How to Start a Business: A Comprehensive Guide for EntrepreneursStartup Law ResourcesIncorporate
Learn how to start a business. This article explains how to start your own business, file the right paperwork, and establish the right structure for success.20 min read
Starting a business can both be exciting and intimidating. With so many pockets of information out there, it can be difficult to know how to get started. Before you begin, it’s important to know that you’ll have to work hard and be consistent. We’ll provide here a comprehensive guide on how to start a business.
Develop a Business Concept
Before starting a business, you must first know what kind of business you’re starting. There are three great pillars of any business: do what you love, do what’s profitable, and do what you’re good at. Before deciding on a concrete idea, you should first consider the following questions:
- What are you passionate about?
- How do you not want to spend your time?
- What are you good at?
- What do people come to you for advice for?
- What is something you’ve wanted to do, but don’t have the time or money for?
- What problem still doesn’t have a solution?
These questions will help you reflect on the three pillars of a good business idea. Perhaps you already have an idea. These questions will help you develop the idea further. The more details you have sorted out in the beginning, the easier it will be to move forward on an idea.
Once you’ve determined that you can make money from this business, you’ll also want to ensure that it’s something that you’re good at. Do you have experience and do you have the capacity to build on this knowledge?
Before you start your business, you might ask yourself: how should I analyze the market and my competitors?
Analyze the Market and Your Competitors
Knowing how your product will perform in the market and what your potential competitors are doing is one of the most important steps to starting a business. By performing initial research, you will position yourself to market your business in a unique way, attracting potential clients. First things first, you must determine if there is demand for your product.
Find Out If There is Demand For Your Product or Service
To find out if there is demand for your product, it’s best to go directly to the source: your potential customers. To do so, it is recommended to use surveys, interviews and questionnaires to find out what people really want.
When conducting this research, you must search out your potential customers, not just rely on people you know like your friends and family. This way, you can collect information that will serve you and your business idea. You need to search out the people interested in buying your product, not just the people who will support you because they love you.
Understand Your Target Audience
It's important to know who you are targeting with your product. Having a clear understanding of who will be buying your product or service is essential in order to create effective marketing strategies and optimize customer satisfaction. Knowing the age, gender and interests of your target audience will help you tailor your messaging to their needs.
Conduct a Competitive Analysis
Understanding your competitors is important for identifying opportunities and gaps within your own strategic and product/service planning. By conducting a competitive analysis, you will gain insight into your competitor’s sales, marketing, and product strategies.
First, start by determining who your competitors are. Then you will be positioned to research their tactics, analyze pricing or perks, review their marketing plans, and take notes of how their social media performs based on their different campaigns.
Make a Business Plan
At this stage of how to start your own business, you should be able to ask yourself the following questions. These questions are foundational to creating a well-written business plan:
- What's the purpose of my business?
- Who are my customers?
- How will I finance my startup costs?
- What are my end goals?
A business plan can help you figure out how to overcome potential problems and what you need to sustain your new venture. It is the foundation for creating a roadmap for creating a new business. It can also assist you in vocalizing and cementing the details of your business. To create a well-thought-out business plan, you will need to complete the following sections.
- Executive Summary: While this section may be first on your completed business plan, it is best to write it last because it summarizes your business in a short paragraph. By writing this section last, you will have the opportunity to work out the details before summarizing.
- Contents Page: This is optional, but will help the reader easily flip to the section that they need to review.
- Description of the Company: This is the section to tell the world about how you are best positioned to solve the problem and describe the product or service that you are providing.
- Market Analysis: In this section, you need to include how well your company is projected to do in the current marketplace and how well it will do against competitors. Identifying your target market, performing segmentation analysis, and determining market size, growth rate, trends, and a competitive environment assessment are important inclusions.
- Organization and Risks: Create an organizational plan that expects. Who are you intending on hiring? What roles will these individuals have? Also, it is important to create risk mitigation strategies.
- Mission and Vision: Create a mission and a vision. A mission statement describes who the company is and its associated values, whereas a vision statement describes why your business exists. A vision statement also shows the common goal and direction for company employees to follow.
- Goals: Create goals that your company works towards. Ensure you follow the S.M.A.R.T method, which ensures goals are specific, measurable, actionable, realistic, and timely (including a specific timeline).
- Background Summary: Along with being concerned about how your business will function, you should also have an understanding of the current client. Gather information on the industry and any stories that may positively or negatively impact the creation of your new business.
- Marketing Plan: The marketing plan outlines who you promote your product or service to. It will also determine what the budget is and any campaign details. In the marketing plan, you will also want to include product or service keywords, an analysis of your competitors, and a SWOT analysis. SWOT analysis identified strengths, weaknesses, opportunities, and threats. This will help you determine how your product will exist and perform in the market.
