How to start a business in 15 steps

Starting a business is a pursuit that appeals to many, but not everyone knows where to start. Once you’ve decided to start a business it’s important that you have clear expectations of the road ahead, otherwise it can quickly become intimidating and overwhelming.

Planning, conducting market research, and making important financial decisions are just a few key activities you can expect to undertake as an entrepreneur. There is no one size fits all approach to starting a new business, but there are certainly steps to help you outline your goals, develop a plan, and ultimately launch a successful business.

This 15-step guide will walk you through the foundational elements of starting a business and explain what you can expect as you embark on the journey toward business ownership.

Track your progress: Ensure essential tasks get done with our interactive checklist.

1. Vet your business idea

A “good business idea” is one you can afford to execute, serves the market, and has potential for you to make a comfortable profit.

Princeton Creative Research has a useful checklist of questions that can help you evaluate your business idea, including:

• What specific problems or difficulties is the business is expected to solve?
• Is the projected profit adequate?
• How simple or complex will the idea’s execution be?
• Can customers afford it? Will they buy it?
• What is your competition doing in this area? Can you be competitive?

Product versus service business

Your business will provide people with a product or a service. While product businesses mark up prices on products and then profit from the difference, service businesses (such as a law or consulting firm) sell time and expertise.

Decide which type of business best suits your temperament, skills, and goals.

Market research

Your big idea may be a winner, but you will want to be sure the potential is real. You need hard facts. That’s where market research comes into play.

Market research is a technical name for a fairly simple process of gathering feedback and data to help you understand the viability of your plan. Is there a market for what you want to do?

This inquiry can be handled in several ways:

Conduct research

Trade websites and associations are a wealth of information. For example, the National Association of Home Builders publishes quarterly reports on geographic demand for new homes and renovations. This would be a great resource for someone getting into a property or real estate business.

Additional no-cost resources can be found in this helpful list from the Small Business Administration (SBA).

Conduct interviews

Contact and interview business owners who are in the same business.

Example questions to ask:

• How did you find the demand for your product in the first year?
• What surprised you in the initial launch of your business?
• How much did it cost you to get started?
• How long did it take to start making a profit?
• If you could start your business again what would you do differently?

Form a focus group

Gather your friends, family and colleagues and run your idea past them. What do they think of it? Would they patronize your proposed business?

Conduct a poll

If you have a website, poll your visitors. Ask a Facebook group, post some questions on X (formerly Twitter) or LinkedIn, or utilize a survey platform like Google Forms.

Although you could also hire a market researcher or agency to conduct this research for you, if you are willing to do the leg work yourself, you can put together a strong overview of the competitive landscape on your own.

Competitive analysis

While market research tells you about general conditions for starting a business (and whether your idea “has legs,”) competitive analysis helps to determine if your new business can compete with existing companies.

And make no mistake about it – there is a lot of competition. According to the SBA’s 2023 Small Business Profile report there are 33.3 million small businesses in the United States, which makes up 99.9% of all US Businesses. And if you’re going to sell products or services online, there is an entire global marketplace to consider.

There are a few steps you should take for your competitive analysis – both locally and online:

Identify competitors

Search your local Google and Yelp listings to see what other businesses provide products and services that are similar to those you’re planning to offer. Make a list of their names, websites and social media handles so you can keep tabs on changes they make.

Audit their practices

Look into the experience of shopping their products, the breadth of their offerings, their pricing, and their reviews to learn where you can position yourself within the competitive landscape.

Find opportunities

Translate what you see into ways your new business can fill customers’ unmet needs.

• Is a local competitor the only business of its kind and charging sky high rates as a result?
• Could you create beautiful branding that provides a more pleasing aesthetic experience?

2. Write a business plan

It may seem like a tedious formality to write a business plan, but you should for two reasons:

1. If you will seek outside funding, either from a bank or an investor, they will likely want to see your business plan.
2. Creating a business plan forces you to think critically about your venture and develop a strategy to get from A to B to Z.

In your plan, you will discuss your idea, the opportunity, the competition, how you plan to fund it, how you will acquire customers, and the risks and solutions. While every business plan is different (because every business is different), most include the same basic elements.

