How to Open a Business

How to open a business is a question better asked before you start a new company, rather than further down the road. And while you think it might start a lot of capital, some businesses can be successful even without using any of your own money.

Start off with a good plan and then weigh your financing options, whether it's borrowing funds or taking on a partner. With a solid business plan by your side, you can be on your way to a fruitful business.

Business Needs Money

Before you jump into how to get money to fund your business, figure out exactly how much you'll need. There's no exact formula, so it's important to consider all potential factors to come up with an accurate number. First, consider any type of permit or license needed for your type of business. This often depends on your geographic location so check with your city or county on how to legally get started.

Next, think about what kind of materials and supplies you'll need for your business. This includes computers, software, and anything else you'll need in your office. Don't forget about soft costs, either, like your Wi-Fi connection, utilities, rent, and even payroll. How about subscriptions or professional memberships you might need? Eliminate any financial surprises in the future by thinking in-depth about our expenses today.

In addition to operating expenses, also consider your marketing costs to actually get customers in the door. Look at job sites to see how much you'll need to spend on potential employees or contractors. How about consultants like a lawyer or an accountant? When you start gathering this information, your next step is to figure out how to decrease startup costs or increase the amount of funds you receive through external capital.

Reduce Your Needs

There are many ways to decrease your business expenses. The first is to alter your business plan so that you're not incurring as many expenses. If you're offering a service, you could start off as the only employee so that you don't have to spend funds on hiring people. Also, consider working from your house instead of renting office space. Additionally, consider getting cheaper materials or starting off with just one of two product lines before launching more.

Other expenses are difficult, if not impossible, to reduce. These include legal fees or licensing. Depending on your service, however, you could try to barter for certain services. Still, you can get started with a low-cost business. In fact, the SBA reports that a lot of micro businesses start off with less than $3,000 and work-from-home startups can get going for under $1,000.


Bootstrapping is a concept that allows you to start off small and then grow your company as you become more successful. It's also known as a warmup time, where you can test your concept before scaling into a full-sized business. This makes it easier to start off as the only employee, steer clear of expensive startup costs, and tax advantage of easy tax registration. Then as you bring in revenue, you can invest more of your own money into the business little by little, rather than incurring tons of debt up front.

Outsource Funds

Another way to start your business is to solicit funds from external sources. Consider asking family and friends, especially if they've been rooting for your idea for a long time. Even a small amount of money from several personal relationships can quickly add up to the capital you need. Another idea is to approach angel investors who are well-off individuals who give capital in the early stages of a business in return for some equity.

Similarly, venture capitalists come in the form of an organization that provides capital and business know-how in exchange for equity in the business. If your idea is compelling or extremely novel, try your hand at a crowdfunding campaign, which targets small scale investors who receive an early product or token for their investment.

You can also check out loans and grants from the Small Business administration, as well as funds from your local and state government. If you have strong credit, check with a bank or online lender for a line of credit or small business loan.

Overview of Small Businesses in U.S.

The SBA states that 99.7 percent of U.S. businesses are small businesses, coming in at a total of 28 million across the nation. It's no surprise that owning a small business is a popular choice. You get to implement an innovative idea, create your own career path, and exercise control over your financial growth.

Still, it takes hard work and diligence to make a small business successful. When it comes to small companies with employees, only 2/3 make it through the first two years. Only half of them last past the first five years.

Steps to Start a Business: Do Your Research

To ensure the success of your company, do your due diligence up front to make sure there's enough of a market. Whatever product or service you offer, it should help solve a problem, fulfill a common need, or give a particular market something that it wants. To figure out if your business idea fits the bill, perform in-depth research, listen in on some focus groups, and start off with some trial and error. Don't be afraid to ask around for input from all types of people in your test market.

Answer these questions before putting more time and energy into your business idea:

  1. Does your idea fulfill a need and who is your target audience?
  2. What companies are your competition?
  3. Is there an opening in the market for your own business?

If you're nervous about starting a business from scratch, you can also consider opening a franchise of another company. You run the show, but get to take advantage of an existing (and successful) concept, brand, and model.

Steps to Start a Business: Make a plan

Once you've established a market for your company, it's time to start working on your business plan. This takes you through each stage of developing your company, from the early stages through growth phases. Not only does a business plan help you organize your thoughts, it's also a must-have for most lenders and investors.

When looking for financial support, start off with a traditional business plan. It's longer but demonstrates your market research and proof of concept to help show financial institutions that you know your stuff. If you just want a plan for your own benefit, you can pull together a simple one-pager. This helps you gain focus on your goals and your strategy. When you're in the trenches of starting up a company, your business plan helps serve as a guide to help keep you on track to your ultimate goals.