- Financial Plan: The financial plan is one of the most important parts of your business plan. Without money, your business will not be able to function.
Financial planning involves creating a proposed budget, along with projected financial statements, such as an income statement, a balance sheet, and a statement of cash flows. This section will also include where you are seeking external funding support.
Starting a business can be expensive, so it is best to be aware of any initial fees. Will you have to borrow money, or do you have the means yourself? Do you have money set aside to support yourself if you leave your current job to focus on your new company?
Getting a commercial loan from a bank is one way to get the money you need, but it's not always easy to secure this type of financing. You may look at alternative lenders or apply for financing through the Small Business Administration.
Conduct a Break-Even Analysis
A break-even analysis is an important number to do because it shows what number a business needs to generate in order not to lose money. First, determine the cost of your product or service. How much is it going to cost to create this product or service?
Then, you must determine the fixed business costs. What costs are crucial for keeping the doors open? For example, monthly rent will fall under this category. Next, determine what selling point for your product or service. You can then calculate your break-even point using a spreadsheet: Break-even quality = Fixed Cost/(Sales price per unit - Variable cost per unit)
Control Your Expenses
Setting up the proper foundation initially will save you a big headache down the road. In the beginning, it is best to set up your business’s books and keep track of your expenses and profit. You can also hire a professional accountant to help manage your finances.
If you do not have enough capital to start your business, then consider startup fundraising for your business. This will be used in the crucial first few months of running your business or before starting your own business. The money will also likely go to stocking inventory, purchasing business machines and supplies, or buying otheFinancingr important equipment (like stoves and refrigerators if you decide to open a restaurant, for example).
Finally, it will prime the pump to pay any employees you might hire, as well as pay yourself so you can make ends meet and support yourself or your family.
Open a Business Bank Account
One of the easiest ways to get the IRS after you is to commingle your business and personal funds. This is why it is crucial for you to open a business bank account and use this only for business expenses. To open a business bank account, you will need your:
- Social security number
- Business name
- Business tax identification number (EIN)
- Doing business as certificate (if you have one)
- Articles of incorporation
- Business License
Setting up your business account will allow you to pay suppliers and invoice clients. You may also need a separate account to acquire a line of credit or a business loan.
When choosing a type of account, you will need to weigh the advantages and disadvantages of a checking or savings account. Just like your personal account, different businesses will benefit from different types of accounts. When choosing the business account that is right for you, make sure to consider the following:
- Account services and features
- Interest rates for deposit accounts
- Fees (recurring monthly service fees, minimum balance fees, money transfer fees, ATM fees, overdraft fees)
- Transaction limits (daily, weekly, monthly)
- Branch location and ATM access
- Sign-up bonuses
- Integration with other accounting software
Develop an Exit Strategy
Looking to a potential end for your business may seem backwards when you are first learning how to start a business, but it will save you time and money in the future.
This is why it is important to develop an exit plan alongside your business plan to establish how you will sell your company or transfer ownership in the future. It is simply a tool that will make it easy to sell your business in the future. It will also help you make business decisions with direction, remain committed to the value of your business, and make for a smooth transition.
There are different options you may wish to execute when it comes time to sell your business. These options include:
- Selling your business to another individual, business, or party
- Passing the business down to family members
- Liquidate business assets
- Closing the business down completely
Choose the Right Business Structure
You must choose a business structure before you can register it. The type of business you operate affects how you'll file taxes and any impact on your personal liability should something go wrong.
If you plan to run the business by yourself and be responsible for all obligations and debts, you'll operate a sole proprietorship. A partnership is run by two or more business owners who share liability.
To keep your personal liability separate from your business obligations, consider forming a corporation. The business is treated as a separate entity from its owners, and it can pay taxes, own property, assume liability, and enter into contracts. It can also sue and be sued.
A common business type for small businesses is the limited liability company, or LLC, which enjoys the legal protections of a corporation and the tax benefits of a partnership.
You may also consider creating a parent company. You will have to go through the formalities of a business corporation to do so.
Choose an entity type, whether corporation, limited liability company, partnership, nonprofit corporation, S corporation, sole proprietor, or limited partnership. Each of these has different legal and tax consequences, so do your research or consult an attorney who can guide you.
You'll file formation documents with the state to register your new business. In many states, you can apply online, by mail, or in person.
Limited Liability Company (LLC)
A Limited Liability Company (LLC) is a business entity defined as its own legal organization. If owned by one person, enter into a single-member LLC, and if owned by multiple people, enter into a multi-member LLC.
- It is easy to file paperwork for your LLC.
- You can form an LLC with one person or many people.
- As an LLC member, you cannot pay yourself a wage, but rather, you make withdrawals through the profit account.
