lacking or inefficient?
• Are employee programs in place to improve your business? If so, are they working?

Company workflow:

• What areas could be improved upon when it comes to workflow?
• What slows you down? Is there too much red tape in certain areas?
• What are the areas where you’ve made mistakes in the last year or quarter?

Company culture:

• Are you happy with the company culture that you’ve created? If not, why?

Company reputation:

• How does the public see your company? Are you happy with that image?

Market position:

• What kind of position does your business hold in the marketplace?

Growth potential:

• What plans do you have for growth?
• Are your competitors growing in ways that you can’t?
• What keeps your business from growing?

Tips for gathering insight and information on your weaknesses

1. Be open-minded

As your employees suggest weaknesses, remain open-minded. It’s likely that an employee will bring up a weakness that you hadn’t thought of, or that you disagree with. When it happens, don’t be judgmental.

2. Be critical of your business

Now isn’t the time for rose-colored glasses—it’s the time for pure honesty. Be prepared to look at your business critically, both inside and out.

3. Remember, every business has weaknesses

When you’re finished talking about the negative aspects of your business, you might feel a bit deflated. Just remember, every business has weaknesses. Today is just part of a larger process that will help you better assess your business overall.

4. Keep your list of weaknesses handy

Keep your list in an accessible spot. You’ll analyze all of the data that you collect over the next few days at the end of the week.

In Step 5: Turn your SWOT into actionable strategies, you’ll combine everything you’ve learned, and think about which tactics or strategies you need to adjust to sustain growth and your overall business health.

For now, move on to Step 3: Identify Opportunities.

Editor’s note: This article was originally published in 2015. It was updated in 2019.

You’re probably mulling over a business idea. It’s probably something you’ve been thinking about for a while. And you’re probably ready to turn your business idea into a reality.

As part of the planning stage, you’ll want to gather information, do research, and make sure that your business idea is viable. During this information-gathering stage, there’s a small list of people you should talk with before you move forward with bigger steps like applying for a bank loan or looking at commercial space.

To help you on your business quest, carve out time to talk with the following five people.

1. Your spouse

One of the first people you should talk with about this new venture is your spouse. It sounds like a no-brainer, right? But some people get so caught up in their business idea that they don’t have a real sit-down conversation about how the business could impact their relationship, finances, and free time.

“Starting a new business can be all-consuming, and the support of your spouse and family will make all the difference,” business mentor and lawyer Anne Sumpter Arney says. “It is best to know whether or not your family is ready for the commitment and time that starting a successful business will take.”

Tim Berry, founder of Palo Alto Software (makers of Bplans), has been open about his experience of bootstrapping his business and its impact on his relationship with his spouse.

“As we grew to revenues greater than $5 million in the early days, we had no outside investment, but my wife and I had three mortgages along the way and $65,000 in credit card debt at one point […] in my case, my wife was with me in all the key moments and shared the risk. If I hadn’t had her on board, I wouldn’t have done it.”

2. A lawyer

Starting a business involves a few legal hoops, so you’ll want to talk with a lawyer. For instance, should you start an LLC, an S-Corp, or an Inc.? A lawyer can give you advice and draw up the legal paperwork to make sure your business structure meets your goals and limits liability, Arney says.

A lawyer can also help you define business relationships. Maybe you borrowed money from one of your peers in exchange for equity in the business, or maybe you plan to start a company with several partners—whatever the situation, you’ll want legal documents to set boundaries and minimize future disputes, Arney says. Check out this article for advice on finding the right lawyer for your business.

3. An accountant and trusted advisor

When you’re just starting out, you’ll need some accounting advice. A lot of new business owners assume an accountant is just someone you call to handle taxes.

But as your business grows, they can also be a trusted advisor—someone to help you make sense of your financial statements, cash flow, and to strategically think through opportunities and challenges. As you start bringing in more customers and doing more business, you’ll probably find yourself wondering whether it’s the right time to buy a new piece of machinery, finance expansion, or hire your first employee. An expert advisor can help you make better business decisions with confidence.

4.  A business coach or mentor

Getting a little advice from someone in the business world is also a good idea. Whether you’re opening your first business or your fifth, talking with someone who can give you independent business advice will go a long way, Arney says.

“You need someone who has been where you are and knows what there is to lose, as well as to win. Business owners need someone who knows them and their business and is independent enough to keep the vision tied to the real world,” she says.

Ideally, this person will be able to give you advice for years to come—not just as you plan your business, but also as your business grows. If you don’t already have a business coach or mentor, check out SCORE. They offer free business mentorship opportunities all around the US.

5. A banker

Entrepreneurs sometimes obtain at least part of their financing through a traditional bank loan. If you plan to borrow money, you’ll want to find a trusted banker to help you through the application process. You may want to ask your business adviser to recommend a banker, or you could ask other business colleagues for a suggestion.

You’ll need to start a business checking account anyway, so start learning about what different banks and credit unions have to offer your business. Having a real relationship with a bank can be helpful if you ever want to apply for that loan or line of credit.

The smart way to start a business is with as much information as possible. By talking with these five people, Arney says you’ll start your business on solid footing.

Editor’s note: This article originally published in 2014. It was updated in 2019.

This article is part of our Business Startup Guide, a curated list of our articles that will get you up and running in no time!

