How to start a business: A step-by-step guide

Starting a business requires a basic understanding of business finances, sales, marketing and legal requirements.

Depending on the business, the specifics within each step may differ, but below are the general steps you’ll need to take to start a business and the resources that can help you.

1. Conduct market research

Conducting research helps you gather information on your potential customers and similar businesses in your local area. With this research, you can develop a marketing and business positioning plan that addresses unsolved customer problems in a way that will engage them.

“I strongly encourage every business owner to not only understand who their target customers are, but where they’re located and what motivates them,” says Peter Buzzard, SCORE Treasure Valley chapter co-chair and certified mentor.

Some market research strategies to consider include: 

Primary research

In primary research, you go directly to your potential customers to understand what problems you can solve for them. Surveys, interviews and focus groups are all tools used in this type of research. 

Secondary research

This type of research consists of accessing publicly available information about your company’s target market. Government statistics (such as those offered by the U.S. Census Bureau and the Bureau of Labor & Statistics) and market reports (such as those offered by Pew, Gartner and Forrester) are tools used in this type of research to better understand who your customers are.

Competitor analysis

This type of secondary research involves identifying gaps that may exist in the local market for your products or services, uncovering high-sale products among competitors and learning competitors’ marketing or sales weaknesses.

A simple way to conduct competitive research is to ask your customers what other products or services they consider in your market and why. Social media channels can also shed light on customers’ sentiments around competitors’ offerings. 

2. Create a business plan

A business plan is one document or a series of documents that overview the various aspects of your business, including its financial position and projections, how it’ll be managed, how it’ll be positioned in the market and what products or services it’ll sell. 

It’s also a tool to help you determine whether you want to bring on a business partner, receive outside funding and if the company is a viable venture at all.

Most business plans include the following content: 

• An executive summary: This section includes your company’s mission, vision, goals and value statement. It is often the first section read by investors, so it should target their interests.
• A company description: This is a brief overview of your business, including its name, a description of its offerings and how the company aims to position within the market.
• A competitive analysis: This section often includes a SWOT analysis that identifies your business’s strengths, weaknesses, opportunities and threats when lined up against competitors.
• An organizational structure overview: This section should cover your business’s legal structure, its management structure and who will manage it. It often includes an organizational chart.
• Products and services: This section describes your business offerings, such as the products or services it sells, how it serves customers, what products or services you plan to introduce soon and if you have copyright or patent filings in the works.
• Marketing approach: This section overviews your strategies for attracting and retaining customers. 
• Funding requirements: This section specifically delineates the funding you will require from investors to cover a five-year plan for your business. It includes a detailed look at how the funds will be used and the value the business will generate from them.
• Financial projections: This section overviews the financial stability of your business to assure investors and other stakeholders. It often includes recent income statements, balance sheets, cash flow statements and collateral that could serve to obtain a loan if needed.
• Appendix: This section offers supporting resources and documentation, such as the business’s credit history, licenses, permits, contracts, patents and resumes.

While you may not have all of these sections’ resources at this startup phase, include as much information as you can. Doing so helps you plan around company weaknesses and highlight company strengths so you can attract and take advantage of business opportunities as they arise. 

3. Choose your business structure

Some common startup or small business structures include: 

• Limited liability company (LLC): A limited liability company is a flexible business structure that allows you to choose your own management structure and membership with few restrictions. It is also a pass-through entity, meaning profits and losses pass through the business and to individual members who pay taxes on their personal income tax returns.
• S corporation: An S corp has 100 shareholders or fewer. However, it is also a pass-through entity, so profits are not taxed at both the corporate and shareholder level like in a C corporation. However, S corps can only issue one class of stock to raise funding.
• C corporation: A C corp is the most rigid type of business structure in that you must have a board of directors and hold shareholder and board meetings. In addition, it is taxed at both the corporate and shareholder level. However, C corps can have an unlimited number of shareholders and issue multiple types of stock, making it a great structure for raising lots of capital quickly. 

