Starting a cleaning business is hard work. If you’ve never owned a prior business, finding clients, creating cleaning standards, marketing, and everything else you have to do can be a real challenge. That is why many people consider how to get a cleaning franchise. We reviewed Entrepreneur’s top 500 franchises to find the best cleaning franchises available and checked out the websites to see what makes each cleaning franchise different. Some provide flexible hours while others provide extra services, and some focus on the revenue you can make. [su_note note_color="#dbeafc"] We’ll provide you the information you need to find the right cleaning franchise based on your estimated total initial investment. Click on any of the links below to jump to that section:

1. General Cleaning Industry Overview
2. How Much Does a Cleaning Franchise Make?
3. How Much Does It Cost to Start a Cleaning Franchise?
4. The UpFlip Cleaning Blueprint
5. Residential Cleaning Franchises
6. Commercial Cleaning Franchises
7. Specialty Cleaning Franchises

[/su_note] Get ready to find out more about how to get a cleaning franchise.

General Cleaning Industry Overview

According to IBIS World, the cleaning services industry is a growing industry. There are three main areas that cleaners operate under:

• Commercial Cleaning Services: Commonly referred to as janitorial cleaning, these services made over $90 billion in 2022 and are expected to grow to $96.1 Billion by 2028. This segment of the industry averages 6.9% profit.
• Residential Cleaning Services: The housekeeping, maids, and gardening industry made over $30 billion last year and is expected to grow to $33 billion by 2028. This industry has a nearly 52% profit margin.
• Specialty Cleaning Services: This is a catchall for other services like carpet cleaning, upholstery cleaning, power washing, and window washing. These add up to around $10 billion in revenue, and profits vary.

That means cleaning is a nearly $130 billion industry. You should also be aware that customers expect green cleaning services to be offered in all types of buildings. Office space, retail stores, medical facilities, and even homeowners are becoming more aware of hospital-grade disinfectants and Hepa vacuums.  Queen Bee Cleaning Services is part of the residential and Airbnb cleaning segment. Owner Christopher Mondragon told us: [su_quote]There’s no better time to get into the cleaning business![/su_quote] Check out our interview with him below. [su_youtube url="https://youtu.be/YcYIYdqegGA"]

How Much Does a Cleaning Franchise Make?

Cleaning franchises can make up to $3.25 million annually based on the information disclosed on the various websites. Merry Maids disclosed the highest revenue statistic. Every franchise for cleaning business operations is different, but some share their numbers on their website. All cleaning companies should disclose how much their franchises make in their Financial Disclosure Document. If they don’t, run! That means they don’t have a proven track record (and are breaking franchising laws). Next, we’ll answer how much a cleaning franchise costs.

How Much Does a Cleaning Franchise Cost?

Cleaning companies franchise their business operations to small business owners for an initial franchise fee ranging from about $1,000 to $100K. The differences are impacted by:

1. Local market potential
2. Reputation of the brand
3. Size of the zone
4. Corporate greed
5. Master vs. Service franchise
6. Assistance that the corporate office provides

In addition, you’ll have initial costs to other suppliers that may bring the total cost to buy franchise cleaning businesses up to $250,000. I know that’s a huge range, but many cleaning franchises are less than $100K for a recognized brand.

Can I Buy a Cleaning Franchise Under $1,000?

For those considering franchising a cleaning business for under $1,000, you can’t start a cleaning franchise for under $1,000 in most locations. There are some companies that will allow as low as a $1,000 down payment to start your own business using their brand recognition. The options include: 

• UpFlip Cleaning Business Blueprint
• Jan-Pro
• Stratus Building Solutions
• Anago Cleaning Systems

We’ll cover all of these and more before you finish this article. Let’s start with the Upflip Cleaning Business Blueprint.

The UpFlip Cleaning Business Blueprint

The UpFlip Cleaning Business BluePrint is a course we created with Christopher Mondragon. Chris Started Queen Bee Cleaning Services in 2015, and today the company makes over a million per year. We worked with him to provide you with his formula for success, which includes: [su_note note_color="#dbeafc"]

1. A 10-Module Course
2. Your Own Website and SEO
3. Marketing and Sales Scripts
4. Google Local Service Ads Templates
5. A Guide to Booking Airbnb Clients
6. Software to Provide Reviews
7. Mentoring While You Start and Run Your Cleaning Business

[/su_note] Effectively we’re giving you everything a cleaning business franchise would, but you’re getting all this without the royalties, so you benefit from significant savings. Become your own boss for only $967. We’ve broken the rest of this blog into groups based on the three major cleaning segments. We’ll start with residential cleaners.

Residential Cleaning Franchises

Want to know how to start a cleaning franchise? Start by considering a residential cleaning company like these:

1. The Maids
2. Two Maids (and a Mop)
3. You’ve Got Maids
4. Molly Maid
5. Merry Maids
6. Maid Right

#1. The Maids: Top Ranked Cleaning Company by Entrepreneur

Exclusive partner of the famous Mr. Clean brand, The Maids offers residential and small business cleaning services. You’ll need to pay: [su_note note_color="#dbeafc"]

• Initial License Fee: $12.5K
• Additional Fees at Signing: $32K to $80K
• Other Startup Costs: $10K to $33K
• 3 Months Operating Expenses: $22K to $39K
• Total Expenses: $76K to $165K
• Royalty Fees: 3.9% to 6.9%
• Advertising: 2%

[/su_note] Learn more about The Maids franchise opportunities on the company website.

#2. Two Maids: Best Employee Pay Model

Two Maids is a residential cleaning company franchise system that differentiates itself from many franchises in a couple of ways:

1. Pay for Performance: Employees get paid based on performance instead of hourly pay, incentivizing the best performers.
2. Guidance with Systems: The company is highly focused on creating the right systems for you to succeed.

According to Entrepreneur, you’ll have the following financial considerations: [su_note note_color="#dbeafc"]

• Initial Franchise Fee: $19,950
• Initial Investment: $83,140 to $123,890
• Net Worth Requirement: $200,000
• Cash Requirement: $51,140
• Royalty Fees: 4-7%
• Ad Royalty: 2%

[/su_note] Learn more about Two Maids cleaning franchises on the Two Maids Franchise website.

#3. You've Got Maids: Best for High-Value Residential Clients

If you want to offer home cleaning services, a You’ve Got Maids franchise cleaning company might be right for you. They offer weekly and biweekly cleaning, spring cleaning, move-in/move-out cleaning, and help to find dedicated full-time residential cleaners for households. You’ll need: [su_note note_color="#dbeafc"]

• Initial Franchise Fee: $7,000
• Initial Investment: $36K to $108K
• Net Worth Requirement: $200,000
• Cash Requirement: $40K to $100K
• Royalty Fees: 2.99% to 5.99%
• Ad Royalty: $75/week

[/su_note] This is one of the less popular big cleaning companies as they have had a 29% decline in franchises over the last three years.

#4. Molly Maid: Most Cleaning Franchise Options

Molly Maid is another reputable residential cleaning franchise opportunity. The Molly Maid cleaning franchises require:  [su_note note_color="#dbeafc"]

• Initial Franchise Fee: $14,900
• Initial Investment: $127K to $185K
• Net Worth Requirement: $250,000
• Cash Requirement: $65,000
• Royalty Fees: 3% to 6.5%
• Ad Royalty: $104/week

[/su_note] I don’t understand why they expect weekly payments for the ads. That just adds more for franchise owners to keep up with, especially at the beginning when they need to focus on getting cleaning clients.) Molly Maid offers franchises through Neighborly, their parent corporation, which also owns these franchise opportunities:

• Window Genie: Window washing is another type of cleaning franchise you could start. Learn more about how to start a window cleaning business.
• Dryer Vent Wizard: Gas dryer vents are the number one cause of house fires. Dryer Vent Wizard’s specialized services can save people's lives.
• Shelf Genie: Perfect if you want to offer home organization services.
• Grounds Guys: Landscaping is cleaning the outside, but if you want to do landscaping go talk to the guys at Augusta Lawn Care Services and tell them the UpFlip team says hi.

#5. Merry Maids

The Merry Maids cleaning franchise brand is one of the most well-known names in the cleaning industry. They specialize in residential cleaning services. The top 25% of Merry Maids franchises make over $3 million annually. [su_note note_color="#dbeafc"]

• Initial Franchise Fee: $37,500  to $51,500
• Initial Investment: $50K to $100K
• Net Worth Requirement: $250,000
• Cash Requirement: $65,000
• Royalty Fees: 5% to 7%
• Ad Royalty: 1.3%

[/su_note] Data is according to Entrepreneur.

#6. Maid Right

Premium Service Brands is the parent company of Maid Right. They offer a variety of cleaning services franchises for residential and light commercial buildings including:

• The Grout Medic: Grout cleaning and repair franchise
• Renew Crew: Pressure washing franchise
• Kitchen Wise & Closet Wise: Home organization services

For those wondering how to start a franchise cleaning business with Maid Right, you’ll need: [su_note note_color="#dbeafc"]

• Initial Franchise Fee: $65,000
• Initial Investment: $103K to $148K
• Net Worth Requirement: $200,000
• Cash Requirement: $50K
• Royalty Fee: 6%
• Ad Royalty: 2%

[/su_note] Check out the Maid Right website to find out how to get a cleaning franchise with them. Now get ready to learn about how to start a commercial cleaning franchise.