3. Secure funding for your business

Securing funding for your new venture is one of the most important parts of this process. As a rule of thumb, you need enough capital to open the doors and pay your business and personal overhead for at least six months, as that is a good target to find customers, sell something and get paid. Your results may differ.

There are many options to financing your new venture. In all likelihood, the funding for your new small business will come from a variety of sources – your own savings, maybe a loan of some sort, potentially the assistance of friends and family, and even some crowdfunding. Prepare to research and secure a mix of capital sources.

Personal sources

Your search for funding may begin at home. Whether that means using your savings or selling some investments, your own money and resources can be the starting point.

The next most popular source of startup funding is friends and family. This could either be a loan or a gift.

Loans, lines of credit and credit cards

Traditional business loans may be challenging to obtain without established credit history. SBA loans, which are provided by banks but guaranteed by the SBA, have looser qualification criteria and are often very attainable for new businesses.

Other common financing options include lines of credit and business credit cards. While a loan provides funds in a lump sum with a set payment schedule, lines of credit and credit cards provide ongoing access to funds up to your credit limit, and payments will vary depending on how much you spend.

Grants

There may be opportunities to pursue grants based on the type of business you are considering or if you’re part of historically underrepresented communities in business ownership.

Here are some resources to consider:

• The Small Business Administration
• Grants.gov
• Bank of America’s Access to Capital Directory. This is a comprehensive database designed to help business owners learn about and find grant capital and other sources of funding, including equity and debt, with a special focus on Community Development Financial Institutions (CDFIs) supported by Bank of America and organizations supporting underserved entrepreneurs.
• Your local state/city government. Many local municipalities offer grant or incentive programs to encourage small business ownership. It’s worth spending time on this, particularly as there may be less competition for local grants.

Investors

An additional option is to look for an investor for the business, sometimes called an “angel.” An investor is someone willing to provide financial support to help with the success of your business. This type of investment usually involves ownership share and/or a piece of the ongoing profits.

What makes a business a good investment to an investor?

• The idea: Is this a solid potential business? How do the financials look?
• The entrepreneur and the team: Do they know what they are doing? Do they have experience?
• The profit: How much could the angel make, and how soon before they get a return on their investment?

Crowdfunding

Finally, with traditional business funding, you either take on some debt or share some equity. Crowdfunding is different.

On a crowdfunding site like IndieGoGo or Kickstarter, you list your business or project and ask people to invest in it. Then, instead of paying them back with money or equity, you agree to pay them back with some “perk” from your business, with larger perks for larger investments.

For example, say you want to open a food cart. You could create a crowdfunding campaign whereby you agree to name various meals after your crowdfunding investors. For $25, a dinner is named after one investor for a week. Maybe for $50, they also get a free meal.

4. Evaluate business structures

There are four basic forms your business can take:

• Sole proprietorship
• Partnership
• Limited liability company (LLC)
• Corporation

When deciding which structure is best for your business, it’s a good idea to speak with both a lawyer and your accountant for help navigating the legal and financial impacts.

Sole proprietor and partnerships

Most small businesses start as sole proprietorships and transition into a more sophisticated legal structure as the business matures. Being a sole proprietor (also called a solopreneur, freelancer, independent contractor or self-employed) is the least expensive and easiest form of business you can start. Creating a sole proprietorship shouldn’t carry a significant cost or take more than a few weeks. A partnership, formed with a friend or business associate, is similarly simple.

Because sole proprietorships and partnerships aren’t legally distinct entities, they offer less protection from financial liability for you as an individual. If something goes wrong with the business – say that you sell items online and a defective product injures a customer upon delivery – you are personally responsible for the damage. As an unincorporated solopreneur, your personal assets are on the line in addition to your business.

LLCs and corporations

Incorporating your business limits your personal liability. Creditors are limited to only the corporation’s assets for payment and may not collect directly from the owners or shareholders.

Limited Liability Companies (LLCs)

LLCs combine many of the advantages of a corporation and a partnership without the disadvantages. Like a corporation, an LLC limits personal liability. An LLC is a separate legal entity that can sue and be sued as well as buy and own property. Like a partnership, an LLC may be less complicated to manage. But unlike a partnership, the death, retirement, expulsion, or bankruptcy of one member does not automatically dissolve the LLC.