Before choosing a business structure, it is important to consult with a business attorney or tax consultant to determine which business structure will best help you meet your short- and long-term business needs. Many business formation companies offer legal consultations for this purpose.

4. Choose your business name

Business owners small and large will need to choose a business name that’s available in their state and not trademarked by another company at the national level. Here are resources to help you appropriately choose a name and verify its availability: 

• Your secretary of state’s website: Check your state’s secretary of state website for name availability. Most offer naming guidelines and tools to verify your name.
• The U.S. Patent and Trademark Office: A trademark protects your business name at a federal level, preventing other businesses from using the same name. You can check your desired business name by checking the office’s website and entering the name into the trademark electronic search system. If another business in your industry uses the name you want, you must choose another one.

Once you’ve chosen a business name, you can reserve it with your state to protect it from use until you’re ready to form your business. While the rules vary state by state, you can typically reserve your business name online through your secretary of state’s official website for an average of 120 days. Name reservation fees can range from $10 to $50. 

5. Register your business

Launching your business as an LLC or other legal structure requires you to file documentation with your secretary of state. There are several preparatory steps involved, including choosing a unique business name, choosing a registered agent and filing an articles of organization or articles of incorporation form. 

Choose a registered agent

A registered agent is an individual or business responsible for accepting legal notices on your business’s behalf. You can generally act as the registered agent for your business, but many business owners choose a professional registered agent service since responsibilities can be time-intensive.

There are benefits to acting as your own registered agent, including: 

• No additional cost for registered agent services.
• Documents being delivered directly to you.
• No new processes or software to learn.

There are also benefits to choosing a professional registered agent service, including: 

• Keeping your personal contact information private.
• Assistance with receiving and organizing documents.
• Assistance with keeping track of filing deadlines.

A registered agent should always be available during regular business hours at the listed address. 

Articles of incorporation

To formally create your business within your state, you must fill out and submit a form that’s often called articles of incorporation or articles of organization. This legal document outlines the basic components of your business, such as the business name, registered agent and purpose.

You can complete this form yourself by visiting your state’s secretary of state website. Most states require you to fill out their pre-prepared form. However, some states, like Iowa, require you to make your own. Paper submissions might incur additional processing fees and take longer, so most businesses use the online system. 

You should be prepared to pay a filing fee when submitting your documents. This fee can range from $40 to over $500, depending on your state and business type.

Operating agreement for partners

While not required in most states, we strongly recommend businesses create an operating agreement. This important document acts as a contract among your members and outlines the business’s important financial and operational aspects. 

Operating agreements are essential to:

• Protecting your personal assets in the event your business is sued or files for bankruptcy. 
• Overriding state default rules that might not be in the best interest of your business.
• Clearly communicating business arrangements between partners to prevent member disputes.

It is also often required by investors when opening a business bank account and for performing other key business tasks.

Read our guides on how to start an LLC and how to start an S corp for more information. 

6. Apply for an EIN

An employer identification number (EIN) is a nine-digit number issued for free by the IRS to identify your business just as a Social Security number identifies a person. It is used to complete many key business tasks, such as hiring employees, paying federal business taxes, obtaining business funding, opening a bank account and applying for required business licenses.

You can apply for an EIN on the IRS website between Monday and Friday, 7 a.m. to 10 p.m. EST. Once you submit your application, you will receive an EIN instantly.

7. Apply for relevant business licenses

Some states require businesses to obtain a state business license to operate. Others only require business licenses on the local or county level. Some require professional and activity-based business licenses or permits. To help you navigate this step, we’ve prepared a business licensing guide that walks you through how to discover required business licenses and apply for them.

Some examples include: 

• Idaho: You will fill out a form on the state’s business wizard page to determine which licenses you need and who to contact to apply for them.
• Maryland: You must visit the state’s types of business licenses page. Once there, scroll through to find any licenses relevant to your industry and learn whether they apply to you.
• Delaware: You have to reach out to your local authorities or visit the state’s county, city and town licensing and permits page to find out what licenses or permits you might need to operate your business.