Steps to Start a Business: Plan Your Finances

No matter how much you plan to bootstrap your business, you'll need some sort of bare minimum of funding in order to get started. If you won't be bringing in revenue right away, figure out how you're going to cover your costs until money starts coming in.

An easy way to do this is with a simple spreadsheet. Make a line item for each startup expense that you'll only need to pay once. This could include your permit, equipment expenses, legal expertise, insurance, events, or even trademarking a product.

Next, list out estimates of all of your ongoing expenses, so you know how much revenue you need to start pulling in in order to become profitable. Create monthly projects for the entire year, and remember to include expenses like your rent, recurring marketing, supplies, and salaries. In addition to employees, don't forget to pay yourself!

Steps to Start a Business: Choose a Business Structure

You have four business structures to choose from: a corporation, LLC, partnership, or sole proprietorship. Research the best fit for you based on how you want to name your business, your potential liability in the company, and the way you want to file taxes.

Don't worry too much, though. You can always change your business structure, especially as your business begins to grow. If you're not sure where to start, consider hiring a lawyer or CPA to weigh the pros and cons of each choice.

Steps to Start a Business: Pick and Register Your Business Name

Don't rush selecting your business name, because it's going to stick with you for a while. When you have one or two options, see if they're already trademarked. If not, register it for yourself. If you're a sole proprietor, you can register your business name with your local county or state. Limited partnerships, LLCs, and corporations must register their business names at the time the paperwork for formation is filed.

When starting a corporation, you'll need a document called your articles of incorporation. It should list out your business name, purpose, structure, and, if applicable, stock details. Once your business is registered in the appropriate manner, you can go through the IRS to receive an employer identification number (EIN).

Steps to Start a Business: Get Licenses and Permits

In addition to your registration, you'll need to submit some other required documents at the start of your business. You may need a small business license or specific permit. The exact needs depend on where your business is located and what kind of business you've started. Do the proper research to make sure know exactly what kind of permits or licenses you may need for your business.

Steps to Start a Business: Choose your Accounting System

Make sure you have an accounting system so you can stay on target with your budget. It also helps you keep track of your rates or product prices, manage your invoicing, and take care of your taxes. There are plenty of do-it-yourself accounting systems, or you can get a professional accountant to help you.

Steps to Start a Business: Set Up the Business Location

Think carefully about your business needs when choosing your location, whether you're opening up a physical store, renting an office, or simply working from home. Consider what kind of equipment you'll need, as well as storage and other variables when picking your location.

Steps to Start a Business: Get Your Team Ready

Take your time in hiring if you need employees because those people have a huge impact on the success of your business. Write out official positions and job descriptions so that expectations are clear from the beginning. Refer to the SBA website or your local branch for helpful resources on how to hire for the first time. If you prefer to hire independent contractors, an attorney can help make sure your contracts fully protect your interests.

Even a one-person business needs a support group. Consider enlisting the help o f a mentor or small business coach who can offer advice and inspiration when you need it the most.

Steps to Start a Business: Promote Your Small Business

Get the word out about your business by creating a unique selling proposition (USP) along with a solid marketing plan. Research a variety of marketing ideas and figure out which ones fit your business best. Also, consider making a logo so potential client can recognize your company easily; just be sure to use it consistently throughout all of your marketing channels.

Social media is also a must-have these days and can help find new customers as well as convert them with promotional offers, discounts, or coupons. Keep all of your online accounts, including your website, current and up to date. Regularly create interesting content that's relevant to your company. To get really serious, consider bringing in a PR firm or exploring print and radio advertising opportunities.

Purchase an Insurance Policy

Protect the success of your business by getting the right insurance policy. This prevents against damages, accidents, theft, and lawsuits. Common policies for small businesses include workers compensation insurance and general liability.

Another option is professional liability insurance that covers damage caused by a mistake you make during your business operations.

You may also want to consider professional liability insurance if your business provides a service as it will cover you if you do something wrong or neglect to do something you should have done while operating your business. You can also explore how worthwhile it would be for you to have property insurance, auto insurance, business interruption coverage, life insurance, income insurance, or disability.

Choose Your Partners

Outside vendors can be extremely helpful in opening a business, whether it's a third-party human resources company or a phone provider. They can help your business run more smoothly without you having to figure it out on your own.

Grow Your Business

Get creative and collaborate with related businesses in your field; you could even contact popular bloggers to implement a giveaway and reach a new audience. You can also promote your brand by helping your local community and partnering with a nonprofit charity in your area.

If you need help with how to open a business, you can post your job on UpCounsel's marketplace. Upcounsel accepts only the top 5 percent of lawyers to its site. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law and average 14 years of legal experience, including work with or on behalf of companies like Google, Menlo Ventures, and Airbnb.