S Corporations

S Corporations are intended for smaller enterprises and a common form to take for many small businesses. Like an LLC, S Corporations are informal enough to allow you to easily run your business while still providing protection from personal liability. To create an S Corporation, you must file the necessary articles of incorporation with your Secretary of State’s office. You then need to file a Form 2553 with the IRS. Because forming an S Corporation is a fairly complicated matter, you might consult qualified legal counsel for assistance.

C Corporations

Finally, C Corporations are generally for larger companies. Like S Corporations, C Corporations separate a company’s assets from its owners, but have a different tax structure. C corporations pay tax on their income, plus you pay tax on whatever income you receive as an owner or employee.

Comparing common business entities

5. Legally form your business

Once you settle on a business structure, it’s time to legally open your business. Keep in mind that requirements – and costs – associated with forming your business vary by state.

File with your local jurisdiction

If you’re going to operate a sole proprietorship or partnership, check requirements in your city, county, and state on registering your fictitious business name, also known as a DBA (doing business as). Registering your DBA name with the proper authorities establishes that you are the owner of the business. Some financial institutions require a DBA to open a business account.

You will also need to get proper licenses and/or permits (a business license, food permit, etc.) from your city and/or county. Call or visit your city’s business planning office to request information on which licenses and permits you will need, where to get them, what they cost and where to file them.

File with the IRS to get a Tax ID number

Your next step is to register your business with the federal government.

If you have set up a corporation, partnership, or LLC, you’ll need to request an Employer Identification Number (EIN) from the IRS. An EIN is not required for sole proprietorships with no employees. However, if you plan to expand at some point or would like to keep your personal and business taxes separate, you may want to apply for an EIN anyway.

If you’re uncertain whether your business needs an EIN, the IRS has an online checklist. Once you have your answer, you can complete their online registration process.

When tax time rolls around, the forms you need will depend on the business structure you have set up. You can check your state government’s website for your state tax obligations and the IRS website for more information.

Consider using a business formation provider

While you can choose to navigate the steps to legally form your business yourself, working with a third-party provider that specializes in business formation can streamline, and sometimes even expedite, the process. Companies like Incfile can help you establish a legal business entity, including filing for an EIN, and provide support along the way.

6. Name your business

If you have children or pets, you know how difficult coming up with the perfect name can be. Choosing the right name for your business can be even more daunting because your livelihood may depend on picking that perfect name.

You want a name that is catchy, concise, and easy to spell. More than that, your business name is vital to your brand, so you need to make sure yours represents your business well. For instance, “Kendrick & Sons” could be anything, but “Kendrick Family House Painting” is more descriptive while also adding an emotional hook (“family”). Do not miss out on this vital branding opportunity by choosing a lackluster name.

Importantly, the name you choose needs to be available as an online domain name and a social media handle/username.

It is better to get a .com domain if you can. People are familiar with various suffixes such as .info or .biz if .com is not available. It is better to know up front if any are unavailable so you can move on with other ideas.

Here are some steps to take in the name game:

1. Brainstorm ideas. Write down all your business name ideas in no particular order. Let your ideas flow. Think in terms of imaginative words and phrases as well as more concrete descriptions. You can use free online generators to give you more ideas if you wish.
2. Conduct an online search for the names you like best. Your favorite names may already be taken. Best to check early on in this process.
3. Get feedback. Ask trusted friends or family members for their opinions. Write the names down, say them out loud and consider how they sound and make you feel.
4. Go with the name you love. Does one name keep coming back to you? Listen to your gut. The name of this new company is going to be part of your life for a long time.

When you connect with the name, others are likely to connect with it too.

7. Open a business bank account

Whether you are starting a sole proprietorship or a corporation, you should open a business bank account. Here are the advantages:

• Protection of your personal savings
• Easier tracking of business earnings and expenses
• Ability to make and receive business credit card payments
• Access to business funds for associates
• Enhanced professional image

Separate your business and personal finances

Separating your personal finances from those of the business from the start streamlines accounting and taxes and makes it easier to get a clear read on your business’s financial health.

