How To Start a Business
Experts agree that the first step to starting a business is with a good idea, and a good idea usually comes after you identify a solution to a problem in your own life.
If you already found the business idea that works for you — or you’re on the path to doing so — here we outline the essential steps on how to start a business, including funding, choosing a business structure and building your brand.
You can also check out our best small business loan guide to shop for funding options.
11 Steps for Starting a Business
1. Conduct market research
Market research provides context for your business idea – it gives you the necessary data to develop or improve an existing idea and make it successful.
Market research evaluates the following factors:
- Demand: Does your product or service satisfy a particular need?
- Market size: How many people would sponsor your business?
- Economic data: How many of your potential customers are employed? How much do they earn?
- Location: Can your business reach its target market? (aka where do your customers live and work?)
- Market saturation: Is your business idea similar to existing services or products, and if so, how many?
- Pricing: How much does your target customer pay for similar services or products?
Tools to conduct market research include surveys, questionnaires, focus groups, interviews, public records, commercial records and any internal data.
2. Write a business plan
The business plan serves as a road map for your business development. It’s a guide on how to start, structure, manage and grow your business. The business plan is also the tool that can help you get funding, investors, or even a new business partner.
Most business plans fall into two categories: traditional or lean.
Traditional business plans use a standard format and can include dozens of pages. This detailed plan consists of the following sections:
- executive summary
- company description
- market analysis
- organization and management structure
- service or product line
- marketing and sales
The traditional business plan is commonly used when presenting to private investors or traditional banks to secure funding, so many include a funding request and financial projections.
Lean startup business plans work best for entrepreneurs who want to start their business quickly or plan to change and redefine their business plan. This format summarizes key points about the business: purpose (product or service), targeted market, location and business structure.
You can also include:
- Key partnerships
- Key activities
- Key resources
- Value proposition
- Customer relationship
- Cost structure
- Revenue streams
Choose a business name
A business plan starts with the name and company description. When brainstorming a business name, make sure that it’s:
- Memorable, easy to spell and easy to pronounce
- Not too specific, in case you want to expand your offering in the future.
- Not already in use by competitors
Look into securing the domain name. Depending on your name’s uniqueness, you’ll most likely need to buy it from a previous owner on domain registrars such as Domain.com, Namecheap, and Google Domains.
Pick a business location
Nowadays, business locations aren’t limited to brick-and-mortar commercial spaces. Legitimate locations include:
- Mobile (food trucks and pop-up shops)
To pick the right business location, consider:
- Budget – look at the total cost of each site including, rent, utilities, permits and renovations
- State-specific expenses and limitations – check zoning ordinances, taxes, permits and business insurance rates
- Customer base – an online or home-based location may not be the best fit for a business that requires in-person transactions
- Vendors and suppliers – proximity to vendors and suppliers reduces delivery costs and minimizes the risk of running out of necessary material
- Competition – don’t set up shop in an area that’s saturated by your competition
3. Identify how to fund your business
Funding your business is one of the most important steps you must take to structure and run your business. How much funding you’ll need will depend on your financial situation and overall vision, and once you have identified how much startup money you need, the next step is figuring out how to get it.
Bootstrapping a business means that you’re self-funding, be it with savings or discretionary income. By self-funding, you’re not beholden to business partners or investors, and you have complete control over the direction you want the business to go. However, self-funding also means assuming 100% of the risk and potential losses. If your venture fails, your financial security can suffer.
Ask family and friends
Family and friends are a legitimate source of quick funding, and they are often the first people an entrepreneur turns to for help. This strategy is also called a pre-seed round, friends and family round or bridge round.
Funding by family and friends has the advantage of flexibility, because you can negotiate the nature of the financial relationship.
Friends and family crowdfunding can take the shape of:
- Standard loans
- Interest-free loans
- An equity or ownership stake
The terms of this funding agreement should be clear and official, as you risk damaging personal relationships otherwise. Document options include:
- Promissory note: a legally binding agreement between two parties that states the loan amount, interest rates, if any, and terms and conditions.
