One way to boost your income and make the most of your situation is to start a business. But it’s important to note that though the steps can seem simple, starting your own business is not always easy. There may also be some important steps you’re not currently aware of that can make a critical difference in whether your small business succeeds.
To help you out on your new business venture, here’s our step-by-step guide to everything you need to know about how to start a business.
- The 16 essential steps to starting a business
- Start with a business idea
- Do market research
- Write a business plan
- Organize funding for your business
- Create a marketing plan
- Pick a type of business
- Name and register your business
- Get your tax IDs
- Apply for any licenses or permits required
- Pick an accounting system
- Get the right insurance coverage
- Open a business bank account
- Pick a business location
- Hire your help
- Open up for business!
- Don’t stop there…
- How to get help starting a business
- Bottom line
Start with a business idea
If you’re hoping to start a successful business, you’ve probably considered a variety of possibilities and had a number of ideas. However, if you’re not sure which business to actually start, you can get further inspiration from the hundreds of business ideas out there already. There are even plenty of small businesses you can start for $1,000 or less.
When narrowing down your business ideas, think about something that’s likely in demand, matches your skills, and is something you can do regularly — and every day. You should also consider whether it’s something you can reasonably expect to understand how to make money with.
Do market research
Just because a business idea exists doesn’t mean it’s going to succeed or people want that product or service. One way to test out demand is to conduct some market research. There are two main types of market research: primary and secondary.
Start with secondary research
Interestingly, it can be a good idea to start with secondary research to begin narrowing things down. Secondary research is taken from outside resources, such as analyses conducted by reputable government entities and trade and professional organizations.
Use secondary research as a way to figure out demographic trends and get a feel for how certain industries are going. You can also figure out what to expect and see how many businesses operate in your niche.
For more local secondary research, check with your state’s business oversight department or even a local chamber of commerce. With the help of secondary research, you can get the lay of the land and a feel for your target audience and what to expect.
Use primary research to narrow down your idea
Primary research is about collecting your own data from the market. This can help you narrow down your business idea and figure out where there is a viable business opportunity to concentrate your efforts.
Examples of primary research include:
- Questionnaires and surveys
- In-depth interviews
- Focus groups
When my business partners and I were launching our latest venture, we used focus groups and surveys to figure out what people were looking for and to tweak our ideas in a way that would make our business more attractive.
Your market research can help you settle on a business idea that is more likely to succeed and meet market demand.
Write a business plan
One of the most essential steps of deciding how to start a business is the business plan. Writing a business plan can help you lay out everything you need to succeed.
First, getting it all down helps you identify things you missed and provides a roadmap for taking step-by-step action. With your business plan, you can make sure you’ve thought about everything. Plus, it gives you an overview of what needs to be accomplished and the order you should follow to make it happen.
On top of providing you with something practical to follow, a business plan can also help small business owners get funding. Many lenders ask to see a business plan before risking resources. It’s for all of these reasons that many small business development centers have you start with a business plan.
Your business plan needs to include:
- Executive summary: A high-level look at what you hope to provide in your business, your company mission, and who’s involved.
- Purpose: Include a section on your company’s purpose, including the customer base and your ability to solve their problems.
- What you provide: Be sure to include information about the products and services you plan to provide. In this section, you should also detail the type of research you’ve done, as well as any intellectual property you own.
- Company structure: Create an organizational chart and detail the type of business structure — such as LLC, S Corp, or C Corp — that you plan to adopt.
- Competitive advantages: What are your strengths? Why are you likely to succeed and serve your customers? What gives you an edge? All of that should be detailed in this section.
- Market analysis: Show you understand your market. You can use your secondary sources from your market research to put together this section. Explain what your competitors are doing, detail where you fit into the picture, and how you can do better.
- Marketing strategy: Lay out your strategy for letting customers know who you are and how you’ll show them you’re the ideal choice.
- Financial projections: You need to show the money. Use this section to share any costs as well as how you’ll price your products and services and how much profit you can reasonably expect.