Doing so may also show potential investors and lenders that you understand the fundamentals of business and are taking this venture seriously.

At a basic level, separating your finances involves opening separate accounts – such as checking/savings, credit cards, and lines of credit or loans – solely for business use. The amount of legal separation between your personal and business finances depends on the business structure you choose. To recap: Sole proprietorships and partnerships offer less protection from liability; LLCs and corporations offer more protection as legally distinct entities.

Selecting a bank

When selecting a bank, one size does not fit all. As a small business owner, you will have unique needs and priorities than other businesses. Not every bank will offer the same level of features and benefits, so make sure to do your research and select a bank based on the criteria that best meets your needs. Some important areas to consider are fees, minimum balances, customers service, digital tools and branch access.

Once you’ve selected a bank, you can usually apply for a business bank account fairly quickly; knowing what information and documents the bank requires in advance can streamline the set up process.

8. Find a reliable accounting and bookkeeping system

Today, business owners have a plethora of apps and software options that can help track revenue, manage inventory and payroll, and even forecast sales.

But how do you know which accounting system is best for your business?

Here are some tips to get you started:

Consider your budget

Business accounting software is available in all shapes, sizes, and price points. You can even download some free or at a low cost. Generally, the more specialized the program, the more it will cost.

Evaluate your needs and your accounting skills

As you do your research, you will find both general financial software as well as specialized software designed for your industry. For example, programs are built just for restaurants or just for contractors.

Consider access and functionality

Many cloud-based systems offer the ability to monitor your books from home or wherever you may be. Some systems offer apps that allow your employees to track their time and submit expenses. Some also allow you to integrate with your business bank accounts.

Talk with your accountant

Even if you are handling the books yourself, you may still want to use the services of an accountant at tax time. And it is smart to also seek that same professional’s opinion on business accounting systems to consider programs compatible with their tax software. There are plenty of solid accounting software options available. Some to consider are Zoho, FreshBooks, and QuickBooks®.

9. Protect your business

Another way to protect your business is with insurance. Common types of coverage to consider and discuss with your broker include:

• Health: Whether it is through COBRA, Healthcare.gov, or your own broker, you will need to obtain health insurance.
• Property: This covers damage or loss to business equipment and inventory.
• Comprehensive general liability (CGL): CGL insurance does two things. First, it covers you for injury suffered by visitors to your business. Second, should you get sued, CGL covers the cost of your defense.
• Business interruption: This covers losses from an inability to conduct business due to fire, flood, disaster, etc.
• Malpractice: This is used by professionals such as doctors and lawyers to cover for damage resulting from substandard work. This can also include errors and omissions and product liability insurance.
• Workers' compensation: If you have employees, you will be required to carry workman’s compensation insurance for work-related injuries.
• Disability: Disability insurance covers you when you can’t work because you are disabled due to injury.

10. Protect your ideas

Especially in this content-centric online world, small business owners increasingly create intellectual property that should be protected, to include blog posts, products, website names and brands, etc. Tools to protect those include:

• Non-disclosure agreement (NDA): Sometimes you will need to share confidential information with someone. If so, have them sign an NDA, which essentially says that the information you will be sharing cannot be used or shared by the other party without your prior, express written consent.
• Copyright: Copyright law protects written expressions in tangible forms, from web content to photographs and manuscripts. A copyright gives you alone the exclusive right to use or reproduce your work. Although not required, the best way to create a copyright is to register it with the United States Copyright Office and then use the copyright symbol (©) with the work.
• Trademark: A trademark is a phrase (“Just Do It”), name (Nike), or symbol (The Swoosh) that denotes a name or business that is unique. You can register a trademark with the Unites States Patent and Trademark Office (USPTO) and then use a registered trademark (®).
• Patent: A patent protects an invention. A patent must be applied for (“patent pending”) and then obtained through the USPTO. Note, unlike a copyright or trademark, getting a patent definitely requires legal help.

11. Build a team of trusted experts

Even experienced entrepreneurs need expert advice occasionally, especially legal and financial advice. Lawyers can help with contracts, leases, hiring and firing employees, and a host of other issues. Accountants and tax experts can help prepare taxes and can give other helpful financial advice.

