How to start a business in 6 steps

It might be called a “small” business, but it’s no small feat to start one. From writing a business plan to securing funding and finding resources to help, here’s what you need to know about starting a business.

6 steps to start a new business

If you’re looking to start a small business, you probably have an idea of what product or service you’ll be providing. With the general idea in mind, here’s how to bring that idea to life.

1. Market research

Gathering information about pricing, competitors, revenue and the economy is important when starting a business. This research will help you determine which business structure you want, who your ideal customer is, and how you’ll market your service or product.

Some things to start researching include:

• Revenue projections based on competitors
• Pricing based on competitors
• Average shipping and product costs
• Ideal market and size for your business
• Funding you would need to launch and potential lenders

Great resources for research:

• Loans and general information: US Small Business Administration
• Consumer statistics: US Census data and the Consumer Credit data
• Employer and income stats: US Bureau of Labor Statistics

2. Choose a business structure

Will you start an LLC, or are you creating a corporation? Your structure will affect how you register your business, pay your taxes, establish your liability, conduct your banking and file documents with local, state and federal government entities. Each business structure has different rules.

The structure of your business also determines whether you need an Employer Identification Number (EIN), which is a federal tax identification number for businesses. For example, if you’re a sole proprietor and don’t have employees, you don’t need an EIN to file taxes. But if you form a corporation or have employees, you’ll need one. However, having an EIN can be a helpful tool, you may even be able to apply and qualify for a business loan using your EIN instead of your Social Security number.

If you need an EIN, you can apply for one through the IRS.

Types of business structures

3. Make a business plan

US laws and regulations mean you’ll need to educate yourself about your particular industry and create a tangible business plan. Also, if you need some funding, a business plan is a typical application requirement for many business loan providers.

Take this time to choose a business model as well. Do you want to start from scratch or open a franchise? Are you a subscription service or a manufacturer? Narrowing down your exact model will help you craft your business plan.

A business plan should include:

• Executive summary, a brief summary of your business
• Description, history and mission statement of your business
• Market research and your target market
• Organization structure
• Information about your products and/or services
• Marketing plan, if applicable
• Supporting documents such as your resume, research citations, etc.

4. Choose where you’ll operate your business

If you’re going to run your business out of a brick-and-mortar location, you’ll need to decide if you’ll buy or rent a place and whether your location aligns with your target market.

If you’re operating your business online, you’ll need to decide if you’ll make your own website, list your products on specific online stores, and more.

If you choose to manage your business out of a physical location, making a website is also a wise idea to make it easier for potential customers to find your business. It’s also worth considering creating social media accounts so customers can find and interact with you on multiple platforms.

5. Taxes and licenses

Once you’ve decided on your business structure, you’ll need to register your business with the federal and state governments.

If you want an LLC (often considered ideal for a small business), you need to pick a name and fill out a document called articles of organization, which establishes an LLC on a state level.

To choose a name, first check if it’s available on the United States Patent and Trademark Office (USPTO). Then, complete an Articles or organization, which includes information such as the business’ name, purpose, the registered agent (legal contact), members, business structure, the duration you want the LLC for and the business’ address.

If you’re looking to form a corporation, you’ll need to file your articles of incorporation with your state. This set of documents marks your intent to create a corporation with details as to your services or products, how you run your company, any stock you’ll issue and other information.

You’ll also need to get some licenses and permits for some businesses on a federal and state level. Federal licenses are required if you’re selling alcoholic beverages, firearms, radio, television broadcasting and more. There are also state-level permits required for cleaning services, farming, restaurants, retail stores and others.

6. Financials and funding

This may be one of the most important steps: Organizing all your finances, payment methods for employees and your customers, and getting funds to grow your business.

Some financial items to sort out include:

• Business account. Decide whether you want a business bank account to separate your business from your personal funds and for some liability protection. Online business bank accounts tend to offer management tools you won’t find with traditional checking accounts, such as recurring payments, invoice tracking and inventory management.
• Funding. If you’re a startup, you may need to consider business loans or look into crowdfunding or grant options. Traditional business loans typically require a few years in business and a minimum amount of revenue per month. A new business may require personal loans or investors, and you could consider SBA loans.
• Payroll. If you’ll have employees, this is a big undertaking. You’ll need to understand payroll laws, choose a payroll schedule, have employees fill out tax forms, figure out fair wages, how you’ll distribute pay, keep payroll records and so on. If you’re going to have a lot of employees, consider hiring an accountant and HR consultant.
• Bookkeeping. It may be wise to consider getting some accounting software to keep track of your expenses and revenue, such as Quickbooks or Xero, or hiring a professional to help with your bookkeeping. You’ll also need this information for tax time, and to just make sure you’re handling expenses properly.
• Insurance. Business insurance can include general liability, product liability, property coverage and more. In many cases, you may be required to get some type of insurance for your small business.

How much does it cost to start a business?

The cost to start a business depends on a lot of factors.

“Startup costs for small businesses can vary widely depending on your location, business type, and your goals in general,” says Stefan Chekanov, the co-founder and CEO of Brosix. “When my brother and I launched our business years ago, it wasn’t that costly, but we were working on software solutions and had a solid background of clients to bounce off of. Starting an online business could cost you as little as $100, to [as much as] hundreds of thousands of dollars for businesses with physical locations, inventory, and employees.”

Since business loans tend to have requirements around years in business and minimum revenue, it can be tough for a startup to secure funding through traditional routes. Chekanov acknowledges the funding struggle for new businesses but offers alternative funding options to consider:

“Startups can consider approaching banks, credit unions, and alternative lenders for options like business lines of credit, term loans, or SBA microloans. You need a good credit score and spending history to help you secure a good deal. Additionally, personal finances might be necessary for borrowing funds.”

Should I hire a professional to help my startup?

Though you aren’t required to hire a professional to start your business, an expert in your field could help prevent future problems. For example, if you’re not experienced with taxes, hiring a tax professional can help avoid potential issues with the IRS. Or if you’ve never built a website and you want to start an online business, hiring a web developer to make your site can really help.

Experts to consider hiring to help you start or grow your business include:

• Tax professionals
• HR consultants for payroll and employees
• Accountants for bookkeeping
• Market research analyst
• Business plan writer
• Content creation partner
• Website developer
• Branding and social media marketing expert

Bottom line

We won’t lie — starting a business from scratch isn’t easy. Some of the hardest parts of the journey include acquiring funding, managing your finances and doing all the necessary paperwork to make sure your business is above board. There are many business accounts that offer software integrations and business management tools to help you along, and plenty of resources to help you get started.