Organize funding for your business
There are several different options available when you want to fund your business. Figuring out where your starting money will come from is an essential part of figuring out how to start a business.
If you have money saved up, you can fund your business yourself. Additionally, there are a number of low-cost businesses you might be able to start just by using the cash flow you already have.
For example, my freelance writing business only required the startup costs of a laptop and internet access. This was something I could pay for out of my own pocket. Other businesses might require more capital, though, especially if you have to buy or lease a physical location.
Small business loan
Depending on your business model, you might be able to get a Small Business Administration (SBA) loan, guaranteed by the government. However, in many cases, you need to have a detailed business plan and might even need to have a proof of concept before moving forward.
Business credit cards
When launching our own business venture, my partners and I got a small business credit card with a 0% APR offer on purchases. This allowed us to avoid paying interest for a set period of time while we got our business up and running. This was very helpful for us. We put our startup costs on the credit card and just made the minimum payment until we began turning a profit.
A number of the best business credit cards offer low-interest periods like this. Be aware, though, that many small business card applications require you to make a personal guarantee. So although they can be a source of funding, your personal assets might be at risk if your business does not succeed.
Small business grants
Depending on where you’re located, what you provide, and other factors, you might be eligible for small business grants. Check with the SBA and local organizations to see whether you qualify for a grant that can provide you with free money to give you a good start.
An increasingly popular way to find the necessary business startup funds is crowdfunding. With crowdfunding, you ask your network to contribute to the cause. Funders may provide money in return for perks, such as one of the first editions of your product.
It’s also possible to do equity crowdfunding, in which you provide a share of your business in return for upfront capital. There are different crowdfunding platforms that can connect you with potential backers, so be sure to compare a few before you decide on a specific website to use.
Venture capital and angel investors
When determining how to start a business, it’s important to note that venture and angel money can be the most difficult types of funding to secure.
When you get venture capital, you run the risk of losing some degree of control over your business. Plus, venture capitalists expect a return on their investments. Angel investors are a little different. They might not be as interested in owning a chunk, but they still expect to be somewhat involved, and they might have a stake in the mission.
Create a marketing plan
You won’t get any customers if you don’t have a marketing plan. This plan outlines your way of connecting with your target market and convincing them to buy your product or service. Even if you don’t have a lot of money to spend, a good marketing plan can go a long way.
Some considerations when creating a marketing plan include:
- Social media: You have the potential to get more bang for your buck on social media, especially if you have the chance to use your networks to share and get more eyeballs.
- Traditional advertising: Buying radio and TV spots can get expensive. Although they might be effective, depending on your target audience, the reality is that it can be hard to get the money for these ads.
- Online advertising: Using Google Ads and Facebook Ads can help you move forward and can cost less than traditional advertising.
- Content marketing: Another approach is to make sure you have useful content on your business website. This can include tutorials, how-tos, and other information. The idea is to use search engine optimization techniques to rank higher and get more people to see your content and then convert them to sales.
- Email marketing: You can send out emails in an attempt to get people to engage with your brand and then sell them your product or service.
When creating a marketing plan, make sure you map out where your dollars are most likely to get your best return on investment. Consider where your potential customers are most likely to get information and create a marketing plan based around putting your dollars into efforts more likely to reach people ready to buy.
Pick a type of business
When deciding on a business, you need to figure out what type of business entity is most likely to provide you with the greatest benefit, based on what you offer. There are different types of businesses, though many small businesses start out as sole proprietorships, LLCs, or S Corps.
As a freelancer starting out, I just did business as a sole proprietorship. It was simple and I didn’t need extra paperwork. However, as the business grew, I became a limited liability company (LLC) to limit some of the personal liability associated with my business.
If you want to structure your business as a sole proprietorship but use a different name than your own, then you may choose to operate as a DBA, which stands for “doing business as.” Some states may require you to register this business name, so you’ll want to look into that.
If you have a physical location and offer a tangible product, it might make more sense to get the additional separation that comes with being an S Corp. For example, a coffee shop owner might want to be an S Corp and set up payroll and benefits for their employees.