- You can be taxed as a C corporation, S corporation, partnership, or sole proprietor. Your LLC is also subject to flow-through income taxation - the business income is a part of the business owner’s income without a separate tax.
- Members are protected from some or all liability should the company experience legal or financial trouble so long as personal finances are separated from the business.
- Depending on your state, there are high renewal fees and annual report requirements.
- There is often a lot of paperwork involved when there is a change in membership.
- It may be difficult to gain outside investment.
- Possible high franchise or capital values tax.
Limited Liability Partnership (LLP)
A Limited Liability Partnership is similar to an LLC, where it maintains the benefits of limited liability of the company while holding a partnership structure.
- LLPs are easy to form and don’t require a lot of paperwork.
- Partners benefit from limited liability from the debts and actions of the LLP. There is also no limit on the number of partners an LLP can have.
- There’s an option to have designated and non-designated members, allowing for different tiers in membership.
- Members determine partnership and distribution of profits, providing greater flexibility for managerial decisions.
- Registering your company as an LLP automatically protects the name.
- LLPs are obligated to adhere to public disclosure. Since financial accounts must be submitted to Companies House, the income of members may become public.
- Income you make as a partner is taxed as personal income.
- Profit is distributed and cannot be held until the following year for tax purposes.
- Since at least two members are needed, the company may have to be dissolved if one person wants to leave.
- LLPs cannot issue stock.
- All partners are personally liable in malpractice claims.
In a sole proprietorship, the company and the owner are considered the same for legal and tax purposes. Thus, the owner is held personally liable if the business fails.
- Sole proprietorships are easy to form.
- There are no additional paperwork requirements at the state level.
- The owner has full control of the business.
- You can change your legal structure if your circumstances change.
- You are held personally liable for any business debts.
- Owners may have difficulty raising capital as a sole proprietorship.
- You are solely responsible for all day-to-day decisions (this could also be a pro).
Private Limited Company (LTD)
In a Private Limited Company, ownership is determined by shares owned by shareholders. Thus, the company pays corporate tax using its profits, and then distributes the remaining profits to shareholders as dividends.
- Private Limited Companies are owned by one or many shareholders.
- Shareholders divide profits based on the number of shares they own.
- LTDs are able to raise capital by borrowing through the share issue of ordinary shares.
- Shareholders are protected by the rules of limited liability.
- LTDs must register their business with the Register of Companies.
- Startup costs may be expensive in part due to the use of Memorandum of Association and Articles of Association.
- It can be difficult to motivate workers who are not also shareholders because they do receive profits.
Like an LLC, a corporation limits your personal liability. It can either be taxed as a C corporation, where owners and shareholders are taxed separately from the entity, or an S corporation, where the business can pass its taxable income, credits, deductions, and losses to its shareholders.
- Corporations offer liability protection for the owners.
- There can be an unlimited number of shareholders.
- There are no limitations on the lifespan of a corporation.
- There is easier access to capital because corporations can typically borrow at a lower interest rate.
- Corporations can be more costly and difficult to set up than other business entities.
- Shareholders may have limited liability.
- Corporations may be subject to double taxation.
Register Your Business Name
Your business name must comply with your state's naming rules. Contact your state office to find out what the specific rules are. Learn how to check if a business name is taken so your business name doesn't infringe on someone's trademark.
It's not unusual to spend a lot of time trying to come up with the perfect name. Don't agonize over this part of forming the business. All the time you spend waiting to find the right name can be time you spend making money.
When filing paperwork, not all business structures require the use of an EIN, but it’s a good idea anyway. You can use it instead of your personal social security number, which could reduce fraud and identity theft.
Lastly, when starting a new business, there are no deadlines. However, you may have deadlines to meet for tax certificates and licenses, which are important to have to start operations.
Licenses, Permits, and Tax Issues
After the state approves your registration, you'll have to obtain any required permits and licenses. You may need a business license, also called a tax registration certificate. Don’t forget about tax season. Different types of businesses will require a specific tax return.
Employer Identification Number
An EIN is a nine-digit number that the IRS uses to identify your business. You'll only need one if you hire employees or start an LLC, partnership, or corporation. Even if you're not required to have an EIN, you may want to obtain one anyway. It adds some protection against identity theft since you can use it instead of your Social Security Number in the course of running a business. Plus, it's free and simple to get an EIN.
Doing Business As (DBA) or Fictitious Name
You can either operate under your business name or a Doing Business As, a fictitious name. If you choose to use a DBA, then you must register it with your city and/or state.
Some businesses may wish to have a legal name and an operating name for branding purposes, opening a business bank account, or using it for a business license.
Business Operating License
Businesses must obtain a business operating license, commonly referred to as a “business license”, in order to operate in their state. Depending on your location, you may need to file for a business license with your state or city.
A seller’s permit is only required if you are selling goods in person or online. This permit is advantageous because it lets you collect sales tax from customers.