Commercial Cleaning Services Franchises

If you want to clean commercial buildings, consider these franchises:

1. Jan-Pro
2. Jani-King
3. Coverall
4. Stratus Building Solutions
5. Vanguard Cleaning Systems
6. Anago Cleaning Systems

#1. Jan-Pro: Best Commercial Cleaning Franchise Under $50K

Jan-Pro has been recognized as the best commercial cleaner franchise in multiple ranking categories by Entrepreneur. You’ll want to consider a Jan-Pro franchise opportunity if you want to work with commercial clients. The Jan-Pro website says you can get into cleaning franchises for as little as $3,150, which includes the down payment, the Franchise Development Starter Kit, and $1,000 for emergency expenses.  Jan-Pro helps you book commercial facilities that need commercial cleaners and lets you set the number of clients or hours you want to work with per month.  According to Entrepreneur, the franchises incur the following costs: [su_note note_color="#dbeafc"]

• Initial Franchise Fee: $2K to $4.5K
• Initial Investment: $4.8K to $58K
• Royalty: 10%
• Ad Royalty: 1%

[/su_note]

#2. Jani-King: Largest Global Franchise Cleaning Company 

The largest of the janitorial services companies is Jani-King, with over 7,000 global franchises. They aren’t as disclosive as other janitorial companies about their franchise opportunities. This company didn’t make the Entrepreneur janitorial franchise opportunity list, but Franchise Times shows that they have rising revenue with declining numbers of franchises. This may be due to the age of the franchisees or other conditions, but be careful when investing in them. [su_note note_color="#dbeafc"]

• Initial Franchise Fee: Not Disclosed
• Initial Investment: $20K to $52K
• Net Worth Requirement: Not Disclosed
• Cash Requirement: Not Disclosed
• Royalty Fees: Not Disclosed
• Ad Royalty: Not Disclosed

[/su_note]

#3. Coverall: Most Focused on A Positive Work Environment

Coverall is a commercial cleaning company, but its marketing strategy for a coverall cleaning franchise is unique to the industry. Coveralls cleaning franchise markets itself as a janitorial cleaner that brings family and friends together to have fun and make a great living. This value proposition was so unique I called to verify that this is their mission.  They confirmed that indeed, this is their intent, and most new franchises are referrals from other franchisors. Their service reps were nice too. You should expect the following costs for these cleaning business franchises: [su_note note_color="#dbeafc"]

• Initial Franchise Fee: $16K to  $41K
• Initial Investment: $18K to $52K
• Royalty Fee: 5%

[/su_note]

#4. Stratus Building Solutions: Lowest Cost Cleaning Franchising

This franchise opportunity is a commercial cleaning franchise that has two ways of franchising:

1. Janitorial Services Franchises
2. Stratus Master Franchises

The janitorial franchises are some of the lowest-cost franchises in the cleaning industry. They start at just $1,000 for an owner-operator without employees. Meanwhile, the Stratus Master franchises are regional offices with a 9-5 schedule supporting janitorial services by providing admin, invoicing, and business consulting services. [su_note note_color="#dbeafc"]

• Initial Franchise Fee: $3,600 to $69,000
• Initial Investment: $4,600 to $79,000
• Net Worth Requirement: $5K to $40K
• Cash Requirement: $2K to $20K
• Royalty Fees: 5%
• Ad Royalty: 1%

[/su_note] This franchise opportunity makes it where you can focus on the part of the business that interests you most. 

#5. Vanguard Cleaning Systems

Vanguard Cleaning Systems is a commercial cleaning business that works similarly to Stratus Building Solutions, where there are two franchise business models to choose from. The first business model is where you perform daily janitorial services, while the second model supports the cleaning franchises with administrative tasks. [su_note note_color="#dbeafc"]

• Initial Franchise Fee: $5K
• Initial Investment: $6K to $37K
• Net Worth Requirement: $50K and $250K
• Cash Requirement: $7K and $45K
• Royalty Fees: 11.5%
• Ad Royalty: N/A

[/su_note] Learn more about Vanguard Cleaning Systems franchise opportunities on their website. 

#6. Anago Cleaning Systems: Easiest to Get Approved Cleaning Franchise

These cleaning franchises are focused on commercial cleaning services. Anago Cleaning Systems uses the same franchise business model as the other commercial cleaning franchise opportunities on the list, where you have master franchise and “unit franchise” options. The master franchise gets an exclusive territory where they book clients and sell “unit franchises”. [su_note note_color="#dbeafc"]

• Initial Franchise Fee: $5K to $31K for Units; $98K for Master franchises
• Initial Investment: $11K to 61K Units; $219K to $339K Master
• Net Worth Requirement: $31K
• Cash Requirement: $1K
• Royalty Fees: 10%
• Ad Royalty: 2%

[/su_note] The best part of Anago Cleaning Systems franchises is their low net worth and cash requirements.  Learn more about the Anago Cleaning Systems franchising.

Specialty Cleaning Franchises

Haven’t found a cleaning service you like yet? Check out some of the unique cleaning franchises like:

1. Aire-Master of America
2. Oxi Fresh
3. College Hunks Hauling Junk
4. ServiceMaster Clean
5. PuroClean
6. TruBlue Total House Care

#1. Aire-Master of America: Most Unique Cleaning Services Franchise

If you want to offer air cleaning services, this company franchise is a good one to consider. Aire-Master of America provides fragrances, equipment, and servicing to commercial buildings, enhancing their workspace and creating emotions that help employees and customers feel better.  According to Entrepreneur, you should expect: [su_note note_color="#dbeafc"]

• Initial Franchise Fee: $30K to $100K
• Initial Investment: $45K to $170K
• Net Worth Requirement: $20K
• Cash Requirement: $50K
• Royalty Fees: 5%
• Ad Royalty: N/A

[/su_note] Find out more about Aire-Master of America franchises.

#2. Oxi Fresh Carpet Cleaning: Best Carpet Cleaning Franchise

If you want to start a carpet cleaning franchise, consider Oxi Fresh.  [su_note note_color="#dbeafc"]

• Initial Franchise Fee: $42,000
• Initial Investment: $48K to $78K
• Net Worth Requirement: $20K
• Cash Requirement: $50K
• Royalty Fees: $395 monthly
• Ad Royalty: 3% [/su_note]

Oxi Fresh has franchises across the U.S. and Canada, plus offers the opportunity to become a master franchise in other countries. 

#3. College Hunks Hauling Junk: Best Name (The Uniforms Don’t Match It, Though)

The winner of the best-named cleaning franchise goes to… College Hunks Hauling Junk! In addition to junk removal, they help homeowners and businesses move. The average junk removal franchise makes $1.63 million, plus they help their local communities by donating meals, recycling, and donating junk to charity. You’ll need: [su_note note_color="#dbeafc"]

• Initial Franchise Fee: $45K to $75K
• Initial Investment: Not Disclosed
• Net Worth Requirement: $200K
• Cash Requirement: $75K
• Royalty Fees: 7%
• Ad Royalty: 2%

[/su_note] I just wish the uniforms were superhero costumes!

#4. ServiceMaster Clean

ServiceMaster Clean is a commercial cleaning business and residential floor cleaner that offers cleaning franchises with: [su_note note_color="#dbeafc"]

• Initial Franchise Fee: $32,500
• Initial Investment: $90K
• Net Worth Requirement: $100K
• Cash Requirement: $50K
• Royalty Fees: 7%
• Ad Royalty: 2%

[/su_note] Their top 25% of single-zone franchises average $1.85 million in revenue, while the top 25% overall (including multi-zone franchises) are making over $3.2 million. Find out more about ServiceMaster Clean franchises.

#5. PuroClean: Most Disclosive Cleaning Franchises

These cleaning franchise opportunities focus on building remediation after property damage from water, fire, mold, and other hazardous materials. They are one of the most disclosive cleaning business franchise companies. They list exactly what you need to start a cleaning franchise business directly on their site: PuroClean understands this is a sizable investment to get your business started, and your dedicated franchise developer can connect you with various financing options for up to 50% of the total restoration franchise costs.

#6. TruBlue Total House Care: Most Diverse Skill Set Needed

TruBlue is a combination of a cleaning franchise, a handyman franchise, a landscaping franchise, and accessibility remodeling. This might be the franchise cleaning business for those who want to build an empire because of all the additional services. You’ll need: [su_note note_color="#dbeafc"]

• Total Investment: $65,050 to $91,400
• Franchise Fee: $44,900
• Minimum Liquid Capital: $50,000

[/su_note] Find out more about TruBlue Total House Care cleaning franchises.

You Might Also Want to Check Out

Here are 3 more reputable franchise cleaning companies include:

• Home Cleaning Centers of America 
• Sears Maid Services
• Home Clean Heroes

Contact the Franchise That Works for You

Once you’ve decided which cleaning franchise is the best fit for your location, skill set, and budget, it’s time to contact them and get your franchise started. Honestly, I would recommend taking our cleaning course taught by Chris. I’ve taken it myself and found it to be incredibly thorough and full of practical information.  Using Chris’s strategies will save you hundreds or thousands of dollars in royalties every year while giving you the tools you need to start a $1 million dollar cleaning business. If you choose to go with one of the other providers, I am confident that you’ll be happy with your results because the majority of them have been in business for more than a decade. Which way would you like to start a cleaning business?

