How To Start a Business: A Step-by-Step Guide

Starting your own business can be extremely rewarding, allowing you to do work you’re passionate about. Entrepreneurs also have an important role in society. Startups and small businesses create more employment opportunities and help fuel economic growth. Most importantly, small business owners help solve problems and meet customers’ needs.

However, small business ownership isn’t without challenges—including the initial startup. Entrepreneurs need to understand and follow the right sequence of steps to ensure their business has a solid foundation. That includes conducting market research, developing a business plan, choosing the right business structure, and more.

Learn what actions you need to take in this step-by-step guide to ensure your success.

Step 1: Conduct Market Research

Your first step is to learn about the market and customers you’re targeting. Market research is necessary to understand who your customers are and if your business idea is viable. Follow these six steps:

Researching Your Industry

Conduct research to learn more about your market size, the number of competitors you’ll face, and how saturated it is. It’s important to know the average revenue generated in your industry and if there are any regulatory or compliance requirements to consider.

Investigating the Competitive Landscape

Study your competitor’s pricing strategies, products or services, and marketing and sales tactics to gain valuable insights for your own business. It can help you price your products and differentiate your brand, which is necessary for developing your unique value proposition.

Identifying Market Gaps

Discover problems that still need solving and learn if other brands are falling short of meeting consumers’ needs—this is your key for standing out in the market.

Defining Your Target Market

Get to know the characteristics of your target audience. Segment your target market by demographics, behaviors, or other characteristics so your messaging and products are relevant and appeal to them.

Identifying Barriers to Entry

Estimate your startup costs and learn if there are any legal or industry requirements you have to fulfill. That way, you can address potential problems ahead of time. Also, keep outside factors in mind, like the current economic climate and consumer sentiment.

Creating a Sales Forecast

You’ll need to estimate your future sales to secure funding and make informed decisions. Your sales forecast should include the products or services you plan to sell and their pricing, the amount you plan to sell per time period, and your cost of production.

Step 2: Write a Business Plan

Once you understand your target market and audience, it’s time to develop a business plan. This step is crucial, as it details how you will structure, manage, and grow your business.

Draft the Summary

Your executive summary includes basic facts like your business name, leadership team, product or service offerings, and market. You’ll also want to share why your business will be successful and include your mission statement.

Create a Company Description

Go into greater detail about your organization: add your business’s full registered name and address, who your business serves, the problems you solve, your competitive advantage, and key employees.

Brainstorm Your Business Goals

Developing goals is essential for tracking progress as you start out. Think about key goals that will move your business in the right direction, such as lead generation or revenue.

Describe Your Services or Products

Along with describing each product or service you sell, you’ll want to share how each one solves a problem or fills a gap in the market and how it benefits your customers.

Create Financial Plans

You need to create your business’s budget and plan your spending. It should include all operating costs like software, marketing and sales efforts, rent and maintenance expenses, and employee salaries. Consider keeping a contingency fund, too, to help cover unanticipated costs.

Step 3: Choose a Business Structure

Next, you’ll need to select a business structure. Since this impacts how your business will run and pay taxes, it’s important to understand the pros and cons of each option.

Sole Proprietorship

Self-employed and solo business owners can choose this unincorporated business structure. With a sole proprietorship, there is no legal separation between you and your business, meaning you can be personally liable for legal and financial business matters.

Partnership

Limited partnerships (LP) offer unlimited liability to a general partner and limited liability to all others. Any business profits will pass through to your personal taxes. In contrast, limited liability partnerships (LLP) offer limited liability to all owners, protecting one another from debts or actions from another party.

Limited Liability Company (LLC)

LLCs offer personal liability protection. Business profits avoid corporate taxes, passing through to personal income tax. All members of the LLC are considered self-employed and are responsible for paying their own Social Security and Medicare taxes. Buying, transferring, or selling ownership within the LLC can be complicated depending on where your business operates.

Corporation

Corporations are separate legal entities from their business owners and offer the strongest liability protection.

C Corp

This corporation structure pays income taxes on business profits and distributes dividends to shareholders. A C corp offers advantages like strong protection for business owners and an easier ability to raise capital. However, it requires more record-keeping than other structures, and there are costs associated with forming a C corp.

S Corp

S corps differ in how they are taxed. Business profits and losses are passed through to the owner’s personal income rather than being subjected to corporate income taxes. It has specific limitations and eligibility requirements that vary by state and strict filing processes.

Benefit Corporation

These for-profit corporations are taxed the same as C corps but are also required to submit annual benefit reports sharing how the corporation benefits the public good. Regulations and certifications for benefit corporations vary by state.

Close Corporation

This business structure is ideal for smaller companies. Instead of requiring a board of directors to operate, a few owners or stockholders run a closed corporation.

Nonprofit Corporation

Schools, charities, religious institutions, and others are eligible to receive tax-exempt status if their work benefits the public. Nonprofit corporations must register with their state, file with the IRS, and follow strict operating rules.

Cooperative

Cooperative structures have user-owners, where the organization is owned by a group that benefits from the products or services it provides. The owners typically elect a board of directors and officers to operate the cooperative, and any profits are distributed to all owners and shareholders.

Step 4: Fund Your Business

There are numerous funding lanes open to entrepreneurs today. Here are several options:

Self-Funding Your Business

Use your own savings or ask family or friends to invest in your business. You maintain full control over your business but also take on all financial risks.

Get Venture Capital From Investors

In exchange for a share of ownership and a decision-making role in your business, you can use venture capital to fund your business. Here’s how:

Find Investors

Choose a venture capital firm or an individual “angel investor” with experience in your market or with other startups.