8. Open a business bank account and other financial accounts

While this isn’t always a requirement, it is best to open a business checking account that is separate from your personal bank account. This will help keep all your finances in order and enhance any personal liability protection you may have due to your elected business structure. 

You can also look at acquiring a business credit card, which can help with expenses when setting up and establishing your business.

What to consider before starting a business

Aside from doing ample market research to understand the viability of your business, understanding resources to gauge, grow and protect your cash flow can mean the difference between business success and bankruptcy.

Estimating your cash flow

“One of the most common mistakes I see when mentoring is business owners failing to understand the cash flow requirements to launch and operate their business during the first year,” says Buzzard.

Cash flow estimates may not be completely accurate as you’re still learning how your business will work. Still, estimating what you need — such as employee salaries, funding for products — and when you can expect revenue to hit your business account is important.

Doing this analysis helps you to take a proactive approach to ensure your business has every opportunity to succeed. A good financial advisor can help you nail down your cash flow management and budgeting strategies.

Protecting your cash flow

You’ll also want to consider working with advisors, professionals and tools that can help guide you through the many aspects of starting a business, including ways you can protect your cash flow by, for example, reducing legal or tax penalties or debts.

Some of these resources include:

• A tax consultant: These consultants help businesses reduce their tax liabilities by, for example, helping them choose the best business structure, identify tax deductions and strike a balance between wages and dividend distribution in a corporation. 
• A business attorney: Many business formation companies offer legal services with lawyers who are well-versed in startup and small-business law. These include LegalZoom, Rocket Lawyer and other business formation companies. These lawyers can help businesses avoid compliance penalties.
• Registered agent service providers: A registered agent receives legal and tax correspondence on a business’s behalf. However, they often offer other services that can help to keep your business financially healthy, such as ongoing guidance on staying ahead of business filings and compliance issues. 
• Payroll software providers: The right payroll software can help you stay ahead of your tax responsibilities and avoid employee overpayments. For example, they can ensure all employment taxes are paid on the state and federal levels, that your accounting ledger is always up to date and that your taxes are filed on time and accurately.
• A certified public accountant (CPA): A CPA is certified through the Board of Accountancy for your state. Most must hold a bachelor’s degree in business administration, finance, accounting or a similar field and have years of accounting experience. They can help keep your cash flow healthy and plan for unforeseen cash flow obstructions.

Available funding options

There are several ways to fund your business, including:

• Self-funding: Bootstrapping may be a feasible option if you have enough funding or don’t need a lot of upfront capital. You can consider using your savings, asking friends and family for help or, though risky, tapping into your retirement accounts.
• A business credit card: To obtain a business credit card as a startup, you must often provide information about your personal income and credit rating. However, without a business-revenue history to show, this may be easier than getting a business loan in the startup stage. Some even offer options specifically for small businesses.
• Small business loans: A small business loan will require you to prepare documentation such as a business plan, financial projections and other proof showing that you will pay back your loan on time.
• Venture capital investors: You can find companies or individuals who are willing to invest in your business in exchange for some ownership and sometimes a more active role in shaping the business. This is a more common approach for C corps. 

Funding options for small businesses

If you don’t have enough cash on hand to fund your new small business, you’ve still got options. You may be able to take out small business loans or use a credit card to cover business expenses. 

• Small Business Administration (SBA) loan: You borrow from a lender, and the SBA partially guarantees the loan. Businesses that can repay, meet size standards and have a solid purpose for the loan might qualify. This is a good option for businesses that might not have the best credit or could benefit from extra guidance.
• Business credit card: You can use a business credit card to purchase inventory and other needs. However, annual percentage rates (APRs) can often range from 18% to 26% or more. 
• Online business loans: These offer quick approval, so you might be able to access funds as soon as the next business day. Interest rates and fees will vary.
• Crowdfunding: This allows businesses to raise funds from a large audience of potential customers. Sites like GoFundMe, Kickstarter and Indiegogo are among the most popular crowdfunding platforms.

What is a small business?