- Subscription agreement: a legally binding document that offers shares of the company at a negotiated price in exchange for investment.
Get venture capital from individual investors
Individual investors, sometimes called “angel investors,” are wealthy individuals who invest in small businesses in exchange for equity or a share of ownership in the company. The expectation is that the investor will receive a return on their investment (ROI) as the business grows and becomes more profitable.
Unlike large investing firms, angel investors chip in at the startup stage or seed round of a business in the hopes of maximizing their profits down the line. They’re essentially betting on the growth of your company.
Funding your business with private capital takes time, and the process generally follows these steps:
- Search and find an investor
- Share your business plan
- The investors will evaluate your business plan to make sure it meets their criteria
- Agree to the terms and conditions for the fund
- Get the investment
Angel investors usually operate within local networks — an online search for investor networks or groups in your area should lead you in the right direction. There are also online platforms like Angellist that connect tech founders to investors.
Apply for a small business grant
Small business grants are a source of free funding for small businesses and startups. Unfortunately, eligibility requirements are stricter than a traditional loan, as grants are funded with taxpayer money or donations.
You can find government small business grants at the federal and state level (Grant.gov) or from private entities. Make sure to check with your local government agencies to see what entrepreneurship incentives are currently available.
For privately funded grants, it helps to look at recent news and press releases from non-profits or large corporations. Focus on organizations that align with your business idea, as usually, privately funded grants target specific markets and demographics. For example, if you’re a woman founding a tech startup, there’s likely an NGO with grant programs to incentivize women entrepreneurs in tech.
Note that the Small Business Administration (SBA) doesn’t offer business grants to establish or expand a business. SBA grants are instead awarded to institutions and organizations that support and incentivize entrepreneurship within their communities.
Consider a small business loan
You can also fund your business with a small business loan. To apply, you’ll need your business name, tax identification number and address. Lenders will likely ask for a standard business plan and a proposal document that outlines the use of the awarded funds.
Most credit unions and traditional or online banks have lending programs for small businesses, but taking this route doesn’t necessarily guarantee the best rates and terms.
The SBA loan program partners with lenders to provide federally backed loans with terms and interest rates often more favorable than those offered by private lenders.
Startups generally qualify for an SBA microloan, a loan tailored to get a business off the ground:
- Loan amounts are capped at $50,000.
- Funds may be used for various expenses, including equipment, inventory, supplies or operating costs.
- Funds can’t be used to pay existing debt or purchase real estate. Renting a space, however, is considered part of operating expenses.
The SBA also offers two other loan types geared towards expanding and growing existing businesses:
7(a) loans are the agency’s most common loan type. It’s recommended for businesses that need to purchase real estate, but you may still use funds for other expenses such as debt refinancing and operational costs. SBA guidelines set strict terms, conditions and eligibility requirements, including a loan cap of $5 million and 10-or 25-year repayment plans.
504 loans are accessible through Certified Development Companies, which are SBA-regulated non-profits. Unlike 7(a) loans, 504 loan funds can’t be used for day-to-day operations, debt refinancing or rental real estate investing. Provided you qualify, funds – also capped at $5 million – may be used to construct or improve existing infrastructure and purchase land and long-term machinery.
Consult with an SBA-approved lender to walk you through the best loan options and help determine whether you meet eligibility requirements.
4. Choose a business structure
The business structure defines your company’s legal structure, meaning how much you pay in taxes, what kind of paperwork you need to file, and which funding opportunities are available to you.
You must choose a structure before you register your business with the state.
A sole proprietorship is the simplest business structure. The owner has complete control of the business and its assets. However, this also means that the business isn’t considered a separate legal entity — the owner is 100% liable for any outstanding debts or lawsuits, and personal assets are regarded as seizable property.
