Starting a business can be intimidating. You need to navigate all of the legal, financial, operational, marketing and other requirements involved with creating a new business.
But don't let that get in your way.
With the right information, you can get your business off the ground and begin your journey as an entrepreneur. I have started several successful businesses (all while holding down a full-time job), so I know it can be done.
In this guide, I will cover each of the key steps needed to start your business. Here's a table listing the topics we will cover. If you want to skip ahead to any of these steps, just click on the desired link.
We've got a lot to cover so, let's get into it!
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The information contained in this post is for informational purposes only. It is not a recommendation to buy or invest, and it is not financial, investment, legal, or tax advice. You should seek the advice of a qualified professional before making any investment or other decisions relating to the topics covered by this article.
Step 1: Find the Right Business Idea
Finding the right business idea is the first step to starting your business. You may already have an idea in mind that you love and want to get started. In that case, skip ahead to Step 2.
But if you are like many people, you are struggling to find the right business idea. After all, the ideal business has to tick a lot of boxes. It should be one that (i) is interesting to you, (ii) plays to your strengths, (iii) works within your budget; (iv) fits with your current lifestyle and situation; and (iii) has the potential to grow and generate strong and reliable profits.
It would also be nice if you could step away from it someday and have it run itself! Check out my article on 12 business that are well suited to do this.
If you need some help deciding on the right idea, check out these businesses for inspiration (each link will take you to my guide on how to get started in that particular business):
If you're still stuck and want some great tips on how to get your creative juices flowing, check out my article on How to Start a Business When You Have No Ideas [9 Tips That Work].
“There’s no shortage of remarkable ideas, what’s missing is the will to execute them.” – Seth Godin
Step 2: Conduct Market Research
Once you've settled on a promising business idea, you don't want to dive in blind. If you do, you might spend a lot of time and money pursuing a business idea that is unworkable because the market is too small, too competitive or in a state of decline.
Identify Your Market
The first step to market research is accurately identifying your market. You need to know who your customers are and whether there are enough of them to support your business.
Try to imagine your target customer. Is the target customer male or female? Older or younger? Wealthy, middle class, or lower income?
If you have a clear picture of your business, it should not be hard to figure out who your model customer is.
Armed with that knowledge, conduct some research into the demographics of your target location. See if there is going to be demand for your business based on who is living near it. I love city-data for this task. It's free and has tons of useful demographic information for a given city. It's a great place to start your market research.
Conduct Competitive Analysis
You also want to research the competition.
If you are going to be the only game in town, that's a good sign. But in most cases, you will be facing some degree of competition. If you live in your target area, you probably know who your major competitors are going to be. But to get a more complete sense of the competition, you can go on Google.
If you want to start a laundromat, for example, you can simply type in “laundromats near me” (or whatever city you are researching) and Google will pull up a list of local businesses that match your search along with a map that has pins on where those businesses are located. You can also go on Yelp and type in a similar search. Between the two, you should be able to get a very good sense of the competitive landscape in you area.
Analyze Whether the Business is Trending Up or Down
Finally, you will want to evaluate if demand for your type of business is trending in the right direction. I like to use Google Trends as a starting point for determining this. Just go to Google Trends and type in your business to see whether search traffic for that type of business is trending up or down.
That should serve as a pretty good barometer of how popular that type of business is currently and its trend over time. Here's a stark example – type in “fidget spinner” and select a five year view. You will see a very clear spike in 2017 and basically a flatline after that.
Market Research Resources and Tips
There are tons of other market research resources as well. Check out this list of market research resources provided by the SBA if you want to explore more options.
Of course, some of the more traditional (and hands-on) ways to conduct market research include surveys, interviews, questionnaires, and focus groups. Seems like a bit of overkill to me if you just want to start up a standard business like a gas station or grocery store, but it can work well if you are coming up with a new business idea or product and want to test demand.
If you want to dive more deeply into this aspect of starting your business, check out my full blown article on the topic: How to Do Market Research For Your New Small Business in 5 Easy Steps.