Consult with an accountant or some other small business specialist to determine which legal structure makes sense for you and your business. Look at the pros and cons of each type of business before you move forward.
Name and register your business
At some point, you need to come up with a business name. One of the most important things you can do, however, is to register your business. In most cases, this is done at the state government level.
Before I registered my business, I searched the state database to make sure my business name was available, and then I followed the steps listed on the Idaho Secretary of State’s website to go through the process. Fees and other registration requirements depend on the state.
Some things to consider when choosing a name for your business include:
- Make it simple so people can remember it
- Avoid hard-to-spell names
- Keep it short so it’s easy to put on printed materials
- Do a website search and secure the domain before registering the name with the state
- Consider something that describes what you do
The name you choose can also depend on what you offer. As a freelancer, I want things to be straightforward. My business name is Miranda Marquit Freelancing, LLC. It clearly lets people know what I do, and I’ve never had a problem depositing a check made out to me personally because my business incorporates my name. However, if you have a store or offer a line of products, you probably need a more creative business name.
Get your tax IDs
Don’t forget to get your various tax ID numbers. These are a way to make sure you’re set up with the ability to pay your business taxes. Although you might be able to get away with using your Social Security number for a while, a federal employer identification number can be a valuable tool for your business.
You’ll need a EIN if you want to do anything other than just run a business and report your income and expenses on the Schedule C of your tax form. Your EIN might also be needed if you want to take advantage of business funding programs or open a business bank account. It doesn’t take very long — last time I applied for an EIN I had my number in less than five minutes.
Your EIN is also known as a federal tax number and is issued by the IRS. You can easily apply for one on the IRS website by using the EIN online application form.
You should also set up your state tax ID. This will help you when it comes to necessary items like local taxes, sales tax, workers’ compensation, and unemployment insurance. Each state has its own requirements, so review the necessary documentation before you get started. My state’s process took a couple of weeks because they expected me to set up an account with the Department of Labor, wait for a PIN, and take extra steps.
Apply for any licenses or permits required
Depending on your business, there might be different business licenses and permits involved. For example, if you have a business transporting goods, you might need a number from the Department of Transportation. Restaurant owners must ensure all employees have the appropriate food handlers permits. Most states require hairdressers and nail technicians to get separate licenses.
Find out what’s required of your business in your state and then move forward with getting the right items.
Pick an accounting system
It’s vital, as you go through the steps of how to start a business, that you keep your business finances organized. You need a system that allows you to keep your taxes organized and stay on top of your payroll, invoicing, and other important functions. Having your books in order is important when it comes time to file your taxes, as well as if you want to get funding in the future.
You need to decide whether you’ll handle the finances yourself or hire it out. Accounting software like QuickBooks and Xero can help you stay on top of things. In 2020, I started using Gusto to manage my payroll, taxes, and other items related to my accounting. Additionally, you can also hire an accountant or payroll company to help you keep everything straight.
Research different methods to determine what is likely to work best for you, and think about where your time is best spent. I pay for Gusto and an accountant because it frees me up for other activities more likely to benefit my bottom line in the long run.
Get the right insurance coverage
Don’t forget about getting the right insurance coverage for your needs. What types of insurance you need varies depending on the type of business you have.
For example, a financial advisor might want to get errors and omissions insurance to protect against claims that advice led to losses. If you own a physical business location, you probably need a property insurance policy. You should also check to see what type of insurance you need for certain professions like construction.
If you plan to hire workers, you might also need workers’ compensation insurance. This insurance is often required by the state and provides financial protection for employees who are hurt on the job.
Open a business bank account
Don’t forget to open a business bank account. You should keep your business finances separate from your personal finances. This makes things easier at tax time because you have the records you need related to business income and expenses.
Most banks and credit unions offer business bank accounts. You can check locally, as well as with larger financial institutions to see if there is a bank account you prefer. There is also an increasing number of online banks that offer business bank accounts.
