Like any rewarding life endeavor, starting and running a small business can be both exciting and challenging. Knowing the answers to common questions, preparing for potential hurdles, and finding the right resources can make a big difference in your success.
At Remitly, we help send money internationally, and we’re also here to provide useful information for those managing their finances across borders. Whether you’re new to the US or already settled in, this guide will answer frequently asked questions about small business ownership, outline common challenges, and point you toward valuable resources.
Our FAQ guide for small businesses covers the most common concerns entrepreneurs—especially new business owners—often have. These include legal requirements, financial management, and everyday operations. These quick answers can help clarify key startup processes like registering your business, finding funding, navigating tax rules, and developing a viable business strategy.
Starting a business: common queries
Before launching your small business, there are several factors to consider. Addressing these early can help set you up for long-term success.
What do you need to know before starting a small business?
Here are a few essential things to consider:
- Market research: Understand your target market, competitors, and the demand for your product or service. Look into customer preferences, pricing strategies, and local market trends. This research will help shape your business plan, identify potential challenges, and make informed decisions about your target audience. For instance, knowing your community’s demographics can help you tailor your offerings.
- Business structure: The legal structure you choose for your business affects your liability, taxes, and paperwork. The main types include:
- Sole proprietorship: Simple to set up, but no liability protection.
- LLC (Limited Liability Company): Offers limited liability and pass-through taxation.
- Corporation: More complex, but provides strong liability protection and potential tax benefits.
- Licensing and permits: Running a business without the right licenses can result in hefty fines and legal penalties. Requirements vary depending on your industry, location, and business activities. For example, if you’re opening a restaurant, you’ll likely need a health department permit, a liquor license (if applicable), and a general business license.
What is a small business under SBA standards?
The US Small Business Administration (SBA) defines a small business based on industry-specific size standards, usually measured by annual revenue or number of employees.
According to its published guidelines:
- Manufacturing firms may qualify if they have fewer than 500 employees.
- Service-based industries might be considered small if they earn less than $7.5 million per year.
Meeting these criteria can help you access SBA loans, government contracts, and other support programs. You can check your industry’s size standard on the SBA website.
How does the IRS define a small business?
The Internal Revenue Service (IRS) doesn’t use one single definition of a small business. Instead, it categorizes businesses based on their tax structure.
- Sole proprietorships
- Partnerships
- S corporations
- C corporations
- LLCs (typically taxed as pass-through entities)
Pass-through entities report business profits and losses on the owner’s personal tax return. However, the IRS may set revenue thresholds for certain credits and deductions. For example, the Employee Retention Credit is available to businesses with less than $100 million in annual gross receipts.
Top small business challenges
Understanding the biggest challenges small businesses face—and how to overcome them—can greatly improve your chances of success.
What is the biggest challenge for small businesses?
Cash flow management is consistently cited as the top hurdle for small business owners. This includes a lack of capital, difficulty accessing funding, and the day-to-day struggle of balancing income and expenses.
Here are some common cash flow challenges:
- Delayed client payments: Waiting on unpaid invoices can create cash shortages and disrupt operations.
- High startup costs: Launching a business often requires significant upfront investment in equipment, inventory, and marketing.
- Limited access to credit: Many entrepreneurs, especially immigrants, may have trouble securing loans due to a lack of established credit history in the US, a lack of collateral, or being perceived as higher-risk.
How can small businesses manage these challenges?
- Negotiate payment terms: Try to secure longer payment terms with your suppliers and shorter ones with your customers. This helps keep more cash in hand.
- Use budgeting software: Tools like QuickBooks can help track your income and expenses, forecast cash flow, and identify areas to reduce costs.
- Explore microloans: Community lenders and the SBA offer microloan programs—typically up to $50,000—to help cover startup or operating costs. These are especially helpful for small business owners with limited access to traditional credit.
Compliance and financial management
Maintaining compliance and effectively managing your finances are essential for long-term success.
What are the three basic questions that every business must answer?
Before you launch your business, it’s essential to answer these fundamental questions:
- What problem are we solving? Identify a specific need or pain point in the market that your product or service addresses, and what makes you stand out from the competition.
- Who is our target customer? Define your ideal customer profile, including their demographics, needs, and buying habits.
- How will you generate profit? Determine your pricing strategy, cost structure, and revenue streams to ensure your business is financially sustainable.