Sole proprietors may register a separate business name under a DBA (doing-business-as). A DBA allows you to file for a federal tax id and apply for a business bank account. On the other hand, it doesn’t offer legal protection. Sole proprietors must file for a trademark with the United States Patent and Trademark Office to secure their business name legally.
This informal business structure limits funding opportunities and exposes you to personal liability, but it’s still a good starting point for low-risk businesses and small, one-person operations.
Two or more people that own a business can set up a partnership business structure. A partnership establishes the business as a separate legal entity and offers partial liability protection to the owners.
There are two partnership categories:
- Limited liability partnership – All partners are liable up to their individual investment amount. Partners are not responsible for the other’s negligence.
- Limited partnership – One partner (the “general partner”) can act on behalf of the business and is responsible for an unlimited liability amount. The “passive partners” don't manage the business or participate in operating procedures. Their financial liability is limited, up to their individual investment amount.
A business partnership benefits from pass-through taxation: profits and losses are reported on the individual’s tax return. Unlike a corporation, the business partnership itself doesn’t pay taxes.
This business structure is standard for businesses with multiple owners or professional groups, such as legal and accounting firms.
Limited liability company
A limited liability company (LLC) combines the liability protections of a corporation with the tax structure of a business partnership. The LLC itself doesn't pay any corporate taxes.
LLC's are owned by one or more individuals. Unlike a partnership, owners aren’t personally liable for any portion of the business’ debt or legal obligations. Personal assets such as your home, car and investments are protected.
To form an LLC, owners must file formal articles of incorporation or a certificate of organization.
A corporation or c-corporation is a separate legal entity that can own assets, sue and be legally liable, borrow money and file its taxes.
A corporation is owned by shareholders, has a board of directors, and pays a fixed corporate tax rate set by the US government through the Internal Revenue Service. Shareholders are not personally liable for any legal or debt obligations of the corporation.
Startups that want to attract investors may consider a corporation for its taxation structure. Private investors only pay taxes on what they receive as profit (their dividend), as opposed to LLC owners, who pay tax on a company’s annual earnings, even if they don’t pocket a profit that year.
Corporations require a complex business structure and are significantly more expensive to set up than LLCs or partnerships. Consider registering as a corporation if your business plan depends on attracting outside investors and shareholders.
If your business involves work that benefits the public, like charity, education, religious, literary or scientific work, consider registering as a non-profit organization (NGO).
A non-profit doesn’t pay taxes on its earnings, but profits must go to its operating expenses and projects. It can’t pay dividends to its members or donate to political campaigns.
Non-profit organizations must register with the IRS as a 501(c)(3) corporation to qualify for tax exemptions.
5. Register your business
How and where you register depends on your chosen business structure and location. For example, a sole proprietor may not need to file for federal registration unless they trademark the business or product.
You’ll need to register with the federal government to:
- Get a federal tax ID
- Trademark your brand, business or product name
- Apply for tax-exempt status if it’s a nonprofit
- Apply for tax exemptions as a small business
You’ll also need to register in any state in which you conduct business activities as an:
- Nonprofit corporation
- Sole proprietorship in some states
Use the SBA's look up your state tool to register directly with your state’s regulating agency.
A registered agent is charged with receiving a business’s official papers (paperwork, tax forms, legal notices, etc.).
Sole proprietorships don’t need to worry about registered agents, but you'll need to appoint one if you’re registering as an LLC, corporation, partnership or nonprofit corporation.
Business owners can appoint themselves as registered agents or hire a separate service to represent them for a fee. Regardless of which option you choose, the registered agent must have a physical address in the same state the business is registered.
6. Get federal and state tax IDs
The Federal and state tax ID is called Employer Identification Number (EIN), which identifies your business as a taxable entity and allows it to file and withhold state and federal taxes.
A federal tax ID is necessary for several different business activities, including filing federal taxes, paying employees, withholding income tax, opening a business bank account and registering as a corporation.