One of the key items on your new business’s startup checklist is opening a business bank account. Wherever you decide to open an account, you’ll likely use that bank or credit union for years to come. It’s not just a place to hold your money; it’s a partner that you’ll want to develop a relationship with as your company grows, especially if you seek a loan or line of credit.

We’ve created this guide to help walk you through the process of setting up a business bank account. We’ll help you find a bank that’s right for you, help you weigh banking features, and go over the setup process.

3 reasons you need a business bank account

If you’re just starting out, you might wonder why you need a business bank account. Why not just use your personal accounts? Any serious entrepreneur will tell you that a business account is vital to your success.

Why? Here are a few reasons.

1. To track your expenses

If you keep your personal and business accounts together, you’ll have to sift through each transaction to see how much money came in and went out.

It’s a tedious task that eats away at time that’s better spent improving your business. It’s a smart idea to start a business credit card for the same reason. It’s really hard to monitor your company’s cash flow if it’s mixed together with your personal money.

2. To alleviate tax headaches

When tax time rolls around, you want to have all of your numbers in one place. It’s infinitely easier to turn over bank statements to an accountant that are solely based on your business.

From those statements, a skilled accountant can look for tax deductions and incentives. Even if you decide to do your own taxes, an account dedicated to your business will be a lifesaver.

3. To start a relationship with a bank

At some point, you might need a loan for your business. Hopefully, in a few years, you’ll look to expand.

If you already have a relationship with a bank, you’re one step closer to getting funding. This connection, combined with a solid business plan, will help you secure the funds you need to grow.

Considerations to help you pick the right bank

You have a variety of options to choose from. Should you go with a big corporate bank, a regional bank, or a credit union? It’s a tough decision. It all depends on what you’re looking for.

Here are a few points to consider.

Bank fees

Every bank has fees, some more than others. Be sure to ask about fees and their structure.

In some cases, you’re charged for not keeping a minimum balance in your account. ATM fees can add up. Some banks even charge a “maintenance fee” just to keep the account open.

Typically, big banks can offer lower fees because they have a higher volume of clients. Ask how common it is for fees to increase too, or if any of the rates are promotional and expire quickly.

Lending ability

Inquire about lending ability. Can the banker you work with authorize a small business loan, or does it have to go through sixteen layers of corporate executives first? It’s something you’ll want to know upfront.

Typically, regional banks and credit unions have more flexibility here.

Online features

Most entrepreneurs want online features. Most banks offer them.

From online bill pay to the ability to transfer money from your business account to your personal account, ask about specific features that you need and compare prices with other banks.

Customer satisfaction

In some cases, working with your local branch provides personal satisfaction, but according to a J.D. Power customer satisfaction survey, big banks outrank their smaller counterparts in this area. It’s something you’ll have to weigh for yourself.

Online banks

There are a growing number of online banks, and some entrepreneurs find their features appealing. Online banks tend to offer optimized digital features, like banking apps and user-friendly dashboards.

Of course, there’s no face-to-face connection, which depending on your business could be a pro or con. It can also be challenging to deposit cash, if your business has a brick and mortar location.

Finding the right bank is probably the most time-consuming part of the process. It will take some time to investigate what each bank has to offer and how it works within your business.

What you should bring when opening an account

When you’re ready to open a business bank account, you’ll need to gather some paperwork to take with you. Here’s a quick list of what you should bring.

Employer identification number

Before setting up an account, you’ll need an employer identification number, or EIN. The government uses this number to keep track of your business and its tax requirements.

You can apply online to get this number through the IRS website. After filling out some forms online, you’ll get the number immediately.

Proper ID

Make sure you have your driver’s license with you. The bank will need a proper form of identification to prove you are who you say you are. If you have an official business partner, they will need to bring their ID also.

Certification of business identity

No matter what kind of business you establish, you’ll have to file paperwork with the state. The bank needs this information on your business structure too.

If you set up an LLC, you’ll need articles of organization. If you set up a proprietorship, you’ll need your DBA (doing business as) papers. If you set up a corporation, you’ll need to bring your articles of incorporation. If you have a business partner, bring your partnership agreement.

Business license (only required for certain businesses)

In some states, specific businesses need a business license to operate. When you establish your business with the state, you’ll be notified if you need a license. If it’s required by the state, the bank will need to see it to make sure your business is legitimate.

Bank application

Every bank is different, but there’s always an application to fill out. It’s a good idea to pick up the application and fill it out at home. That way, you’ll be ready to go as soon as you sit down with a banker.

What to expect when you open an account

You’ll sit down with a banker and talk about your business needs. The banker will go over different account options with you and review your paperwork. If you haven’t filled out an application ahead of time, you’ll do that too.

You’ll fill out a signature card so the bank can check your signature against various transactions. If you have a business partner, he or she will need to sign a card as well to have access to the account.

The bank will check your personal credit score. The bank wants to know who they’re dealing with, so expect them to take a look at your financial history. If you plan to ask for a line of credit or a loan, some of that decision will be based on your credit score.

The whole process will likely take an hour or so, maybe longer if you plan to discuss additional products like savings accounts, business credit cards, or lines of credit.

You’ll be issued a temporary checkbook, and most banks issue a temporary ATM or debit card. Your official checkbook and debit card are mailed to you several days later.

Maintaining your bank account

At least once a year, it’s a good idea to review your banking choice. Review the fees and make sure you’re not being charged for anything new. If you see anything out of the ordinary, call your bank to discuss the problem.