The United States has an extensive history of innovation and entrepreneurship. Thus, it's no surprise that more than 40% of Americans have considered starting their own business. However, while many claim they want to start a company, few register an entity and acquire customers. This is due to various factors, including lack of resources, analysis paralysis, and lack of experience.
We've created this guide to help potential business owners follow their dreams. If you understand how to start a business, you'll likely take the leap of faith. We'll outline a step-by-step process you can use to begin your entrepreneurial journey, as well as answer some frequently asked questions about starting a new business. Read ahead if you're ready to take your first step into entrepreneurship!
Steps for Starting Your Own Business
While the exact process for building a new business will vary depending on your industry, previous experience, location, and other factors, the following steps provide a general outline of what you must do to start a company:
1. Perform Market Research About Your Business Idea
Before you start a company, it's critical to understand the industry you're entering. Let's explore five factors to consider when researching your new business's market:
- Target Audience: First, it's time to identify your target audience. By identifying your ideal customer, you can shape how you form your company. Assess various factors, such as age, location, spending budget, preferred shopping method (online, in-person, etc.), and more.
- Market Size: Next, it's time to identify the size of your target market. Be realistic about how many potential customers are available to your business and how much they'll be willing to spend.
- Market Potential: While your market's current size is critical, so is its growth potential. Assess whether your market can expand or contract. Competing in a shrinking market may be a fool's errand for your business.
- Competitors: Once you know market size and potential, you must understand the competitive landscape in your industry. Assess all your competitors and their current performance. Before entering the market, determine if you can offer a better product or service.
- Financial Requirements: Lastly, assess the financial requirements for entering your prospective market. Does starting a business in the industry require significant upfront investment? Make sure you're entering a market with start-up costs you can afford.
The above five factors are just a starting point. It's also essential to consider customer insights, industry trends, and more. The more you research, the better prepared you'll be to move your new business in the correct direction.
2. Select the Right Business Structure
Next, it's time to select the best business structure. Let's explore four of the most popular business structure options below:
- Sole Trader: A sole trader is the simplest business structure available. With this business structure, the owner is the sole operator of the business. Likewise, all profits and losses are reported on the owner's tax return. While this business structure requires the least administrative work, it's limiting if you want to grow your business and employ staff.
- LLC: A Limited Liability Company, or LLC, is a business structure designed to shield the ownership group from some business-related liabilities. LLCs can have multiple owners and can pass profits and losses through to the ownership group's personal income.
- Partnership: A partnership is a business structure that allows two or more individuals to share business ownership. Partners are equally liable for business debts and management of the business. While partnerships don't offer the same personal liability protection as corporations and LLCs, the structure does shield partners from some liabilities.
- Corporation: A corporation is a business structure that separates liability from its ownership (shareholders). Corporations must pay corporate tax on profits before distributing dividends to shareholders. There are various types of corporations, each with its benefits and features.
Other business structures are available if none of the above options meet your requirements. Choosing the correct business structure is essential, so it's critical to speak with a small business accountant before you decide on a business structure. While changing your business structure later is possible, the process can be time-consuming and expensive. Choosing the correct structure before selling goods and services is always preferable.
3. Pick a Memorable Business Name
Choosing a memorable business name that reflects your brand is essential to attract customers. Selecting a name that's easy to spell is also vital, as you don't want potential customers to struggle to find your business online or in directories if they're seeking information about your products or services. Once you have a name in mind, you must check if it's available. Most states have business name checkers you can use to identify if another business is already using the name.
While you should always ensure an existing company doesn't claim your business name, checking if your prospective name has available domain names and social media handles is critical. You don't want a third party to have already control over online properties linked to your business name.
4. Craft Your Business Plan
Once you've conducted market research, chosen a business structure, and selected a name, it's time to craft an official business plan. A business plan is a reference document outlining your business, its goals, factors influencing its success, financial viability, and other essential metrics. Not only is a business plan critical for planning how to develop your business initially, but it's also a requirement if you want to raise money. Many investors or lenders require business plans before offering funding.