A state tax ID is required if your business must pay state taxes. This will depend on the tax laws and business regulations of each state.
Business owners can apply for an employer identification number online for free at IRS.gov.
7. Apply for licenses and permits
Industries regulated at the federal level — agriculture, alcoholic beverages or transportation — require business licenses and permits from specific agencies. To apply, first match your business sector with the correct regulating agency and visit its website for further instructions.
At the state level, permits and licensing requirements vary per location and industry. It’s up to you to acquire and renew all required licenses in your area or risk a hefty fine or suspension.
8. Open a business bank account
A business bank account separates business expenses from your personal assets, adding financial protection and making it easier to track company expenses. Come tax season, you’ll save yourself a headache if business expenses are neatly organized in a different account.
Unlike a personal account, a business bank account allows you to add authorized users — a trusted employee or business partner authorized to handle day-to-day transactions on your behalf.
Finally, having a business account also increases legitimacy. From a consumer and vendor standpoint, making payments to a business account may inspire more confidence than sending money or invoices to an individual.
Components of a business bank account include:
- Business checking, savings and money market account
- Business credit line
- Business credit cards
Shop around to find favorable terms and rates. You may find the right fit in one of our best business checking accounts.
When comparing business accounts, consider the following:
- Introductory offers
- Interest rates for savings, checking and lines of credit
- Transaction and processing fees
- Minimum account balance fees
- Proximity to your business address
- ATM access
- Free checking
- Mobile and online banking
- Available merchant services
Get a business credit card
A business credit card can cover unforeseen expenses and strengthen the financial credibility of a business. As a separate legal entity, your company can build its credit score, which looks good on loan applications or investment proposals.
Like regular credit cards, business credit cards include added benefits and rewards. If your startup requires a lot of travel, look for cards that rack up travel points. If your business has a variety of monthly expenses, look for a generous cashback program.
Owners need a good to excellent credit score to apply, as credit card companies evaluate the creditworthiness of both the owner and the company.
9. Get business insurance
Business insurance protects you from financial loss in the face of accidents, natural disasters or liability claims. Going without insurance is risky, and even home-based businesses benefit from a separate insurance policy, as any business equipment or inventory that you keep at home is exempt from coverage under homeowner’s insurance.
Here are the most common business insurance policies:
- General liability insurance
- Product liability insurance
- Professional liability insurance
- Home-based business insurance
- Commercial property insurance
- Business owner’s policy (BOP) insurance
If you plan on hiring employees, prepare to purchase worker’s compensation, unemployment and disability insurance. Check which policies are compulsory directly with your state and federal agencies.
Refer to the SBA’s insurance type guide for a more thorough description of each type of business insurance policy. And check out the best small business insurance companies to find our top choices for business insurance.
10. Build your brand and website
Branding distinguishes your business from competitors, but most importantly, it creates a perception of your company and its product or service in your customer’s mind.
Branding starts with your company name and includes logo, typography, associated images, packaging, and wording. A solid brand accurately represents your business, both off and online.
An established brand identity still needs to be amplified, and that’s where an online presence comes in. Social media is necessary to strengthen your brand and present it consistently to a larger online audience. At the same time, a well-designed website makes your product or service more accessible.
Successful branding conveys a consistent idea and feeling around your business, attracts your target customer base and increases profitability and visibility.
Effective branding may help create positive impressions about your company and increase engagement on your website and social media platforms.
To build a brand:
- Research your target audience
- Consider what words you want to be associated with your product or service (“edgy, daring, bold” or “streamlined, effective, and data-driven”)
- Choose a business name that best represents the company and its product
- Design a brand logo that’s visually appealing, memorable, and easily linked to your company
- Align other design elements of your page, stationery, communications, and merchandise with your logo and style
As a starting business, you’ll save a lot of money by designing the brand logo yourself with free design platforms like Canva. That being said, amateur design may be costly in the long run if you end up needing professional rebranding once the business takes off.