The best way to find that savvy advisor is through a happy customer. A positive referral will tell you far more about a professional than a dozen ads.

If you can’t get a recommendation, other options include:

• Local bar association: Almost all cities have an association of local lawyers called a “bar association.” Your local bar can refer you to good business attorneys.
• AICPA: The American Institute of Certified Public Accountants is the premier national association for CPAs in the United States.
• LinkedIn: LinkedIn is a social network for professional networking. Use it to connect with potential members of your legal and financial support team in your area.

12. Decide how you’ll take payments

These days, there are no shortages of ways for customers to pay you: Cash, credit cards, checks, debit cards, PayPal®, Apple Pay®, Google PayTM, Zelle®¹ and many more. The important thing is that you give your customers ease when they want to give you money, so be sure to accept payments in store or online via multiple different payment types.

13. Market and advertise your business

Before you open your real or virtual doors, it’s essential to get the word out about your new business. Most of your potential customers or clients live online, so a digital marketing plan will be essential.

Here are some steps to take to let them know you’re open for business:

Build a company website

Whether you do it yourself using a site like Shopify or Wix or hire someone to create a site for you, a website that is easy to navigate and useful to customers will pay for itself. It’s important for your site to be mobile friendly, as more than half of all web searches now occur on phones and other mobile devices.

Search engine optimization (SEO)

Most people begin their search for a product or service with a search tool like Google or Bing, so it makes sense to invest in search engine optimization, or SEO. SEO is the process of getting your website indexed by search engines and listed in search results so potential customers can find you.

Your site is more likely to get discovered and ranked higher in search results if you:

• Create specific pages focused on key topics for your business
• Include keywords in your tags and content for those pages
• Use a good SEO plugin to analyze your data

Pay-per-click

Fortunately, you don’t have to be an SEO expert to achieve a high-visibility ranking in search results. With pay-per-click advertising, you can buy an ad on Page 1 as well as ad space on other websites.

Social media campaigns

A strong social media presence has become as important as your website; it is one of the key ways to communicate with the world. Concentrate on building a presence on the platforms your potential customers use most. If they are on Instagram, then you need to be on Instagram.

14. Hire your first employee

If you ever want to scale your business or grow, you will need help. And that begins with hiring your first employee. These tasks will get you started:

1. Organize: Sit down and make a list of common tasks. Decide which must be done by you (client acquisition for instance) and which can and should be done by someone else (administrative tasks). This list will form the foundation of the job description.
2. Cast a wide net: Let your network know you are looking to hire. Post the job description on Indeed, Monster, Craigslist, and other job boards. Even word of mouth through friends and family can be powerful.
3. Interview: Look for candidates who have the necessary skills and background and spend some time getting to know them.
4. Hire: Have your attorney draft an employment contract.
5. Make it legal: There are plenty of forms you and your new employee must submit, such as a W-4s, tax withholdings, Form I-9, etc. Consult your lawyer for specifics.

15. Monitor and adjust business goals for growth

According to Bureau of Labor Statistics data, about 20 percent of U.S. small businesses fail within their first year. That number jumps to 30 percent by the end of the second year.

Of course, that also means 80 percent of new businesses succeed in their first year, and 70 percent are open after two years.

But it does beg the question: What separates the successes from the failures?

Flexibility is a significant part of the answer. Successful business owners regularly monitor their goals and adjust for growth as necessary.

As any company that survived the pandemic shutdowns knows, today’s business environment can change abruptly. Your business must be nimble enough to adapt to those changes.

Here are some general tips for setting goals, monitoring those goals, and working toward achieving them.

• Use “SMART” goals for business goal setting. SMART goals are specific, measurable, achievable, relevant and time-based. Achieving steady progress on short-term goals helps create momentum that will help your company reach long-term goals.
• Evaluate your progress. Measure your company’s performance by conducting regular reviews. Whether you have one employee or 50, review input from each and ways to stay on target by working together on overall goals.
• Change or adapt goals as needed. As your business grows or the market changes, you may need to adjust your goals, business plan, or your timeline. Don’t look at these adjustments as failures; see them as opportunities.