• Start my own cleaning business from scratch.
• Start my cleaning business with a course.
• Contact a franchise. Tell us in the comments which one!

Did you know that one of the easiest paths to financial freedom is learning how to start a business?

In fact, self-employed families have nearly four times the net worth of those who work for someone else. That’s why we look for ways to make it easier for you to become a small business owner.

We talked to two of the most successful small business owners we could find, Mike Andes and Paul Akers, to help you learn how to start a business. Hours of interviews were conducted to get this information about starting a successful business. We’re going to share it all with you!

Mike Andes turned a childhood lawn care business into one of Entrepreneur’s top 500 franchises. Augusta Lawn Care Services has more than 40 franchisees across the U.S. In addition, Mike has gone on to get an MBA, write multiple books, and teach others how to create a successful business.

Paul Akers turned an idea for easy screw covers for cabinets into a successful business that launches 30 new products a year. Fast Cap has been introducing new products to increase the efficiency of cabinetry for nearly 25 years and has developed a reputation as an expert in lean manufacturing.

[su_note note_color="#dbeafc"]

Click on any of the links below to find out what you want to know about how to start a small business.

• How to Start a Business in 4 Steps
  • Step #1. Plan your business
  • Step #2. Launch your own business
  • Step #3. Manage your business
  • Step #4. Grow your business
• Turn Your Ideas Into a Successful Business[/su_note]

How to Start a Business in 4 Steps

The Small Business Administration (SBA) breaks down the process of starting a business into 11 steps, which include:

1. Conduct market research
2. Write your business plan
3. Fund your business
4. Pick a business location
5. Choose a business structure
6. Choose the business name
7. Register your business
8. Get federal and state tax IDs
9. Apply for licenses and permits
10. Open a business bank account
11. Open your business

These steps are more easily broken into four distinct phases you’ll progress through as you discover how to start a small business. The business startup cycle consists of:

1. Plan your business
2. Launch your business
3. Manage your business
4. Grow your business

We’ll cover all of these steps to show you how to start a business.

Step #1. Plan Your business

Research business ideas

When thinking about how to start a business, it’s important to remember that every business is a solution to a problem. If you have the problem, someone else probably does, too.

If you are doing something and think, There’s a better way—follow that! Research it. Find a way to make it better. There’s a business idea.

Mike told us:

[su_quote]Look for ways to improve in your everyday life. There are problems to be solved every day. If it saves you time, it will save others time. The more time people save, the more they’ll pay for something.[/su_quote]

Here are some questions that people have that may give you some ideas on how to start a business.

How can I start a business with no money?

Starting a company doesn’t have to cost a lot of money—or any for that matter. We asked Mike this question, and here’s what he told us:

[su_quote]In the landscaping industry, you can’t start a lawn mowing business without money ’cause you need a lawnmower, but you can sell your time and start a weed-pulling business.[/su_quote]

So if you don’t have a lot of money, look at what you have available and ask yourself, How do I start a business with what I have?

What is the easiest business to start?

The easiest business to start will typically be a cleaning business, pet sitting business, rideshare business, or freelancing business.

• A house cleaning business is super easy. You should have all the supplies you need to open a cleaning business at your house. Find out how Cristobal Mondragon turned less than $2K into a $125K-a-month cleaning business.
• Starting a pet-sitting business is also super easy. Just check out our definitive guide on starting a pet business.
• Rideshare apps like Uber and Lyft hire people as independent contractors. All you need is a car, a good driving record, and a business license. There are people who make up to $1,000 a day. These apps provide low-pressure, low-cost ways to learn how to start a small business.
• Freelancing on sites like Upwork and Fiverr are also good ways to start if you have skills in writing, research, programming, or other in-demand fields.
• Review our list of business idea resources below.

Business idea resources

We’ve interviewed many business owners and done even more research about small businesses and what it takes to succeed. Check out some of our small business ideas blogs:

1. Small Business Ideas List: Our longest list of small business ideas. Great for inspiration, but we don’t go as in-depth about each one.
2. Online Businesses: Start a business online and make a great living.
3. Professional Services: Find a service business idea you like.
4. Low Startup Costs: You don’t have to spend a lot of money to start these businesses.
5. Business Ideas For Teens: Check out 61 teenage businesses.
6. Million Dollar Startups: Check out startups that make millions.
7. Women-Owned Businesses: Want to know what businesses women succeed in? Check these out!
8. Most Profitable Businesses: We break down the most profitable businesses to start in this blog.

Read on for the next step in starting your small business.

Market research and competitive analysis

Next, you’ll conduct market research before starting a business. Market research is simply identifying the amount of demand for the products or services the business will offer.

Mike spends quite a bit of time discussing the benefits and how to conduct thorough market research. He demonstrates how easy it is to conduct research by surveying his employees. Watch how simple it can be.

https://youtu.be/xJ71lGDtSt4

He discusses aspects such as demographics, target market, focus groups, online surveys, and target markets. Let’s look at each of these terms to better understand how to start a business.

What are demographics?

Demographics are characteristics of the people who buy a product or service. You’ll want to consider:

• Location
• Age
• Gender
• Other interests
• Marital status
• Do they have kids?
• Job title
• Income

Later, We’ll provide a link to a breakdown of all the ways you can improve your targeting on Facebook. It will be a great guide for how well you should specify your demographics. But first, find out how to identify your potential customers.

How do I find out who my potential customers are?

If you have a new business idea, it might not be obvious who your potential customers are. You might need to use marketing tools, like surveys and focus groups, to establish what demographics are drawn to your small business idea.

Once upon a time, this research was really costly because you had to conduct focus groups, do in-person surveys, or do phone surveys. Each option is fairly costly.

Drive Research estimates that focus groups cost $4,000-$12,000 for two focus groups—and you normally need multiple groups for good data. That’s almost $500 per person based on their information.

The publication Entrepreneur gives a good breakdown of survey costs. Most methods will cost at least a couple of grand given the time it takes to create surveys and contact people, plus compensating participants for their time.

Meanwhile, Facebook Ad Center can normally get the results you want for less than $1 per action. Even if you pay each respondent $5 for their time, that’s still 2,000 responses for the same price as a focus group that might have just 25 people.

Pro Tip: PowerAdSpy has a great blog on how to use Facebook ads for market research campaigns.

Identifying your target market

A successful business needs to know who its ideal client is. Since you’ve just come up with your business idea, you’ll need to figure out who buys the product or services you are selling.

Facebook has got this down to a science, but their ads can be complex to use if you don’t know what you’re doing.

Pro Tip: WordStream has a great infographic on all of Facebook’s targeting options. If you want to get your target market as precise as possible, spend some time learning about each of the options.

Mike told us:

[su_quote]If you are offering lawn care services, people who own a home are going to be your potential customers. Renters won’t.[/su_quote]

We dig even deeper in our market research blog. Bookmark it and keep reading for tips on how to write a business plan.

Write a business plan

Mike explains in detail how to write a solid business plan you’ll actually use. Download our free business plan template and work through it while watching the video below.

[su_youtube url="https://www.youtube.com/watch?v=Seac5PbUZXk"]

You’ll want to include the following and go into as much detail as possible:

• Business Plan Cover Page
• Table of Contents
• Executive Summary
• Company Description
• Description of Products and Services
• Marketing Plan
• SWOT Analysis
• Competitor Data
• Competitive Analysis
• Marketing Expenses Strategy
• Pricing Strategy
• Distribution Channel Assessment
• Operational Plan
• Management and Organizational Strategy
• Financial Statements and/or Financial Projections
• Funding

Check out our blog about writing a solid business plan to go through all the steps.

The biggest thing to remember about writing a business plan is it should be easy to understand, well-documented, and as short as possible.

Mike told us:

[su_quote]Venture capitalists and big banks will want every piece of information possible, but most people can’t write a business plan that meets their expectations. A new business will most likely have to use alternative methods of funding, so make sure the business plan works for guiding your decision-making.[/su_quote]

Calculate your startup costs

Your startup costs are the amount of money you’ll need to get the business up and running. In an ideal world, you’d have enough to cover the upfront costs and the ongoing expenses until you make enough to cover your entire cost of doing business and your cost of living, but we don’t live in an ideal world.

Just do the best you can.

How much does it cost to start a business?

We wanted to know how much it costs to start a business, so we did a ton of research. We established that most people can start a business for under $50K, but you could need up to $2 million, depending on your circumstances. Find out more about real business startup costs.

Establish business credit

You’ll want to start building business credit ASAP. Most small business loans will require either a 650+ personal credit score or an 80 business credit score from D&B. The following credit providers are normally very friendly to small business owners.

• ARCO Fleet Card
• Quill
• Divvy
• NAV

Next, you’ll want to secure funding for your small business.

Fund your business

You should already have an idea of your business costs, but where will you get the funding for starting a business?