Step 3: Establish Your Business
Select Your Business Name and Logo
The first thing you want to do is select a name and logo that you like.
Having trouble figuring out a name? Try Shopify’s business name generator. It’s free.
As for a logo, you can go on canva.com and check out some of their logo templates and start from there. It's a free option, but you will need to customize the logo templates to your liking. If you prefer a more ready-made solution, you can outsource this task.
One solid option is to go on Fiverr and hire someone to create your logo. There are tons of people who do this, and I have seen pricing as low as $5. For that price, you can probably try a bunch of folks and pick the logo that suits you best.
Or you can go with Looka. They are an AI-powered platform that will provide you a professional looking logo at reasonable prices. You can choose from hundreds of logo designs (based on parameters and preferences you select) before settling on one you like. You can also customize to your heart’s content. Check them out here.
Note: You want to make sure your name and logo are original to you and are not going to infringe someone else's intellectual property. If you are unsure, you can check the USPTO's trademark search tool as a starting point.
For more great strategies and tips on how to select the right name and logo for your business, check out my full article on the topic: How to Choose a Company Name and Logo [16 Key Strategies and Tips].
Create Your Business Website
Don't neglect this step. Your business needs a website, period.
Your website doesn't have to be incredibly fancy or cost a lot of money to set up. There are a lot of resources available to help you with this.
In fact, Google allows you to build your first business website for free.
List Your Business So Customers Can Find You
It is also important to get your fledgling business on Google. You can do this by listing it on Google My Business. This way, people who are searching for businesses like yours in your local area can find you.
If you want to learn more about how to do this, check out this tutorial from Google.
Set Up Your Business Entity
You may want to set up a business entity like an LLC, corporation, or partnership. In most cases, setting up a business entity can help shield some of your assets held outside the business entity if there is a claim against the business.
But it costs money to do and could have tax implications. Below is a chart that summarizes the key characteristics of each of the main types of business entities.
|What Is it?||A corporation is a business entity owned by one or more “shareholders”||An LLC is a business entity owned by one of more “members.” It's like a blend of a partnership and corporation.||This is a business structure where you share ownership of the business with at least one other person.||This is when you own and run a business by yourself and that business is not formally incorporated in any state.|
|Pros||-You have liability protections for assets held outside the corporation|
-Easier to raise capital (can issue and sell shares)
-Can issue stock options to attract employees
-Can exist in perpetuity
|-As the name suggests, you have liability protections for assets outside the LLC|
-No Corporate Level Taxation (generally considered partnership for tax purposes)
-Easy to Manage
|-You share the burden and expense of the business with someone else|
-You benefit form another person's skills
-Few Corporate Formalities
-No Corporate Level Taxation
|-Complete control over business|
-You keep all profits
-Easy to set-up
-No corporate level taxation
-No corporate formalities
|Cons||-Business Profits are Taxed at the Corporate Level. Could result in double taxation|
-Strict Corporate Formalities (shareholder meetings, minutes, etc.)
|-Must be structured and maintained properly or you could lose liability protection|
-Some Corporate Formalities
|-You share the profits of the business with someone else|
-Your personal assets may not be protected if there is a claim filed against the partnership
|-Could be Perceived as Less Credible|
-No Liability Protection for Personal Assets
-Cannot Establish Business Credit
-May Be More Difficult to Raise Money
|Ideal For Whom?||Someone who plans to grow their business significantly and is planning the corporate structure accordingly||Someone who wants the liability protections of a corporation, but not its potential double taxation and corporate formality requirements||Someone who is starting the business with at least one other person and wants a basic business framework||Someone who wants to start small and keep things simple|
If you do nothing, you will be operating your business as a sole proprietorship. You can still operate using your business name, but it will be you as a sole proprietor “doing business as” (referred to as DBA) the name of your business. In most cases, you will need to do a DBA filing with your state to operate under that name.