Share Your Business Plan

Investors will need to know the basic details of your company and growth plans.

Go Through a Due Diligence Review

Any investor will evaluate your business’s products, target market, leadership, and financial statements before making their decision.

Establish the Terms

Once they decide to invest, you’ll have to agree upon the investment’s conditions or terms.

Get The Investment

Venture capitalists usually disperse investments in rounds based on meeting specific business milestones.

Crowdfund Your Business

Crowdfunding differs because those contributing to your business won’t get a financial return from their investment. Instead, your business will offer them a product or service in return.

Get a Small Business Loan

Apply for a small business loan from a bank or credit union using your business plan, expense sheet, and financial projections.

Use Lender Match To Find Lenders Who Offer SBA-Guaranteed Loans

The US Small Business Administration (SBA) can guarantee business loans that traditional lenders find too risky. Their Lender Match program connects you with the right lender.

SBA Investment Programs

The SBA offers several investment options, including the SBIC, SBIR, and STTR, for qualifying small businesses.

Step 5: Understand How To Find Your Business Location

Finding the perfect business location depends on the type of business you run and your operational needs.

Decide on a Business Location Type

Every business needs a physical location. Consider one of the following options:

Home-Based Business

If you run a web-based business, a home office may be all you need to get started.

Retail Business

Consider retail spaces in strip malls, trendy neighborhood storefronts, or office parks to benefit from foot traffic.

Mobile Business

Consider being a mobile business, using trucks or trailers for pop-ups in different locations. You can hold special one-time events or have regular operating hours.

Commercial Business Space

Medical offices, retailers, professional firms, and others can benefit from a commercial location with expansion options.

Industrial Site

Manufacturers or product distributors may require an industrial site that can handle heavy machinery or have warehousing space for home services equipment.

Make Sure the Business Location Is Within Your Budget

Before choosing your location, know what your business can afford and stick with your budget. Consider expenses beyond rent, such as utilities, renovations, and permits.

Consider Your Brand

Your business location should align and enhance your brand, not detract from it. Consider the location’s atmosphere and the type of visitors you’ll attract.

Think About Vendors and Suppliers

The location you choose should make it easier, not harder, for vendors and suppliers to deliver goods to prevent delays and keep costs in check.

Go Where There Is Demand

Popular locations may be oversaturated with similar businesses. Instead, look for a location with businesses that complement yours, giving you a better built-in market.

Step 6: Create an Engaging Business Name

Coming up with your business name can be challenging. Here are a few tips and tricks to find the perfect one.

Write Out Your Story

Jot down your brand story—why you wanted to start your business, what you plan to accomplish, etc.—to find ideas for your business name.

Take a Personal Inventory of Things You Like and Define the Personality of the Brand

It’s important that your name reflects your brand and what you’re selling. Think about your values, how people would describe your products or services, or even what inspired you to start a business.

Look at Other Business Names in Your Industry

You want your business’s name to be easy to remember and distinguishable from competitors. Researching what company names are already out there can help your creativity, too.

Do an Emotional Brainstorm

It’s not just what your business sells but how you want to make customers feel that can inspire your name. Powerful feelings of happiness, confidence, love, or strength can direct you to a name that reflects those emotions.

Check the Thesaurus

If you have ideas but they don’t seem unique enough, use a thesaurus to help you brainstorm synonyms you could use instead.

Get Inspired by Mythology, Movies and Legends

Consider your favorite characters or stories from pop culture or mythological for name ideas.

Use a Business Name Generator

If you’re stuck, try a business name generator as a starting point. It creates a long list of possible names from one word that describes your brand.

Step 7: Register Your Business

Sole proprietorships only require registration if you’re operating it under a different name—which requires filing a “Doing Business As” (DBA)—or if it’s also an LLC. All other business structures must register their business name with the appropriate local or state government and follow all reporting requirements to ensure liability protections and tax benefits.

Step 8: Get Federal and State Tax IDs

After registering your business, you can apply for an Employer Identification Number (EIN), which is your federal tax identification. You need an EIN to operate as a partnership or corporation, file taxes, and hire and pay employees. The IRS allows you to submit your application online, and you’ll receive your EIN immediately. For a state tax ID, you’ll have to check with your specific state.

Step 9: Apply For Licenses and Permits

Depending on the type of business you operate, you may need to apply for other licenses or permits to stay compliant with federal or state laws. The federal government strictly regulates many business activities, including agriculture, alcoholic beverages, commercial fisheries, transportation and logistics, and others.

States and local municipalities also regulate certain activities such as plumbing, construction, and retail. You’ll need to obtain any required licenses or permits before your business starts and stay on top of renewals since permits have expiration dates.

Step 10: Open a Business Bank Account

Business bank accounts offer more protection by separating your business and personal transactions, assets, and debts. You can choose from a checking account, credit card, savings account, or merchant account, depending on your business’s needs. Here’s how:

Find an Account With Low Fees and Good Benefits

Don’t be afraid to shop around for the lowest fees and best benefits. Look for any special introductory offers and compare interest rates between banks.

Documents You Need To Open a Business Bank Account

The most commonly asked-for documents are:

Your Employer Identification Number (EIN) or Social Security Number (SSN)

An EIN or SSN (if you’re a sole proprietorship) is required for tax purposes.

Your Business Formation Documents

Banks will need to know your registered business name and address.

Ownership Agreements

Sharing your business entity type—LLC, C corp, etc.—ensures you open the right accounts.

Business License

Regulated industries will need to show they’re in compliance to open an account.

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