Most small business owners get the funds for starting a business from the following sources:

• Bootstrapping
• Borrowing money from family or friends
• Small business loans from local banks and credit unions
• Credit cards

As noted in previous sections, Mike said the following types of funding have high hurdles:

• Venture capitalists
• Big banks
• Small Business Administration loans
• Small business grants
• Partnerships
• Crowdfunding

Let’s explore funding options to find ones that make sense for your new business idea.

Bootstrapping

Both Mike and Paul Akers think bootstrapping is the best way to start a new business. All you have to do is spend less and make sacrifices for what you really want.

Mike told us:

[su_quote]Self-financing is the easiest way to start a business as you don’t have the additional cost of debt and other people’s expectations pushing you to move faster.[/su_quote]

Paul told us:

[su_quote]There are four ways to spend money:

• The most efficient way is for you to spend your money: You earn it and spend it.
• You earn your money and spend it on someone else.
• You earn the money, you give it to someone else, and they spend it.
• You earn it, you give it to the government, and the money gets wasted.[/su_quote]

Hear more from Paul below:

https://www.youtube.com/watch?v=wog3FLh0tHk

Borrow money from family or friends

Some people are able to get money to start a business from friends and family.

If you are, that’s awesome!

Just make sure that you have an agreement in writing because nothing can strain a relationship like a lender expecting to get it back and the borrower thinking the startup capital is a gift.

Also, don’t use your parents’ house (or anyone else’s!) for a secured small business loan when starting a business.

Small business loans from local banks and credit unions

Neither Mike nor Paul particularly loves getting loans when considering how to start a business. Paul told us:

[su_quote]When you’re spending other people’s money, you don’t know what it took to earn it. That means you spend it more recklessly.[/su_quote]

That said, if you have a bank account with a local bank or credit union, they are more likely to lend to small business owners in their local community than larger banks.

Just research “credit unions near me” to find local banks and credit unions.

Be aware that they may expect you to have the business formation already completed. They also may want you to have a business bank account to prevent you from mixing your personal assets and your business assets.

When just starting a business, they may expect you to take on some personal liability, even if you are a limited liability company (LLC), before you have built business credit.

If that is the case, make sure it’s not an amount that would cause you immense problems should you decide to close the business in the future.

Alternatively, you can try applying with our loan partners to get a business loan.

How to get a loan to start a business

Follow the links above and make sure to have the following ready:

• Business formation documents
• Tax documents (Personal and Business if both are available)
• Your business plan
• How the business plans to use the funds
• An idea of your personal current debt-to-income ratio or your small business’s Net Working Capital (These impact your ability to get a loan.)

Credit cards

Many people use credit cards to start small businesses, but you need to make sure that the return on investment will be worth it.

Paul told us:

[su_quote]If your interest is 15%, you have to make a return of greater than 15% to justify it. Otherwise, you’re losing money.[/su_quote]

Despite Paul’s concern, consider applying for a business credit card so that you can start building your business credit.

Pro Tip: Having a business bank account and business credit card at the same bank as your personal accounts can help to strengthen the relationship as your business grows.

You could also get a credit card from a company you are interested in doing business with. If you are looking for cards that are likely to approve you, use Credit Karma, which also suggests loans for your small business.

For the best rates and perks, check out Nerd Wallet’s credit card recommendations.

Next, let’s look at some of the other options for getting funding when starting a business.

Get funding from a venture capitalist

Funding from a venture capitalist is typically something that only the most unique of small businesses are offered in their business formation process.

Working with a venture capitalist is similar to getting a business partner, but on a much larger scale. They look for businesses that will change the world and will turn thousands into billions of dollars.

Neither Mike nor Paul encourage this option when considering how to start your own business.

Both prefer full control because it allows them to make decisions based on their goals. As soon as you sell equity, other people have expectations that might be different than yours.

Mike told us:

[su_quote]If you sell equity, make sure you own at least 51% of the shares. Any less, and you don’t control the company.[/su_quote]

Here’s the input Paul gave us:

[su_quote]I own 100% of my company because I don’t want anyone else telling me how to run it.[/su_quote]

Watch our interview with Keith before approaching a venture capitalist.

[su_youtube url="https://www.youtube.com/watch?v=T-0qmNTaU90"]

Be careful, though, because too many startups fail to understand the terms that this capital comes with.

Make sure to review your contract with a contract lawyer you trust. If you don’t know one, ask your friends or other business owners for a reference.

Big banks

Banks like Bank of America, Wells Fargo, and CitiBank are some of the larger banks that you can get loans or lines of credit from.

They offer a variety of business products to help business owners, but many of them require $50K a year in revenue and a minimum of two years in business. That’s not exactly helpful for those wondering how to start a business from scratch.

Let’s look at other options.

Small Business Administration loans

Small Business Administration loans are a great way to start a business if you can get one. They offer three main products:

• 7(a) loans - Up to $5M with up to 85% guaranteed by SBA, capped interest rate, and capped fees. Best for real estate.
• 504 loans - Up to $5M for fixed assets that will increase job growth.
• Microloans - Under $50K to help with smaller business needs.

You can learn more about each on the SBA website. The 7(a) is the most commonly distributed loan.

The following charts are organized to make it easier to find the bank that best suits your needs. All statistics are modified from the 100 most active SBA 7(a) lenders for the fiscal year 2021 up to June 30, 2021.

The chart below ranks the top 10 lenders by the number of loans originated.

If you are interested in them by total approval amount, the list changes some. Five of them are the same and five are new entries.

I’ve also created tables showing the five highest and five lowest average approval values. It should be noted that the banks with the lowest average approvals also happen to be the ones that originate the most total loans.

I have personally done business with four of the 10 banks that originate the most loans. Of them, I personally preferred the service from Huntington National Bank.

Small business grants

There are grants available to some industries, regions, or groups of people. Most people won’t qualify, but check the SBA for grants.

Partnerships

Partnerships are similar to a sole proprietor but for more than two people. They are most common in law firms. If one partner provides the work and the other the funding, it can be a nice arrangement for each.

Crowdfunding

Crowdfunding is raising money from a lot of smaller investments to start a company. The owner of Pooch Selfie talked to us about crowdfunding and going on Shark Tank. Check out his interview below.

[su_youtube url="https://www.youtube.com/watch?v=j7UzP5dVOqA"]

Find out about 17 ways to fund a business or keep reading to learn about buying an existing business.

Buy an existing business or franchise

There are numerous reasons why you might want to buy an existing business or franchise. We’ll cover the:

• Differences between buying an existing business or franchise
• Benefits of buying an existing business
• Downfalls of buying a franchise or business
• Tips for buying a business

What’s the difference between buying a business and a franchise?

Buying a business means you have full control of the business, how it operates, and what you do with the assets. Meanwhile, buying a franchise grants you the rights to operate using the company name, systems, and procedures.

A franchise has more disclosures and requirements governing the business structure than an existing business, so you will normally be able to get more information than when buying a small business unless the business owner has kept detailed records.

Benefits of buying an existing business

Buying an existing business or franchise can be a great way to get into business for yourself without having to start from scratch. There are many advantages to buying an existing business, including:

• A proven track record: You can see how the business has performed in the past, which can give you a good idea of its potential for success.
• Established customer base: The business will already have a customer base, which can save you the time and expense of building one from scratch.
• Operating systems and procedures in place: The business will already have systems and procedures in place, which can save you the time and effort of developing them yourself.
• Experienced staff: The business will already have employees who are familiar with the business and its operations.

Downfalls of buying a franchise or business

There are also some potential disadvantages of buying an existing business, including:

• The price may be high: The seller may be asking a high price for the business, which could be a barrier to entry.
• The business may have hidden problems: There may be problems with the business that you are not aware of, such as financial problems or legal issues.
• You may not be able to change the business as you see fit: The business may have certain restrictions in place, such as non-compete clauses or franchise agreements, which may limit your ability to make changes to the business.

Overall, buying an existing business or franchise can be a great way to get into business for yourself. However, it is important to do your research carefully and to ask questions before making a purchase.

Tips for buying a business

Here are some tips for buying an existing business or franchise:

• Do your research: Before you start looking at businesses to buy, it is important to do your research and understand the industry you want to be in. This will help you narrow down your search and identify businesses that are a good fit for you.
• Get professional help: It is important to get professional help when buying a business. A business broker can help you find the right business for you and negotiate the terms of the sale. An attorney can help you review the purchase agreement and make sure that you are protected.
• Be prepared to pay a premium: Buying an existing business is usually more expensive than starting your own business from scratch. This is because you are buying the assets of the business, including its goodwill, customer base, and employees.
• Be prepared to put in the work: Buying a business does not mean that you can sit back and relax. You will still need to work hard to run the business and make it successful.

If you are considering buying an existing business or franchise, be sure to do your research and get professional help. With careful planning and execution, buying a business can be a great way to achieve your financial goals.

Learn more about buying franchises. Next, let’s look at how to turn your business idea into a real small business.

Step #2. Launch your own business

You’re done planning and now you need to form the business. Launching a business requires

• Picking a business location
• Choosing a business structure
• Choosing the business name
• Registering your business
• Getting federal and state tax IDs
• Applying for business licenses
• Opening a business bank account
• Getting business insurance

Let’s look at how to choose a business location.