If you do want to make the investment of setting up a corporation, LLC, or some other business entity, you can hire a lawyer to help you, or you can use many of the online resources that can help you set up your business entity.
I like Incorporate because they can get you up and running quickly and easily. They also have some great resources to educate on what type of entity to choose and which may be the right state to choose for your new entity. If you want to learn more, check them out below.
Make sure as part of your efforts to set up your business entity, you do the following:
- Obtain a Federal Tax ID (Known as an Employer Identification Number or EIN). You want to do this so you can pay taxes for your business (an EIN is like a social security number for your business). Here's a link to the IRS site where you can apply for one. There are services that will do this for you, but it's actually not too hard to do it yourself.
- Register Your Business. Most states require this (at least for corporations, LLCs, etc.). You usually need to do this with your State's Secretary of State, State Corporation Commission or Business Bureau.
- Appoint a Registered Agent. You will need someone who can accept service of process for your entity. There are services you can hire or you can appoint yourself to this role in live in the state and meet the other requirements for being a registered agent.
For more information of registering your business, check out the SBA's helpful article on the topic here.
Note: This can be a fairly complicated area and you don't want to make mistakes, so you may want to consult with your legal and financial advisors to make sure you understand the implications of setting up a business entity.
Step 4: Create a Business Plan
A business plan is essentially a roadmap for your business.
It organizes your thoughts relating to your business into an actionable plan. Some things to include in your business plan are budgeting, identifying your target market and competition, marketing strategy, pricing strategy, operational plans, and growth projections.
Don’t stress too much about getting your business plan perfect. I would use it more as an organizational tool at this point. You can polish it up later if you need to.
Another benefit of having a business plan is that it can help you raise money from banks and investors (if your business has high starting costs, you may need to get some financing right away). This is when you will need to refine your business plan – these folks will want to see a professional-looking business plan as part of their lending or investing process.
Don’t know how to get started? The Small Business Administration has a great tool to help you write your business plan.
Step 5: Obtain Funding
Almost any business is going to require some money to start.
If you are starting a very low cost business, you will probably still need at least a few hundred dollars to get required licenses and basic equipment and supplies. If you are starting a business with higher start-up costs, then funding becomes a much bigger issue and you will need a good strategy to obtain it.
Here are some of the ways you can fund your business:
- Personal savings. You will often need some skin in the game before lenders will work with you, so having some personal savings is important.
- Credit Cards. Due to high interest rates, credit cards are probably not an ideal choice, but if you can snag a 0% teaser rate on a credit card, you can put some of the start-up costs onto that card at a ultra low interest rate (at least until the teaser rate period expires). Try to get one that lasts at least a year so you have some time to get your business off the ground.
- Friends and family. Although these people may be willing to lending you money, you have to weigh that against the risk of souring your relationship with them if things go sideways.
- Banks. Banks are a traditional source of funding for new businesses, but they will often conduct extensive due diligence and underwriting before lending to a brand new enterprise.
- Online Funding. This includes includes getting a loan using peer-to-peer lending, funding through kickstarter campaigns, using online lenders, etc.
- SBA loans. Another funding source for your new business can be a loan guaranteed by the Small Business Administration. SBA loans are provided through a bank, but since the SBA guarantees a portion of the loan, qualifying for an SBA loan is often easier than qualifying for a traditional bank loan.
- Retirement Accounts. If you have funds in a Roth IRA, you can withdraw the contributions portion at any time without penalty or taxes. If you are withdrawing from a traditional IRA or 401(k), you may be subject to early withdrawal penalties and taxes if you do so before you reach a certain age. As a general rule, retirement accounts should be earmarked for retirement, so you may not want to pursue this as your first choice.
Step 6: Find a Great Location
If your business has a storefront, finding a great location for it is going to be one of the most important factors in determining the success of your business.
Visibility and traffic (both foot traffic and road traffic) are very important to brick and mortar businesses because you make sales when customers see your store and decide to shop there. If your store depends on walk-in sales (e.g., retail establishments), being located on the ground level of a busy street with tons of pedestrian traffic is a huge advantage.