If you wish to avoid this future issue, look for professional designers on freelancer websites like Upwork or Dribbble, a job posting site that features a large pool of designer portfolios.
Social media is essential to building a successful business, particularly today. Platforms like Instagram, Twitter, Facebook, Tik Tok, and even LinkedIn offer advertising opportunities and direct engagement with customers and the chance to create customer loyalty.
Creating a clear marketing strategy and calendar to make the most out of social media may involve allocating additional resources and time to manage social media business accounts.
Business owners need to accurately analyze engagement, impressions and reach to measure social media activity. Each platform features analytics tools that gather this data for you.
Social media strategies that increase visibility and drive engagement include:
- Creating behind the scenes content of how you make your product
- Creating educational and informative content
- Posting short videos and clips of existing products and upcoming launches
- Partnering with influencers to increase visibility
Drawbacks to social media:
- It’s time consuming. Accounts need daily monitoring and activity to generate engagement. You may need to hire a social media manager.
- Your business account might be exposed to inappropriate behavior, harassment, critical feedback or hacking.
An online presence isn’t complete without a website, even a basic one. Businesses need a separate, independent platform from social media to guarantee continuous online presence and engagement with potential customers. The good news is that building a website is easy, even if you don’t have any coding experience.
Business owners can build a website using a website builder or a content management system (CMS). The former is excellent for beginners, while the latter requires a bit of coding knowledge.
Website builders are the most popular option for startups due to their ease of use. Business owners access pre-made templates with customizable built-in elements by paying a monthly fee.
You only need to upload your content (widgets, images, videos or text), and the website builder takes care of the rest:
Offline website builder: This is a software program that’s downloaded and installed on your computer. Clients can edit and update their website offline and get it ready for publication. You’ll need to purchase a separate web hosting account to upload your files and publish the website.
Online website builder: Users create and edit their website directly online without purchasing a web hosting account or downloading any software. The only requirement is an internet browser and a reliable internet connection. These are more user-friendly than their offline counterparts.
Popular online website builders include Shopify, Squarespace, Wix and Weebly.
To build a successful website:
- Purchase a domain name that is easy to spell, memorable and fits your overall brand
- Design the homepage so that it clearly depicts what your business is, with high-quality images and scannable text
- Learn search engine optimization (SEO) strategies to improve your website and increase its visibility on Google and other search engines.
Building a blog is also a great way to complement your brand, connect with your audience and create more in-depth content relevant to your product or service. Learn how to start a blog with our 7-step guide.
11. Hire employees
A small business run by two or more people can quickly become too much to handle. If your business is turning a profit, you’ve been working non-stop, and you are struggling to meet customer demand, it’s time to hire an extra hand.
To hire employees, a company must be registered with the state and comply with federal and state labor law. Take the time to understand federal labor protections with the Summary of Major Laws of the Department of Labor.
Employees vs independent contractors
New employees will help meet the demand of a growing startup, but first, determine whether you want employees or independent contractors:
- Independent contractor: works under their own business name and charges your company for its services. You are not required to withhold income tax, Social Security or Medicare, pay for unemployment or observe employment and labor laws.
- Employee: works and is hired by your company. You must withhold income tax, Social Security, Medicare, and unemployment pay. Employees are protected by local and federal labor and employment laws.
A business may need to pay unclaimed taxes if it incorrectly classifies employees. Avoid this by following the IRS’s guide on how to classify employees vs independent contractors.
Set up payroll
A payroll system handles the process of paying an employee’s salary. To set it up, first ensure that your company has an employer identification number and is appropriately registered with federal and state agencies.
You’ll also need to establish how often employees will get paid or the length of your pay period. This can be weekly, biweekly, bimonthly or monthly. To pick the best pay period structure, factor in your employee’s needs, the cost of running payroll, taxation and the company’s cash flow.