Pick a business location

Your business location impacts how well your business does. The choices you make about opening a brick-and-mortar business or launching an online store impact your legal requirements, revenue, and taxes.

For an office, it’s good to have at least 300 square feet that you can work in, and it should be quiet. Whether it’s at home or somewhere else doesn’t matter. If you need help finding a business location, contact your local realtor.

Realtors will be able to help you find a place that works and, if needed, puts you near the customers your business serves.

If you expect customers to come to the location, try to get a space with high foot traffic. That increases people’s awareness of your company.

In addition, you may need space to store parts or inventory. Make sure to consider how many products you’ll be storing and how much space you’ll need.

Most products will need at least three square feet of space, but if you are using shelves, you can normally get two to four products in the same space. You’ll also want at least three feet between storage displays. Four to five feet gives both you and your customers more room to navigate.

Search for commercial interior designers to find someone to advise you before making a decision on a space.

Check out our information on finding a business location and home-based businesses for more useful considerations.

Choose a business structure

The legal structure you choose for your business will impact your business registration requirements, how much you pay in taxes, and your personal liability.

Sole proprietorship

A sole proprietorship is the easiest way to meet small business legal requirements, but the structure doesn’t protect the owner’s personal assets from legal issues.

That means if something goes wrong, you could lose both your company and your home.

This structure should only be used if you can’t afford an LLC because most businesses have liabilities that could be costly if you operate as a sole proprietor.

To start a sole proprietorship, fill out a special tax form called a Schedule C.

Pro Tip: Sole proprietors can also join the American Independent Business Alliance.

Limited Liability Corporation (LLC)

An LLC is the most common business structure used in the United States because the company protects the owner’s personal assets. An LLC protects many business owners’ assets because it is a separate entity.

It’s similar to partnerships and corporations but can be a single-member LLC in most states. An LLC requires a document called an operating agreement.

Each state has different requirements. Here’s a link to find your state’s requirements. People may register in specific states due to the cost of doing business.

Delaware and Nevada are common states to file an LLC because of their business-friendly laws. Here’s a blog on the top 10 states to get an LLC.

This will typically be the best business structure for most small business ideas. Learn more about registering a business.

Partnerships and corporations

Partnerships and corporations are typically for massive organizations or legal firms.

Unless there is a specific reason you need a partnership, it is better to do a multi-person LLC. Investopedia has good information about partnerships and corporations.

Mike specified that the difference between an S-Corp and a C-Corp is the number of shareholders it can have, among other things.

[su_quote]If you want to have a bunch of stockholders, you’ll need to be a C-Corp.[/su_quote]

There are a ton of other business structures, too. Find the one that works for you!

Choose the business name

Mike emphasizes the importance of a name. He personally suggested using a name generator to get ideas for your business.

Pro Tip: We created our own name generator. Find your business name today!

Mike points out how you can add different words for the generator to come up with a name, like the city you live in and the type of company you’re starting, to get some good ideas.

I suggest making sure it doesn’t get shortened to curse words, slang that you wouldn’t want associated with a business, or negative statements.

For instance, Bold & Daring could be shortened to BAD, and you might not want that.

Read our blog about naming a business for more information.

Register your business

Once you’ve picked the perfect business name, it’s time to register your business name with the government to protect your brand. You may need to register with state, local, and federal governments. Learn more about registering your business.

Get federal and state tax IDs

You’ll use your employer identification number (EIN) to open a bank account and pay taxes. You get the Federal EIN (or FEIN) from the Internal Revenue Service. It’s like a social security number for your business.

Some states require an EIN from the state in addition to the Federal EIN.

Apply for licenses and permits

Legal compliance is important to keep your business running smoothly.

Each location has different licenses, permits, and tax forms required. Use the SBA License and Permits page to identify what requirements your business needs to meet.

Pro Tip: Check out our walkthrough of the business licensing process.

Open a business bank account

You’ll want a business bank account to separate your personal and business finances. A small business checking account will make legal, payroll, and taxes easier than commingling the business earnings with your personal funds.

In addition to a business bank account, you’ll want to get business insurance.

Get business insurance

Unemployment insurance

The U.S. Chamber of Commerce has a ton of information on unemployment insurance (UI) and also offers links to each state agency that handles state unemployment.

When you have employees, you’ll have to pay $420 per employee on a federal level plus any state UI.

Workers compensation

Workers compensation is basically insurance against injury or disability. Each state has different requirements. Check your state requirements.

Business and general liability insurance

Contact your current insurance agent and ask them if they can provide these. Most will be able to provide a quote or refer you to someone who can. I personally prefer Simply Business.

Basically, you want $1 to $2 million in general liability coverage unless you have reason to need more. Protecting personal assets or higher local requirements are the most common reasons to buy more.

If you own valuable machinery, work in fields that could cause personal liability (for instance, gas furnace installers can be held personally liable for explosions), or collect sensitive information, you may want other types of insurance to protect your business success, too.

Check out our walkthrough on how to get business insurance and keep reading for tips on how to run a business.

Step #3. Manage your business

You’re a small business owner now. You chose a business model and got your LLC and business license. Now you have a business to run. Get ready to:

• Manage your finances
• Hire and manage employees
• Pay taxes
• Stay legally compliant
• Buy assets and equipment
• Marketing and sales
• Strengthen your cybersecurity
• Prepare for emergencies
• Recover from disasters
• Close or sell your business
• Hire employees with disabilities

Manage your finances

Managing your business finances is all about knowing how much money you have coming in and going out. That means you’ll want to keep your personal finances separate from your business expenses.

Most new business owners use QuickBooks accounting software because it has all the tools you need to manage your finances as a small business owner. Plus it integrates with most other software.

Hire and manage employees

Hiring employees includes posting jobs, conducting interviews, compensation, paying taxes, following labor laws, scheduling, and payroll.

Job posting

Hiring people requires posting “Now Hiring” signs and posting on prominent job boards. Some places you can start posting job requirements are:

• Facebook
• Indeed
• ZipRecruiter
• LinkedIn
• Craigslist

Interviews

Preparing a list of questions for interviews will make hiring the right people easier. Indeed offers a variety of resources to help you make better hiring decisions. Read their How to Hire Your First Employee guide.

Compensation

Employees are typically a company’s biggest expense. There are three common pay structures in business. Each fits different scenarios. Let’s take a closer look.

Salary

This is a flat weekly or monthly rate based on a person working a specific number of hours. It’s typically reserved for owners, managers, and some admin roles. You might want to assign this to yourself for budgeting purposes.

Hourly

This pay structure simply tracks the hours an employee works and pays them a set hourly rate. This pay structure is solely based on time, not performance.

Commission

Commission-based pay is typically used in sales to give employees a percentage of revenue. It is a strictly performance-based compensation model.

Hybrid models

Hybrid models combine two pay structures: for instance, hourly plus commission to compensate for time and performance. The hourly rate will typically be lower than an hourly rate without commission, but the commission should make it so good performing employees make more than they would without commission. These structures also help reduce the variability of pay from week to week.

Paying employees an hourly wage works for most positions, but depending on your business structure, a commission or hybrid payment model might make sense.

Pro Tip: Entrepreneur’s article on how to create a pay structure that promotes team and company growth offers some insights into thinking about pay structure.

Tax filing and withholding

Federal and state tax filing requirements apply to new employers. You must keep records of employment taxes for at least four years, including special forms and accounting for state taxes.

Don’t worry! We’ve got you covered! Check out the IRS guide for employers here.

Federal employment and labor law posters

All employers must display Workplace Posters, which you can download from the Department of Labor website.

Other requirements may include:

• Employment eligibility verification (Form I-9)
• State’s new hire program requirements
• Worker’s compensation insurance
• Disability insurance—varies by state
• Occupational Safety and Health Administration (OSHA) requirements

Scheduling

Scheduling employees can become complicated depending on your company’s hours of operation. Labor laws in the U.S. define work that occurs after an employee has clocked 40 hours in a week as overtime, meaning you’ll have to pay 1.5 times their hourly wage if they work over 40 hours.

If your business is open for nine hours a day (with an hour lunch), five days a week , you can hire exactly enough people to meet the company’s needs. Once it exceeds that, you’ll need more employees and have to schedule based on their needs as well.

Pro Tip: 7Shifts has a great blog on scheduling and also offers scheduling software. Check them out.

Payroll

Paying your employees will normally occur on a weekly, every two weeks, bi-monthly, or monthly period. Most employees like being paid weekly because cash flow management is easier, but it costs less to pay less frequently.

You can pay by check or direct deposit, and you can hire payroll companies to manage payroll for you. ADP is the most well-known payroll company, but Inc. provides a list of payroll companies to check out.

If you handle it yourself, your accounting software can integrate with your bank and your timesheets to make the management of payroll easier.

Pay taxes

Personally, I don’t love this section because government spending is wasteful, but as a business owner, you are required to pay taxes. You may have to pay:

• Sales tax: Most states have sales tax you have to pay, but some have income taxes instead. Make sure to collect sales tax if necessary.
• Payroll taxes: When you hire employees or pay yourself a salary, you’ll have to pay these. To do so you’ll have to have an employer identification number (EIN).
• Income tax: Every business entity will have to pay income tax to the federal government through either a corporate tax filing or a personal tax return. Depending on your legal structure, the self-employment tax may be deducted from your earnings as an expense.