In order to open a business account, you generally need the following:
- Your EIN
- Business formation documents
- Business license
- Ownership information and agreements
Look for an account with low (or no) fees. You can also check to see whether it has a promotion or introductory credit. Realize, too, that if you get payment processing services through your bank, you might have to pay batch fees and other fees.
Pick a business location
Think about where you should set up shop. In some cases, you might need a brick-and-sticks shop to offer your services. In other cases, you can keep your venture strictly online. Think about what kinds of costs you’ll have and whether it would be better for you to get a physical location or if you just need web hosting and a domain name to sell your product online.
When selling online, consider your options. Should you open an Etsy shop or sell on Amazon? Compare payment processing options, fees, and other differences between platforms. Look for a site that fits your needs but also doesn’t take too large a cut from your earnings. Realize, though, that the more a website does for you, the more it will cost you.
For a physical location, consider whether you plan to rely on foot traffic, and pay attention to the costs associated with the building. You also need to factor in the needs of your business, and how much modification needs to be done to the space to make it viable. On top of that, you need to pay attention to zoning regulations. Some business activities aren’t allowed in all areas of a town, so you need to make sure you’re in the right place.
Finally, even if you manage your business mostly online, consider whether it makes sense to have some sort of physical location, whether it’s office space or a coworking space, or just occasionally setting up a booth at the local farmer’s market to sell items.
Hire your help
There are times it makes sense to hire someone to help out. For example, I hire a virtual assistant to manage my social media posts. In some cases, you might need to hire employees. If you’re just starting out, you might get help from a spouse or other family members. This can help you get the help you need at a discount until you can afford more.
Realize that when you hire an employee, you need to be aware of tax requirements, as well as state requirements for hiring. Contractors, on the other hand, come with fewer hassles. However, you can’t tell a contractor when and how to work, and you might not have as much control over their work product.
Whatever you need help with, consider whether someone else could do it better than you. This might be hiring someone to renovate a shop for a physical location or getting someone to set up your Shopify storefront on your behalf. The key to hiring help is trying to find someone who can shore up your weaknesses. At some point, as a business owner, you won’t be able to do everything, so it can make sense to hire someone who can do the job better, freeing you up to focus on more pressing issues.
Open up for business!
Now it’s time to start doing business. From this point forward you’ll need to keep track of stats like visitors to your store, as well as sales. Watch your inventory and be sure to stay on top of that. If you stock products, you need to ensure you have items available when needed. This is true whether you operate online or offline.
Don’t forget to set goals for your business, and revisit them to make sure they’re realistic. Additionally, once you reach your business goals, you can move forward with new objectives.
Don’t stop there…
It’s important to continue learning and growing as you move forward with your business. The landscape is always changing and just because you know how to start a business doesn’t mean it will always be successful.
Here are some things to keep doing if your business is going to keep growing:
- Keep marketing. You need to constantly market your business if you want long-term success. Continue getting your brand out there and keep advertising where it makes sense. Track your return on investment and put more money into advertising where it works.
- Keep assessing and restrategizing your goals. Tweak the metrics you use to measure success. You want to make sure you’re measuring the right things and setting the right goals. Continually evaluate that information and then strategize as needed.
- Keep educating yourself. You can’t always know everything. Even while you run your business, keep learning about your service or product, as well as the industry. Educate yourself on best business practices and the latest trends to keep moving forward.
How to get help starting a business
This can all seem complicated, but you don’t have to go it alone. There are a lot of great places to go to get help with your business.
You can find a lot of information from the SBA, as well as regional small business development centers. Also, consider networking with local professionals and others in your industry. You can check with the Chamber of Commerce to find local resources and networking opportunities.
If you’re worried about tax planning, you may also consider talking with a tax professional in your area who has knowledge specifically about filing taxes for businesses.
Finally, trade conferences, mentoring programs, and even online courses can be good sources of information about how to run a business.
When you’re ready to learn how to start a business, you can take steps to get information and make the most of your resources. Approach the business in a professional manner, take the time to research, and then be realistic about your results. Starting your own business can be one of the best side hustles to earn extra income. You might be surprised at how you can succeed in the long run.