How can small businesses handle financial planning and payroll?
Effective financial planning and payroll management play a crucial role in your business’s health. Here are some best practices:
- Separate accounts: Open a dedicated business checking account to separate your personal and business finances. This simplifies your bookkeeping and helps protect your assets.
- Use payroll services: Platforms like Gusto automate tax withholdings, filings, and payroll processing, ensuring compliance and saving you time.
- Build an emergency fund: Aim to set aside 3 to 6 months’ worth of operating expenses to cover unexpected costs or revenue shortfalls.
Support and resources for small business owners
There are plenty of resources available to help small business owners succeed, whether you’re just starting out or looking to grow.
What role do lenders and business credit play?
Lenders provide capital through loans or lines of credit to help businesses fund daily operations or growth initiatives. Building strong business credit is key to securing better loan terms and higher borrowing limits.
Here are a few steps to help you build and improve your business credit:
- Open a business credit card
- Pay invoices on time
- Monitor your credit score through services like Experian
How does the SBA support small businesses?
The SBA’s 7(a) loan program is one of its most popular funding options, providing flexible, long-term financing for a variety of needs, such as working capital, equipment, real estate, or business expansion.
- Loan amounts: Up to $5 million.
- Repayment terms: Up to 25 years for real estate.
The 7(a) program also includes several specialized options like:
- SBA Express program: Faster approval for loans up to $500,000.
- CAPLines: Short-term and seasonal working capital financing.
Beyond funding, the SBA connects aspiring and existing small business owners with free or low-cost mentorship, counseling, and training through its nationwide network of resource partners, including:
- Small Business Development Centers (SBDCs): Business planning, strategy, and training.
- SCORE: A network of volunteer business mentors.
- Women’s Business Centers (WBCs): Support tailored to women entrepreneurs.
- Veterans Business Outreach Centers (VBOCs): Resources for veteran-owned businesses.
What resources are available for financial management and business growth?
Financial advisors: Platforms like Zoe Financial and Harness Wealth can match you with a vetted financial professional. You can also find qualified advisors through directories from the AICPA and the CFP Board.
Accounting software: Tools like Wave Accounting and ZipBooks offer free plans for basic bookkeeping, invoicing, expense tracking, and payroll. For more robust features, options like QuickBooks, FreshBooks, or Xero are popular choices.
Budgeting tools: Whether you’re using spreadsheets like Excel and Google Sheets or more advanced platforms like PlanGuru, the right tools can help you manage expenses, track cash flow, and prepare for the unexpected.
Business development programs: The SBA offers several initiatives to help small business expansion, including:
- 8(a) Business Development program for disadvantaged businesses.
- HUBZone program for businesses in underserved communities.
- SBA Mentor-Protégé program for networking and growth.
Organizations like America’s SBDC also provide valuable support and guidance.
Web resources: With diverse blog posts offering helpful insights and tips on managing finances, running a business, and navigating the challenges of entrepreneurship, the Remitly blog is a great resource for small businesses.
Frequently asked questions
What are three small business facts?
- Small businesses make up 99.9% of all US businesses.
- Over half of small businesses are home-based.
- Small businesses create about two-thirds of net new jobs annually.
What are the three core business questions?
These questions help define your business’s foundation:
- Why – What problem are we solving?
- Who – Who is our target customer?
- How – How will we make a profit?
How much money do I need to start a small business?
Startup costs vary depending on the industry, business type, and scale of operations. Some online businesses can be launched with minimal capital, while others require significant investment in equipment, inventory, and real estate.
To estimate your costs, conduct thorough market research and create a detailed budget outlining all startup expenses, including equipment, inventory, marketing, and legal fees.
What are the biggest mistakes small business owners make?
A common mistake is poor financial planning, which can lead to cash flow issues and difficulty managing expenses. Many owners also skip proper market research, resulting in products or services that don’t meet market demand. Neglecting customer service can also damage a business’s reputation, and failing to adapt to changes in the market can cause a business to fall behind.
What is the difference between a business line of credit and a business loan?
A business loan gives you a lump sum of money all at once that you repay over time with interest. It’s popular for bigger, one-off expenses. A business line of credit is more flexible; you borrow as needed, up to a limit, and only pay interest on the amount you borrow. It’s useful for managing cash flow and covering short-term expenses.