Pro Tip: Look for a great accountant who can help you find ways to make your taxable income as close to zero as possible. It’s better to reinvest in the business than send the government money.

Stay legally compliant

Every business idea and business model will have different government regulations you have to follow. Those who don’t may find themselves dealing with lawsuits, fines, and in some cases, criminal charges.

Buy assets and equipment

You’ll need the tools to do the job. Most businesses will need:

• Office space
• Social media platforms
• Business website
• Payment processor
• Customer relationship management software
• Industry-specific tools
• Inventory management software

We’ve written blogs for many business ideas. In each we include suggestions for the assets and tools you need for that specific small business idea. Just use the search function near the top of this blog to find blogs that discuss your business idea.

Marketing and sales

You’ll need a budget for business marketing that leverages:

• Social media accounts
• Search engine optimization (SEO)
• Paid advertising on Google and social media platforms
• Vehicles and buildings
• Print ads
• Business cards
• Loyalty programs

You’ll also need to consider things like how to accept credit card payments and how to communicate with your target audience. Each of these will change depending on whether you run an eCommerce store, a brick-and-mortar business, or a home service company.

Useful marketing tools

There are some useful marketing tools that small business owners use to market their companies:

• Canva: Simplify graphic design with Canva. Get access to thousands of templates for website and social media for as low as $4.99 per month.
• SurferSEO: Write blog content faster and rank higher on search engines with SurferSEO.
• MailChimp: Email and SMS marketing automation is one of the keys to success that many small business owners mention. Get started with Mailchimp.

Strengthen your cybersecurity

As your online business grows, you will become a target for hackers trying to gain access to information like your business credit card, customer cards, and intellectual property. You’ll want to start paying for better cyber security and insurance to protect against losses.

One of the easiest ways to do this is hosting your web assets on Google, Amazon, or Azure servers because they have a dedicated team of cybersecurity professionals working around the clock to protect against attacks.

You can also get business insurance to protect against the cost of attacks.

Prepare for emergencies

As your business grows, there are going to be times when things occur that could severely harm your business. Natural disaster, death of a valuable employee, lawsuits, and suffering a personal injury are all things that take your attention away from the business.

When these occur, you need a plan in place to handle them. This plan might include having a public relations person on retainer, buying business interruption insurance to protect against lost business income, or training a manager to take over in case of emergency.

Check out the SBA’s emergency planning content for more information.

Recover from disasters

Business recovery from disasters is all about implementing your emergency preparedness plan.

1. Assess the damage. The first step is to assess the damage to your business. This includes both physical damage to your property and equipment as well as financial losses.
2. Contact your insurance company. If you have business insurance, contact your insurance company as soon as possible to file a claim.
3. Get help from the government. There are a number of government programs that can help businesses recover from disasters. Contact your local government to find out what assistance is available.
4. Rebuild your business. Once you have assessed the damage and taken care of any insurance claims, it’s time to start rebuilding your business. This may involve repairing or replacing damaged property, hiring new employees, and marketing your business again.
5. Learn from the experience. Once your business is back on track, take some time to reflect on the experience. What, if anything, could you have done to prevent the disaster? What can you do to be better prepared for the future?

In some cases, like a hurricane or wildfires, you may have some warning to help prepare the business to help itself and others. You can also work with fundraisers to help raise money to help the community. Doing so will create goodwill, which is one of a company’s most valuable assets.

Recovering from a disaster can be a long and difficult process, but it is possible. By following these tips, you can give your business the best chance of success.

Close or sell your business

Every business owner reaches a point where business exit planning needs to occur. Often it is because the business grows too slowly and they have to abandon it, but many people also reach retirement or succeed enough that a competitor makes an offer to buy their business.

Keeping detailed records, maintaining a CRM for your business website, and documenting procedures are all good steps to take to make sure you can exit the small business idea and it can carry on without you.

It’s also good to keep employees, your target audience, and investors in the loop when you are implementing an exit plan. They’ll all want reassurance that your small business idea will not leave them in a problematic scenario.

Hire employees with disabilities

When you hire employees, there are incentives for hiring certain individuals. These incentives can include tax credits (meaning the right hires could take your taxable consequences below zero).

You have to screen to get potential employees qualified before hiring them, but some of the groups that are incentivized include:

• People convicted of a felony
• Some SSA recipients
• Veterans
• Empowerment zone or rural renewal county residents
• Job rehabilitation participants
• SNAP recipients
• Long-term unemployed
• People with disabilities

Check out the Work Opportunity Tax Credit to see if it is something you want to implement. Hiring qualifying individuals can save you up to $9,600 per employee during their first year as long as they work more than 400 hours a year.

This is a great way to reduce the cost of doing business and improve your chances of success. Once you have implemented everything you need, it’s time to look at the different ways to help your business model grow.

Step #4. Grow your business

Once you’ve done everything to become a successful business owner, you’ll reach a point where you want to meet new goals. There are a ton of ways you can expand a business to challenge yourself more. Some common ways to grow a business include:

• Get more business funding
• Expand to new locations
• Mergers and acquisitions (M&A)
• Become a federal contractor
• Export products
• Qualify For special business incentives

Let’s start by looking at how to get more funding.

Get more funding

Business financing is normally much easier once you reach three years in business and over $100K in annual revenue. More lenders are willing to offer business loans after this point.

You’ll normally need:

• Your business license
• Employer identification number
• Solid business plan
• Separate business bank account
• Plan for earning returns on the money

We got the chance to pick the brain of Joseph Camberato, who started National Business Capital and has helped businesses secure over $2 billion in financing. Check out our interview with him below.

Expand to new locations

Once your revenue peaks at a single location, you may want to convert your good small business idea into a chain or franchise. When should you choose each, though?

Start a chain

Turning your single location into a chain can work if you live in a large city and can operate many locations. Running corporate locations in other cities can be a real challenge if you don’t have people you trust in those locations. That’s why many business owners choose a different route.

Start franchising your successful business

Franchising means allowing other business owners to use your business name, intellectual property, and processes to skip many of the trials new business owners face. You’ll need processes for each of these areas of business:

• Inventory management
• Social media and marketing
• Accounting software and processes
• Uniforms and brand guidelines
• Suppliers
• Payroll and benefits
• Customer service and quality

You provide the systems to be successful for an initial fee and recurring commission while the franchisee runs the franchise and manages employees and customers. The franchisor normally gets less than 10% of revenue and the franchisee keeps the profits.

Make sure both corporate offices and franchises comply with all laws, rules, and regulations.

Pro Tip: Does franchising sound like a fit? Find out how to franchise a business.

Merge and acquire businesses

Mergers and acquisitions (M&A) are common with large corporations, but you can grow your business by buying or merging with a smaller business, too. The process is similar to starting a new business but has some unique benefits and challenges.

Benefits of M&A

Mergers have some benefits that save money and increase profit margins. Some of the unique benefits of a merger or acquisition include:

• Elimination of some of the accounting software costs
• Gaining the ownership of any intellectual property
• Reduction of duplicate business roles
• Improved route efficiencies for some types of businesses
• Both businesses gain access to new customers
• Reduction of duplicate insurance policies

Meanwhile, there are also challenges when two companies become one.

Challenges of M&A

If a merger or acquisition is not handled well, you may face some challenges over opening new locations like:

• Losing employees
• Changes in business culture
• Losing customers
• Poor integration of accounting software and other business systems
• Government intervention for large mergers

Every business should move with caution when bringing two companies together. If the costs of lost customers and talent exceed the benefits from cost savings, you may end up writing off the purchase.

Become a federal contractor

Federal contracting is big business. The federal government provides assistance to encourage small businesses to bid on contracting opportunities. Find out how to become a federal contractor from the SBA.

Export products

Another way to grow your business is exporting goods. There are a ton of resources that are helpful for online business ideas that involve expansion to selling internationally.

Pro Tip: Research exporting products by checking out SBA resources.

Qualify for special business incentives

There are small business grants and other business incentives for the following types of business owners:

• Women
• Native Americans
• Veterans
• LGBTQ
• Rural locations
• Minorities

Women-owned businesses

There are plenty of resources for women about how to start a business. There are specific loans for female entrepreneurs. Plus, women can get training and funding opportunities from the SBA.

Native American-owned businesses

Native Americans can benefit from opportunities the federal government provides including contracting, business development, and other programs. Learn more.

Veteran-owned businesses

Get information on what the SBA offers veterans to help support business ownership. You’ll find training, funding programs, and federal contracting opportunities.

LGBTQ-owned businesses

There are lots of opportunities for the LGBTQ community on the SBA website.

Rural businesses

Rural small businesses are the lifeblood of small towns. That’s why the SBA offers resources to support local economies and communities. Learn more about SBA resources for rural businesses.

Minority-owned businesses

Minority-owned businesses receive support to improve resources in underserved communities. Find out how the SBA provides support for development and growth.

Turn Your Ideas Into a Successful Business

We’ve shared tons of information about how to start a business, but there is so much more for you to do. Most business owners find it easiest to start an online business like an eCommerce store or social media management company because they have low barriers to entry.