The SBA defines what qualifies as a small business with factors such as revenue and employment. According to the SBA, a small business:

• Is independently owned and operated.
• Doesn’t dominate its industry on a national level.
• Operates mainly in the United States.
• Seeks to make a profit.

The SBA also defines small businesses by their revenue and employment. Depending on the industry, a business can earn a maximum of $1 million to $47 million per year in revenue and employ a maximum of 100 to 1,500 employees to qualify as a small business.

Unlike the SBA, most people tend to think of small businesses as local, lesser-known and, well, small. Sole proprietorships and partnerships are common small business structures, and the max revenue and employment numbers outlined by the SBA are far larger than most small businesses will ever reach.

Best places to start a business in the U.S. 

Often, the best place to start a business is within the business owners’ own state. This is because starting a business in a foreign state often comes with added costs, such as hiring a registered agent and filing foreign entity formation paperwork. 

You may also have to hire a lawyer who is versed in the foreign state’s law and file annual reports in that state in addition to your own.

Tips for starting a business with no money

Depending on the structure you choose for your business, it may or may not be possible to start a business with no money. For example, many sole proprietors begin a side hustle to sell their services using their personal computers, then purchase more equipment, certifications and upgrade their business structures as they are able.

However, most business structures require at least a small initial investment. Still, there are some decisions you can make to ensure startup costs are as low as possible, including: 

• Appointing a free registered agent: In most states, you can serve as your business’s registered agent and pay no money for this service. However, if fulfilling this role in-house is too burdensome, some registered agent service providers offer one year of registered agent services for free if you also form your company through their business formation services, including Bizee and Inc Authority. 
• Hire a free business formation service: If you need assistance starting your business, many business formation services offer free formation packages so you know your registration is done correctly, even if you have no money for a lawyer.
• Use what you have: If you are starting a service business, instead of purchasing new computers, printers and tablets, use the equipment you already have to get started. 
• Use free tools: Many software and hardware providers offer free products to startups. Square, for example, offers a free credit card reader to its small business customers.
• Keep your day job: “Starting a business is stressful enough without having to worry about how to feed and house your family,” says Buzzard. “In most cases, it is best if business owners can hold onto a job until the business is generating sufficient and consistent cash flow.” 
• Prioritize business purchases: “The process of selling and delivering to even your first customer will be an incredibly valuable learning experience,” says Buzzard. “Then, let your customer interactions guide the refinement of your business plan and prioritize the investments you make when scaling,” advises Buzzard.

Frequently asked questions (FAQs)

What is the easiest business to start and make money?

The easiest business to start and make money is a service-based online business. For example, a sole owner and operator might become a freelance writer or graphic designer and use the equipment they have on hand to launch the business.

What is the cheapest business to start?

The cheapest business to start is a sole proprietorship that provides an online service. For example, to become a freelance writer, you only need a laptop computer and a home internet service connection, both of which most households already have.

Do I need a permit to start a small business?

Most businesses don’t need permits to get started. However, permits are required in certain industries, such as food services, construction and many professional services industries. Check with your local and state governments to determine if you need permits for your new business.

What is the best business structure?

There is no best business structure. Choosing the best one for your new business depends on the nature of your business, its needs and your goals. To learn the best business structure for your needs, consult with a business formation service provider.

How do I get a business credit card?

To get a business credit card, first compare the best business credit cards to narrow down your list to one. Then, head to the credit card issuer’s website and fill out an application form. 

Information you will need to provide generally includes:

• Your business name and address.
• The owner’s contact and income details.
• Your annual business revenue. 
• The number of employees in your business.
• Your business category.
• Your monthly business spend.
• Your EIN or Social Security number.

Editor’s Note: This article contains updated information from previously published stories:

• Strategies: How to start a business in 10 easy steps
• 9 steps from start-up dream to real business
• How to start a small business with smarts
• How to save money to start your own business
• A self-made billionaire shares secrets for starting a business — and succeeding
• Entrepreneurs, here’s a 7-step plan for takeoff
• 5 tips for starting a business while working full time