Define the job position
Write a clear and detailed job description that outlines employee responsibilities and compensation. At this point, it’s also highly recommended to create an employee handbook that clearly outlines company policies. Consider adding benefits like health insurance, paid time off, and pension plans to stand out from the competition and attract the best talent.
Post the job on social media and job listing platforms. Job posting websites are a dime a dozen, and not all guarantee a return on investment. We recommend you post to platforms with high visibility and employer-friendly tools – if you’re unsure where to start, check out our reviews of the best job posting websites for employers.
A well-written job post should include:
- Job description and benefits
- Whether the position is part-time or full-time
- Necessary qualifications to apply, if any
- Contact information
- Salary range
Once you’ve interviewed the top prospects and selected the candidate, you can make a formal job proposal that includes compensation details and employment start date.
To bring a new employee on board, gather the necessary paperwork:
- Personal information (name, address and Social Security number)
- Direct deposit form, if applicable
- W-4 tax withholding form
- I-9 employment eligibility verification form
- Contract or work agreement
- Benefits information, if applicable
Basic Costs of Starting a Business
The costs of starting a business vary significantly per industry: a dropshipping business or cleaning business will have lower overhead costs than, say, a café or a restaurant.
No matter the business model, analyzing and organizing the starting costs is essential to measure the financial viability of your business. You don’t want to throw money at a venture only to find that expenses are significantly higher than your profit margins.
Startup costs can be divided into the following broad categories:
Operating costs are the expenses directly related to your business output, including labor, necessary equipment, initial inventory, materials, supplies and even shipping expenses.
Overhead costs are additional business expenses that aren’t directly related to creating a product or providing a service. Overhead costs generally include:
- Rent and utilities
- Permits and licenses
- Administrative salaries
- Office equipment and supplies
- Promotion and advertising
Take advantage of the SBA’s startup worksheet to estimate expenses for your company’s first year. Also, consider investing in accounting software, such as QuickBooks Online or Xero.
Basic costs of starting a business can be further divided into fixed, variable and semi-variable expenses:
- Fixed: on-going costs that remain the same. Think rent or mortgage payments, salaries, insurance, and utility bills.
- Variable: on-going costs that fluctuate. Examples include hourly wages and the cost of raw materials.
- Semi-variable: on-going costs that fluctuate but still include aspects of fixed expenses. An example would be maintenance repairs. These cost a fixed amount, but the amount of times you’ll actually need to pay repair fees depends on other factors.
How to Start a Business FAQ
How much does it cost to start a business?
Your costs largely depend on your business model and industry. There is no one size fits all answer. Startup costs include operating and overhead expenses, further subdivided into on-going or one-time costs.
The good news is that once you have a business plan in place, you can estimate these costs yourself and evaluate the financial viability of your business idea.
How to start a business with no money?
Businesses that cost very little to set up include content creation, blogs and newsletters, dropshipping, t-shirts and prints, or online thrift shops. These are good options for individuals that want to increase their income with a side gig or pursue a passion project.
Of course, you will still need a source of income to cover basic necessities while your side project gains traction and starts turning a profit.
What do you need to start a business?
What is a good business for a kid to start?
What licenses are needed to start a business?
Bottomline on how to start a business
Getting a business up and running demands a lot of time and effort, but pursuing a passion project, self-employment and financial security can be well worth the shot.
The 11 steps to starting a business begin with market research and business planning. Next, identify funding sources, pick a business structure, and register. With a business registration, you can file taxes, open a business bank account, purchase business insurance, and hire employees.
Once the backbone of the business is established, get to work on the creative part: branding. A startup needs a memorable brand identity. This is possible with a well-designed logo, a clear marketing strategy, and effective use of social media.
Lastly, don’t forget to build an independent website and employ SEO strategies to increase visibility, brand awareness and consumer engagement.
By following these steps, your business stands the best chance of succeeding in the very competitive but exciting startup market.