Fortunately, it's never been easier to build a business plan. Plenty of templates are available online, making it simple to create a professional document to present to lenders and investors. So, what should a business plan include? At a minimum, most business plans include the following details:
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5. Officially Register Your Business
Once your business plan is complete, it's time to register your business officially. The process for registering your business varies on a state-by-state level. However, most of the time, the steps will resemble the following:
- Obtain a registered agent (in many states, you can't act as your registered agent)
- File a Certificate of Formation with your Secretary of State
- Register for business licenses with any state or local authorities that require them
6. Obtain a Federal Tax ID
While most elements of registering a new business occur at the state level, there are still federal requirements for forming a new company. One of the primary obligations is obtaining an EIN (Employer Identification Number) from the Internal Revenue Service (IRS). An EIN is a business tax number (similar to a SSN). You won't require an EIN if you're a sole proprietor, although you can apply for one.
Business owners can apply for an EIN via fax, mail, telephone, and the Internet. The most convenient option is the Internet application, which is available here.
7. Secure Necessary Insurance
While corporations, LLCs, and some other business structure options provide liability protection for the ownership group, this isn't to say you're protected from ALL liability. It's critical to have commercial insurance in place to protect yourself and your business from litigation and other financial issues. The type of insurance required by your company will vary depending on its size, industry, location, and more. While it's always smart to purchase insurance policies to shield you and your business from risk, operating in some industries is also a requirement. Research which insurance policies are relevant to your sector.
8. Select a Business Bank Account
Keeping personal and business expenses separate is critical, even if you fund your business's start-up costs. Not only does it make it easier to manage your business's finances, but it also makes tax season much simpler. Combing through personal bank statements for business expenses when it's time to file your tax return is a nightmare.
However, some large banks shy away from offering business bank accounts to new companies. If you're struggling to obtain a business bank account, plenty of digital start-ups now offer business checking accounts to new companies.
9. Explore Funding Options for Your Small Business Startup
Next, it's time to consider how you will fund your business's initial start-up costs. You must find a funding source if you need start-up capital to cover expenses such as equipment purchases, leases, stock, etc. While many business owners use their money to start their companies, it isn't always possible. Let's look at three alternatives for funding your start-up:
- Loans: A commercial loan is a viable option to start a business without forfeiting your equity. However, obtaining a commercial loan is challenging if your business is new and you don't have a previous history of entrepreneurial success. You may need to offer personal assets as collateral to secure a loan, meaning your personal finances will be at stake.
- Investments: If you can't obtain a commercial loan, you may want to consider investing from external parties. While this will require you to sell an equity stake in your business, it also ensures your business doesn't start life with any high-interest debt.
- Grants: Lastly, grants are available from the government and non-profits for businesses operating in specific sectors. Explore potential grant opportunities if you want free funding to start your business journey.
10. Consider Bookkeeping Solutions or Accounting Software
Bookkeeping and accounting were previously major expenses for entrepreneurs. Sometimes, small business owners must hire an external accounting and bookkeeping service to maintain financial records, pay taxes, and more.
While hiring an accountant to help with your business's finances and tax filings is still a good practice, various accounting software platforms are now available to small business owners. And many of them have affordable entry-level packages, ensuring your business can keep costs low before it generates revenue. Let's explore two of the top options below:
- QuickBooks: This is a simple, intuitive accounting platform that makes it easy to manage accounts, bookkeeping, inventory, and other core functions. It's suitable for small business owners without previous accounting experience.
- Xero is another accounting platform with a unique focus on project costing. If you want to manage complex projects at your business, Xero's project management features make it much easier to stick to a budget. However, as Xero was originally designed for accountants and bookkeepers, it's not quite as intuitive as QuickBooks.
11. Set Up Payment Solutions for Your Business Start-Up
Now, it's time to address one of the most critical functions for any business: accepting payments. If you don't have a simple, effective way to collect customer payments, your business will collapse before it gets off the ground. With cash payments now representing less than 20% of all transactions in the United States, it's essential to accept customer credit card payments.