If road traffic is more important to your business (i.e., gas stations, car washes, etc.) you want to make sure you are visible from the main road and that plenty of cars pass by that road everyday. You will also want a location that is easily accessible from the main road and has plenty of parking.
Of course, rents will be expensive for a high visibility location with tons of traffic and great accessibility.
If you are not willing to spend a lot of money to rent out a location that has all of these features, you may have to make do with a less desirable location and hope for word of mouth or other marketing channels to bring your customers in.
Step 7: Purchase Equipment, Supplies and Other Needed Items
Once you have secured funding and a great location for your business, it's time to buy your equipment, supplies, inventory, furniture, and all of the other miscellaneous items you will need to operate your business.
Obviously, if you can find inventory at a great price, your profit margins will improve, so shop around and find good, reliable vendors and suppliers. Talk to others in your industry to find out who the best vendors are and work with them. Building strong relationships with your suppliers can be critical to your success, especially if your business deals in inventory that may be hard to get.
Step 8: Obtain Licenses and Permits
Before you start your business, you should check with your state and local municipalities to make sure you have all of the required licenses and permits you will need to operate it.
In many cases, you will need to get a general business license (which is usually not too expensive or difficult to obtain), but there may be other, more specific, permits or licenses required, depending on where you live and the scope of activities you plan to engage in.
If you need help navigating all of this, your county clerk's office is the best place to start, but if you run into a wall, you can always hire a qualified lawyer to help guide you through the process.
Speaking of lawyers, you may need a lawyer to help draw up all of the legal contracts that you will need in connection with your business (e.g., customer agreements, waivers, etc.), so it's best to engage a qualified lawyer early on so they can help guide you through all of the legalities required for your business.
Step 9: Protect Your Business With Proper Insurance
You are doing all of this work to eventually build a valuable business. So it only makes sense that you protect your business and yourself. That's where business insurance comes.
You may want to look into the following common types of coverage that business owners get:
- General liability coverage (protects against third party claims for property damage and injury).
- Professional Liability Insurance (protects against claims based on your professional negligence)
- Workers compensation insurance for your employees (covers injuries sustained by your works). This may be legally required coverage if you have employees, depending on your state's requirements.
You may also want to consider some of these more specialized forms of coverage:
- Property Insurance
- Product Liability insurance
- Home-Based Business Insurance
- Commercial Auto Insurance (If you will be operating a vehicle in connection with your business)
- Cyberliability Insurance (if your business handles sensitive customer information)
- If you have employees
- Small Business Health Insurance
- Directors and Officers Insurance
- Employment Practices Liability Insurance (EPLI)
- Key Employee Insurance
- Commercial Umbrella Insurance
- Business Identity Theft Insurance
- Terrorism Insurance
- Business Owners Policy (BOP) – package of small business insurance
As you can imagine, there are even more specialized forms of insurance that are targeted for specific types of business, so you may want to consult with a qualified insurance specialist to make sure you are appropriately covered.
Step 10: Hire Employees (If Needed)
Not every business will need employees in the beginning. But if your business can't operate without employees, here are some things to keep in mind when hiring new employees:
- Have a very clear idea of what the job requires and write a comprehensive job description.
- Cast a wide net to get candidates – post the job online and through local venues, ask around for referral candidates, etc.
- Interview promising candidates and select them based on their qualifications (you need to make sure you do not discriminate on a prohibited basis, like race, color, religion, sex, etc. during both the interview and hiring process).
- Make sure you have the right infrastructure in place to manage payroll. There are tons of payroll administration providers who can take care of the legal and other requirements to make sure you handle the withholding and payment process without issues.
- Keep all employee-related records as required by law.
- Report payroll taxes as needed (you should consult with your payroll provider and your accountant to make sure your business is complying with everything it needs to in connection with your employees).