Just remember, even though it seems like a lot, it only takes four steps:

1. Create your business plan.
2. Start your business.
3. Develop your business systems.
4. Grow your business.

What business are you going to start? Let us know in the comments below.

Do you want to make sure you get top dollar for a business you’re trying to sell? Then you need to know how to value a business. Or, are you considering buying a business, and need to know EXACTLY what it’s worth, so you pay that price for it and not a penny more? If so, you’ve come to the right place. In this article, I'll make sure you're armed with every bit of knowledge you'll need. That way, you'll be able to determine how to value a business like a pro. My highly actionable advice could end up saving you THOUSANDS of dollars of your hard-earned money in business valuation. There are SO many questions to ask when you’re trying to find the value of your business. That’s true whether it’s one you already own, or, one you’re considering buying. Here are a few questions about business valuation that might be swimming around in your head: How the heck do I value a business anyway? How much is MY business worth? What’s the exact process for valuing a business? I’ve heard there’s more than one method. Which one do I use? Now, getting answers to these questions won’t be as easy as ordering an Iced Caramel Cloud Macchiato from the Starbucks drive-thru. But it isn’t rocket science either.

The Challenges of Valuing a Business

Let's get into the specifics of how to value a business you own or a business you're thinking about buying. But before we do, it might be a TERRIFIC idea to go over how you determine the value of ANYTHING. To do that, I’ll have to dust off my copy of Economics 101. There’s going to be disagreement between buyers and business owners as far as price and business valuation goes. Buyers want a low one, while business owners want a high one. So, a compromise is inevitable. The more demand there is for a business, the higher the price will be. The price for anything is determined by a Supply and Demand Curve. Look at this one: You arrive at the optimal market price for an item based on supply and demand by figuring out the precise point at which supply equals demand. To do that, you’ll need to create a graph with the supply and demand lines written on it. Where these two lines intersect is what is called “economic equilibrium,” or the market price for the good or service. Of course, the real value of a good or service is the price a buyer is willing to pay and one that the seller is willing to accept. For example, suppose we have a can of sweet peas. Let’s say it costs a company 75 cents to manufacture a can of peas. This cost includes things like:

• Harvesting
• Drying (that’s because they weigh less, so they can more shipped more cheaply)
• Shipping to the processing plant
• Reconstituting them by adding water
• Adding green dye (SURPRISINGLY ENOUGH!)
• Putting them into cans

However, no matter what price he slaps on the can, it will only sell if he can find a buyer willing to pay that price. The buyer could care less about the costs of getting that can to the shelf so he can buy it. He'll only plunk his hard-earned money down for the peas if he thinks they’re worth it.

What Else You Should Know

This example powerfully illustrates the one thing that’s too often overlooked when pricing a good or service. And that is, value is often (to use an ancient cliché that also happens to be one of the very best “Twilight Zone” episodes ever made), “in the eye of the beholder.” There must be on the part of the buyer to buy the thing. That's because a desire is the gasoline that fuels the economic engine that runs the world. This desire can either be based on needs. Or, it can be based on wants.

A Tale of Two Cars

Increasingly in today’s world, more consumers are prioritizing wants over needs. Here’s an example. All cars basically do the same thing—get you from Point “A” to Point “B.” That’s it. A simple function. Even though both cars basically do the same thing, there’s a HUGE difference between the price of a Ford Fiesta and a McClaren P1. As a matter of fact, about $1,334,740. Most buyers would consider the P1 to be sexier than the Ford Fusion. In fact, probably about a million times more so. This desire jacks up the price of the car. The ONLY way anything has value in the marketplace is if a buyer is willing to buy it. And, at the price that the seller wants. The importance of “want” when it comes to determining value cannot be emphasized enough.

The Power of Emotional Attachment

Real estate is an excellent way to demonstrate this concept. Some of the priciest real estate you could get your hands on happens to be in New York City and San Francisco. Here are real estate prices in New York: And here’s what they look like for San Francisco: However, there’s a certain segment of the population who would not live in either of those two cities. No matter how low the price happened to be. And even if you paid them to live there. The same is true for sellers. I recently watched an episode of “Better Call Saul.” In it, Everett Acker (played by the great Barry Corbin), refuses to sell his house to Mesa Verde Bank and Trust. They want his piece of land so they can put a call center on it. First, they offer him market price for the home. And an additional $18,000. Then, they increase their offer to market value PLUS $45,000. But no matter how high the offer goes, Acker won’t budge. That’s because he’s lived there since the 70s. And, he’s emotionally invested in his home. So, because the price is subjective, it can be difficult to determine the price. People get attached to things, which tends to skew their perception of the thing's actual value.

I’d Buy THAT for a Dollar

In the real world, we know that people can be enticed into buying something because the price is simply too good to pass up. For example, with a significant portion of the population, if you offered to sell them a West Village (a fashionable neighborhood in New York City known for its beautiful architecture and chic, artistic offerings) mega-mansion for the unbelievably low price of $1.00, there would be almost no one who would refuse you. So, price is a powerful motivator. There’s no denying that fact. Even if they don’t really want the item, there are few who can pass up a good deal when they see it. Most people know “great value” when they see it. Nobody needs to tell them! Whether you’re buying a house or a can of peas, the active market determines price. If people think an item’s price is too high, they’ll flock to a lower-priced alternative. Over time, this causes the price of goods to fluctuate until it achieves economic equilibrium.

How Negotiating Affects Price

However, buying a house is much different than driving down to your local Kroger’s to buy a can of peas. It cost thousands of times more, so there’s a lot more risk involved. You’re not going to haggle on the price for the can of peas. Everybody who buys a can of peas at the same store will pay the same price for that can. However, negotiating the price of a home is not only allowed—it's expected. Because of negotiation, there’s going to be more variation in the price of a house than the price of a can of peas. Now, you can easily find the average price of a home in a geographical region by checking out tax assessor websites for listings of recently sold homes. Or, call a real estate agent and ask for a list of recently sold properties in the neighborhood you’re looking at. You could even use a website like this: For example, if 20 houses sell during the same month and they’re comparable, then a quick calculation will tell you the average price for a home in that neighborhood. Now, this is all well and good when the market is active. Inactive markets are another story. This is where there are either no sales or no comparable sales.

When Comparisons Become Meaningless

If these 20 homes sold over five years instead of a more limited period, there would be no way to compare one sale with another. That’s because the sales were spaced out over a long time, and comparison becomes meaningless. The same issue pops up with business sales. The problem is even worse because there are far fewer sales of a business in a location than home sales. And because of this, looking at comparable sales to determine value when thinking about buying a small business is less useful. However, because realtors are used to comparing properties when determining value, they continue to use this same method when trying to figure out how much a business is worth. The real problem with this is that there’s no practical way to compare one company with another. A hair salon is a whole LOT more different than a machine part manufacturer. Even if you compare one kind of restaurant with another, there are still a lot of differences between the two.

A Tale of Two Cafés

For example, in the area where I live, there are two vegan cafés. Now, you might think that since both are vegan, that you can easily compare one to another when you’re trying to figure out what the price of a vegan café is in the area. But you’d be wrong. That’s because one café took over space formerly occupied by a late-night dive restaurant. You know the kind of place: The kind you go to in the middle of the night after having one too many Long Island Iced Teas at your favorite bar. The vegan café retains a bit of this grungy charm. It's located in a somewhat rough part of town, right next door to a minor league baseball park. The second café occupies space that used to be a street-front slaughterhouse and restaurant specializing in buffalo meat (which is a funny place for a vegan diner to occupy). It’s ten times ritzier than the first joint. And, it’s located in an upscale part of the city, right next to several colleges. Here’s what its website looks like: Now, even though the two cafés are vegan establishments, saying that their value is going to be comparable is a silly exercise in futility. SO, DON’T EVEN TRY IT, MISTER!

The Goodwill Factor

Finally, you’ll need to consider "goodwill" when trying to figure out how much a business is worth. Goodwill is the intangible assets of a company. Assets of the tangible variety are easier to understand. For example, let’s consider a manufacturer that makes phone cases that uses plastic to build her cases. The value of this raw material is wicked easy to figure out. However, suppose that this maker has a highly secret, super-efficient, patented process for making these cases. Trying to ascertain the monetary value of this technological trade secret is going to be challenging to determine. Yet, this process is a significant asset of the company because it supercharges its competitive advantage. Intangible assets are often overlooked when someone is conducting a valuation. That’s because they’re:

• THOUGHTS
• IDEAS
• CONCEPTS
• EXPERIENCES

And other things that might seem nebulous and indefinable, but which rake profit in for the company. How the heck can you slap a dollar amount on items like this? It’s well near impossible—even for professional consultants who have been doing this kind of thing for decades.

B.Y.O.A. (Bring Your Own Assets)

Sometimes, a potential buyer of a small business isn’t acquiring an intangible asset. Instead, they’re contributing an asset to the company they're buying. For example, say you purchase a company because you absolutely adore their product. However, you’re not so crazy about their production facility.  That's because it's seen better days and doesn't have all the technological bells and whistles that your own facility has. These are processes you spent years developing. And without all the high-tech wizardry you perfected over the years on your own products, there’s no way you’ll be able to competitively price the good. So, you start making the gadgets at your own factory. You just made the value of the small business you bought skyrocket into the stratosphere because of the intangible assets you added to it. These examples illustrate why there are so many challenges in determining the value of a small business. Next, we’ll look at formulas you can use to help figure out how much a company is worth. However, keep in mind that each one will only give you a rough idea because of all the subjective factors we just talked about.