Start by obtaining a merchant account, a bank account designed specifically to process payments. Once you have a merchant account, you'll need other payment tools to facilitate transactions. Let's explore the options below:
Payment solutions for in-person payments
If you want to accept card-present payments (or in-person payments), the following tools are helpful:
- POS System: A POS system is a payment terminal for processing payments in a brick-and-mortar location. Previously, cash registers served as POS systems, but modern point-of-sale solutions involve software with custom features for retail, hospitality, and various other industries.
- Mobile Card Readers: Mobile card readers make accepting payments on the go simple. This credit card processing device connects to smartphones and tablets via Bluetooth. As mobile card readers use the smartphone or tablet's mobile network to connect to the internet, they enable businesses to accept all types of credit card payments without WIFI.
- Payment Terminals: A payment terminal is similar to a mobile card reader. It's a stationary device typically found at a cashier counter, used for processing card payments. In contrast, a mobile card reader is a portable device that connects to a smartphone or tablet. Due to their larger size, payment terminals typically have more features, such as the ability for customers to interact with the terminal to request email receipts.
Payment solutions for online payments
If you want to accept card-not-present payments, such as online payments or over-the-phone payments, the following tools are helpful:
- Payment Gateways: Payment gateways provide a secure, convenient portal for accepting customer payments online. When customers proceed to checkout on your website, they enter their payment details into a payment gateway. The gateway then encrypts and communicates the data with the acquiring bank, issuing bank, and other payment stakeholders.
- Virtual Terminals: A virtual terminal is a payment gateway for your staff members. If a customer wants to pay over the phone or via email, a staff member can manually log into a virtual terminal via a web browser and input the details. Virtual terminals make it simple to accept payments from customers who can't visit your business's physical location.
12. Assemble Your Team
Now, it's time to assemble your business's new team. Hiring the right people can make all the difference as your business scales — you must prioritize working with individuals who share similar goals for your business.
However, hiring full-time employees can be challenging for new businesses with limited budgets. Fortunately, various freelancing websites are now available to companies seeking contract employees. So, whether you need to hire a marketing expert to review your initial strategy or a graphic designer to develop a new logo, you can find skilled workers without committing to full-time employees.
13. Develop Your Online Presence
Considering more than 80% of shoppers perform online research before making large purchases, it's essential to develop an online presence to attract potential customers. Modern consumers expect to find information about your business online — and you must make it easy for potential customers to find your company on their preferred channel (i.e., social media, search engines, etc.).
So, what are the platforms your business must consider when developing its online presence? Let's find out:
- Website
- X (Formerly Twitter)
- TikTok
Fortunately, it's never been easier to build a professional website. Various web design platforms, such as WordPress.com and WIX, make it simple to create a professional website without any coding experience.
14. Fuel Growth with Strategic Marketing
If you want your business to grow, you must obtain customers. Finding customers is challenging when you don't have an established reputation, so it's essential to use strategic marketing to gain exposure.
Let's explore some marketing channels used by modern businesses:
- Social Media Marketing: Instagram, TikTok, X, and other social media channels make it simple to target consumers with specific interests, locations, and more. Marketing on social media helps you target consumers interested in your business's products or services.
- SEO: Search Engine Optimization, or SEO, is optimizing your website to appear in Google search results for queries related to your business's services. By investing in ranking higher in search results, your business can benefit from "organic traffic" from individuals interested in your products or services. While SEO can take months or years to come to fruition, it's the backbone of many successful businesses.
- Influencer Marketing: Using celebrities for promotional work might be way outside your budget when starting a business, but using sector-specific influencers can be much more affordable. For example, if you start a food truck business in your city, try contacting local food reviewers to see if they can review items on your menu.
- Local Sponsorships: While many businesses now focus on digital customer outreach, old-school marketing still has a role. If you want your brand to become recognizable in your city quickly, try sponsoring local events, sports teams, publications, and more!
Bottom Line with Starting a Small Business
Now that you know how to start your own business, there's no reason not to take action if you have a creative idea. Use the steps in this guide to ensure your business journey starts on the right foot. There's no need to overcomplicate the initial stages of forming a company, registering for tax numbers, choosing a payment processor, and marketing your business. So, what are you waiting for? Start building your business today!