Step 11: Open Up a Business Checking Account and Credit Card
You should open a dedicated checking account in the name of your business. Make sure to run all business revenue and expenses (and only business revenue and expenses) through that account. This is especially important if you have a formal legal entity like a corporation or LLC because you do not want to mingle personal assets and expenses with business assets and expenses.
Why? Because you may risk losing the liability protection we discussed earlier if the business entity is deemed a sham because you did not treat it like a separate legal entity.
On a more practical note, having a separate account keeps things tidy from a recordkeeping and accounting perspective. It will definitely make things easier come tax time. It also signals credibility and professionalism when you write a check from your business account or ask someone to pay to your business account.
Now, let's turn to business credit cards. Credit cards can be really helpful to a new business.
First, they are often easier to qualify for than a line of credit, especially when you are a brand new business. Even if you don't need to use it right away, it's nice to have the funds available in a pinch. Second, it's a great way to build your business credit rating, which will come in handy if you need to apply for a loan in the future to expand your business, etc.
Finally, you get to enjoy the benefits of points, cash back or other rewards that may come with owning your business credit card. However, just like your business checking account, avoid intermingling business expenses with personal expenses on your credit card.
Step 12: Develop a Marketing Plan
A good marketing plan is critical to your business' success.
After all, if no one knows that your business exists, you may as well pack it up because no one will be buying anything from you. So what are some of the best ways to spread awareness and keep the customers coming in?
First, make sure all of your friends and family know about your new business and ask them to spread the word.
Second, if you operate a storefront, hold a grand opening and open up with a lot of fanfare. Use discounts and freebies in the beginning to get customers in the door and help spread the word.
Of course, you can't ignore online marketing channels either.
For online marketing, you can do the following:
- Set up a Google My Business, so that people looking for your type of business can find you. You want to encourage people to leave good reviews there for you if they like your business. Research has found a strong relationship between the number of online reviews a business and the revenue that it generates.
- Get a great website that draws traffic to your business. You can use the free website offered by Google that we mentioned earlier, but if you really want to draw traffic (and customers) to your website, you may want to hire an online marketing expert to help you optimize your website for traffic and leads.
- Get on Yelp for business and let your customers find you. They are an extremely well-known brand, and many people look there when searching for local businesses. Check them out below to learn more.
- In addition to advertising on Yelp, you can buy online ads from other online and social media outlets (Facebook, etc.)
If you want to go old school, you can also advertise in your local newspapers, circulars, or through direct mail, etc.
Finally, you may want to do some “boots on the ground” marketing. Walk around your neighborhood and leave flyers. Talk to folks and see if they would be willing to give your business a shot. See what your competitors are doing when it comes to marketing their products or services and learn from them.
Ultimately, you want to experiment with various marketing strategies – you may be surprised at what works best.
Step 13: Set Up Your Accounting
Ok – we're almost there.
The final step is making sure that you don't lose track of your revenues and expenses. When tax time rolls around you are going to need accurate records of all transactions that took place in connection with your business. Bookkeeping isn't fun, but it's necessary.
Of course, if you can't stand the thought of bookkeeping, you have a few options. First, you can hire one through Fiverr or any number of online platforms where gigs are offered.
Another option is to use software to keep track of your business transaction and activities. You will still need to do the data entry, but it makes the task much easier. Quickbooks and Freshbooks are popular options if you want to explore this option.
Step 14: Launch Your Business
Once you have completed all of these steps, there's nothing left but to launch your business. As we talked about earlier, signal to the world (or at least your local community) when your grand opening will take place and advertise a compelling offer on that day to motivate folks to visit your store.
For example, I have seen lines around the block when a new restaurant opened and promised free or heavily discounted lunches on opening day.
It can be expensive to do something like that, but you will generate a good buzz in the neighborhood and the hope is that you will make more money in the long run because people will come back and pay full price (and keep coming back).
So there you have it – 14 steps that take you from ideation to launch of your new business.
Hope this has been helpful and if you want to learn more about how to start a specific type of business, I have tons of articles covering a wide range of businesses. You can explore them here.