Business Valuation Formulas

There are several methods for determining the value of a business. Here’s are some of them:

Asset-Based Method

One of the easiest ways to for business valuation is something called the asset-based method. As you might guess from the name, what you do is add up all the business assets. Although they’re going to be mostly tangible assets, there might be a few intangible assets you’ll have to take into consideration. Here’s how it’s actually done: After you list all the assets, you’ll next have to list all the liabilities. These are things like debts and accounts payable. Then to come up with a ballpark figure for the value, subtract the liabilities from the assets. Here’s an example. [su_note] A company has the following assets:

• $20,000 CASH
• $130,000 BUILDING
• $25,000 FLEET VEHICLES
• $25,000 INVENTORY AND MACHINERY

Total assets are $200,000. Now, let’s list their liabilities. These are:

• $85,000 MORTGAGE
• $17,000 WORKING CAPITAL LOAN
• $40,000 ACCOUNTS PAYABLE

[/su_note] The company would have a total asset base of $200,000. Total liabilities would be $142,000. Thus, the company would have a value of $58,000. Of course, these numbers are a snapshot of a specific moment in time. The only problem with that is that business valuation is always fluctuating. For example, what if the day after this snapshot was taken, the company was lucky enough to snag a much-coveted account. And, this brand spanking new client paid a hefty retainer fee. Admittedly, this sudden influx of both new business and cash will increase the value of the company. Almost every day, something could happen that could either increase or decrease the value of the business. So, it’s hard to keep track of a company’s ever-changing value when asset-based valuation is all you use. That’s why most experts recommend using it only as a starting point. Revenue Model Valuation Method Next is the revenue model business valuation method. This method is comprised of several different approaches, all lumped in together because they determine the value of a business based on its income. What’s great about this strategy is that it reflects actual business operations. What could be a better metric of the value of a business than that? It’s easy to see why this might be a better method to figure out how much a small business is worth than the asset-based approach. And really (when you come right down to it) this is simply a valuation based on the sales of a company. So how does this system work? Well, the details are where the weaknesses of this methodology can be seen. Let’s look at an example: Say a hair salon has been open for 20 years. Their yearly revenue currently happens to be $250,000. The owner makes a profit of about $75,000. A formula solely based on sales would take the $250,000 and say this is the business's value. However, these figures deserve a little more scrutiny. Let’s say the $250,000 is the smallest gross revenue the company has earned in its two decades of existence. This means that cash inflows are declining over time. Is that an excellent value to place on the small business? It probably isn’t, if revenues are going to continue to drop each year. That’s why a revenue model valuation (although it has certain advantages over asset-based valuation) might not tell the whole story.

How Accurate is Revenue Model Business Valuation?

So, I just pointed out several flaws in the revenue model of small business valuation. There are so many variables that can affect a company’s revenue stream. For this method to be accurate, you must account for them all somehow. Here’s another variable: there could be stylists who are rock stars. However, they’ve only been with the salon for a year or two. During that time, sales skyrocket because of their extraordinary ability to give everyone exactly the hairstyle they always dreamed of. But now they’re gone. The salon is left with beauticians of a more average sort. Because of this, the revenues of the business drop precipitously. Or, let’s pretend that the business sells machines that do emission testing. In this scenario, several states drastically increased their emission standards. This has the effect of rendering the old devices obsolete. When this happens, automotive repair shops that issue inspection stickers are all scrambling to get their hands on the new machines. This sends the revenues of the company making the machine through the roof. But the next year, sales level off, because all automotive places that issue inspection stickers already have the newer models. As you can see, the revenue-based valuation method's major problem is that it’s only a snapshot of the company at a moment in time.

Discounted Cash Flow

So, that’s two ways to determine small business valuation. Is there another? Turns out there is. But before we go over these other methods including discounted cash flow, let’s look at one of the most prominent investors in the world. You’ve probably heard of him. Warren Buffet. His company, Berkshire Hathaway, has built a HUMONGOUS empire of businesses all over the planet. They include: Mr. Buffet acquired a controlling interest of more than 10% in every one of these companies because he’s a buyout artist par excellence. He wouldn’t have added these companies unless, over the years, he honed his ability to determine value to a razor-sharp point. Here’s the point in the festivities you might be asking: NOW, WHAT THE HECK VALUATION METHOD DOES WARREN USE? Good question. The answer is discounted cash flow analysis. This is a more accurate method than the other two methods we discussed. That’s because cash flow doesn’t use a mere moment in time—it uses a more extended period. Which is usually several years. Most non-discounted methods for determining value are based on financial history. However, you’re not purchasing a book talking about the company’s past achievements. You’re buying their financial performance because you want to benefit from their future cash flow. Now, you might be thinking that past financial success is a good predictor of future economic success. But just like admen in slick financial product infomercials will tell you, you’d be wrong. And that’s because the future is fraught with uncertainty, my friends! When you use the cash flow method, you’ll be comparing the rate of return you'd get on this company to the rate of return for U.S. Treasury bills. To do this, use the formula for the Net Present Value of Money. In this formula, cash flow is the money flowing in and out of the company. R is the discount rate. This can be a percentage. For example, the current interest rate. Alternatively, you can use the weighted average cost of capital for your percentage. This is the rate a company pays to finance its assets. It includes the average cost of a company’s working capital after taxes. N is the time period. You can use however long you want for this amount, whether that’s 5, 10, or 30 years. The number you get after you input all values into the formula is called the terminal value. This represents the growth rate for projected cash flows for years other than the time parameters you’re using. To figure out this value, take the cash flow of the final year. Then, multiply it by (1+long term growth rate in decimal form) and divide it by the discount rate minus the long-term growth rate in decimal form. Say you want to do a discounted cash flow analysis of a business you’re considering buying. First, estimate its future cash flow. To do this, look at the balance sheet for the previous year. This is the amount of revenue that flowed in and out of the business. Let’s say this figure was $750,000 in 2019. Now, you can look at the number for 2018. Say this number is $700,000. Now, we’ll have to calculate the rate of growth. To do that, use this formula. Plugging in the numbers from our example, this would be: GROWTH RATE = $750,000-$700,000/$700,000 = 7.14%. Use this to estimate the future growth rate. Using this number, we extrapolate that our company will grow by this amount for the first two years. And then, in the next two years, we take all factors into consideration and estimate that growth will slow to 6%. You also need to choose a percentage to calculate the terminal value. This number represents the long-term growth of the company. Err on the side of caution with this, so your estimate isn’t overly optimistic. A good guideline is to use current interest rates for this amount. Let’s say it’s 4%. With these figures, you can now calculate the projected cash flow for each year in your timeframe. Lastly, we need to figure out the weighted average cost of capital. Here’s the formula. Let’s say the discount rate for our company is 4%. Now, let’s plug our numbers into the first formula to get the discounted cash flow for the small business: [su_note note_color="#d2dde7"] ($803,550 / 1.04¹) + ($860,923.47 / 1.04²) + ($912,578.88 /1.04³) + ($967,333.61 / 1.04⁴) + ($1,006,026.95 / 1.04⁵) = $772,644.23 + $827,811.03 + $877,479.70 + $930,128.48 + $967,333.61 BUSINESS DISCOUNTED CASH FLOW = $4,375,397.05 [/su_note] So, this is the value of the company using the Discounted Cash Flow Method.

Come Up with A Range of Values

The best way to come up with an accurate valuation is to use all these methods to come up with a range of values. Combining the asset-based approach with the revenue model valuation method and discounted cash flow will help you get a clearer picture of the business's actual value. As an example, let’s presume there is a restaurant getting ready to be placed on the market. The company has been averaging $200,000 in revenues for the last 10 years. In the previous three years, the owner has not been as involved in the company. So, the earnings are below average. The assets of the company are as follows: [su_note note_color="#d2dde7"]

• BUILDING $250,000
• EQUIPMENT $15,000
• FIXTURES $10,000
• CASH $25,000

The debts are:

• $10,000 MORTGAGE
• WORKING CAPITAL LOAN OF $25,000

In the most recent year of revenue, the company earned $95,000. From the revenue model, the value is $95,000. From the asset-based method, the value is $300,000. From the discount cash flow method, the value is $448,622. [/su_note] The range method then would say that the value of the company would be somewhere between $95,000 and $448,622. The owner and buyer could add in other factors to adjust this range, like their opinion of the small business.

Conclusion

What is the bottom-line in finding a value to a small business? The best answer is that it is complicated. First, value is often in the eye of the beholder. So, value can be subjective, based on personal opinions. Second, there are multiple methods for determining value—whether that’s the asset-based, revenue model, or discounted cash flow method. Each has merit, but each has its faults. This means that there is no perfect method for determining the value of a business. That‘s why the best solution is to use a range of value to place you in the “ballpark” for what a small business is worth. This range provides for more accuracy in assigning value. I hope this article has instilled you with the confidence to make excellent business valuations.