If you are operating in a physical property for your business, you will need a local zoning permit. These permits apply to both commercial and home-based businesses. For specific questions, contact your local city planners.
Special Permits, Industry Licenses, and Federal Licenses
Depending on the type of business you own, you may need a special permit, industry license, or federal license. Find specific information relating to permits, licenses, and taxes at your state department of taxation website.
Some business forms, such as LLCs, are relatively simple and inexpensive to form, while you may need professional help to start other types. Make sure to follow your local and state guidelines to stay in compliance. This is especially important when you file taxes. There are specific taxation laws for the different types of businesses.
If you need help understanding how to form a business, you can post your legal needs 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.
Duties and Responsibilities
As a business owner, you will be in a new leadership role. Therefore, if you have employees or contractors, you will need to do additional tasks as an employer, including, but not limited to:
- Learning how workers' compensation and unemployment work. Worker’s compensation is a type of insurance that covers medical costs and lost wages from work-related injuries and illnesses. Almost all states require that businesses have this type of insurance. It is also mandatory to pay into state unemployment insurance if your business has employees.
- Understanding the types of insurance you may need. You may wish to find a lawyer or advisor to provide specific insight since the kind of insurance you need depends on the type of business you are starting.
- Deciding how you will classify the people working for you as independent contractors or employees. Determining if you would like to hire employees or contractors is dependent on your business needs. What is the job you need done? Will the position be part-time or full-time? What is your budget?
- Making sure employees complete the appropriate documents, including W-4s and I-9s.
- Learning the rules of health insurance. These are constantly changing under the Affordable Care Act, so stay on top of any publications and notices about this. Your business may have to provide health insurance to employees. Some states further require employers to get temporary disability insurance. Even if you are a sole proprietor, you'll need business insurance to cover any lawsuits and disputes that may arise due to your business. You might consider joining a trade group or subscribing to a publication for small business owners to help you stay on top of common concerns.
Set Up Equipment and Infrastructure
While different types of businesses will require specific equipment, all businesses must set up water, electricity, and internet. Research the various options available to you because problems due to infrastructure can be a costly headache in the future.
Additionally, you will need physical items like office equipment, computers, phones, and software such as programs required to operate your business.
Getting an Office Space
Before you fill your office with equipment, you will first need to select an office space. With so many options and considerations, finding the right office space for your business can be difficult. When shopping around, consider the following:
- Commercial leases. There are different types of commercial leases. Make sure to explore the various types before putting pen to paper.
- Budget. Before you select a space, consider what funding you have available. If possible, think about what would benefit you in the present, but would also meet future demands.
- Different types of office spaces. You’ll want to visit different types of offices to gain an understanding of what would meet your needs.
- Floor plans and layouts. Reviewing floor plans and layouts is critical to welcoming clients to the office while keeping staff happy.
Setting Up the Necessary Equipment
Here are ten basic office equipment that every business needs:
- Internet connection
- Kitchen supplies
- Telephone systems
- Photocopiers and printers
- Computer software
- Storage equipment
- Collaboration Tools
- Office waste and recycling bins
Choose an Accounting System
Invest in a good accounting system or accountant so that tax time is much less hurried and stressful. Figure out if you need to follow any special procedures to fill out your taxes. Some states require additional paperwork, depending on the business.
If you choose software over a person, make sure the program has ledgers and journal entries with the ability to generate financial statements. Some software programs also function as digital bookkeepers. This will be helpful for writing checks and managing payables.
Consider these five tips for selecting accounting software:
- Understand your needs and existing accounting skills. This will help you identify what features you require in software.
- Think about cloud applications. Cloud software can be helpful because it can be accessed anywhere and backup storage isn’t required.
- Review your budget.
- Know what add-on features are available. This will be helpful for meeting the specific needs of your business. Beware because these services can be costly.
- Talk to an accountant. Speaking with an accountant can help you identify your business needs better.
Build Your Team
Building a team can be complicated. It is not just about finding individuals who match the job description, but finding people who fit the team, company, and culture. Follow these steps to building the right team:
- Make a plan. A plan will help guide your decision-making by setting out goals and targets. A plan is also important for understanding the future of your company. You are hiring for the present, but also the future. You will be looking to hire someone who will go with the company.
- Write clear job descriptions. By setting a clear culture and expectations from the beginning, you will attract candidates that meet these goals.
- Set the company culture from the beginning and stick with it. Setting an example of company culture is important for retaining talent. Be honest and clear with the direction so you find employees that align with your vision.
- Advertise. You may be able to network and spread the word about the position you are hiring for. If you are not in this position, then consider posting to job boards or hiring a recruiter.
- Review applications. Reviewing a large volume of applications may be daunting, but there is software to help narrow down candidates for you to interview.
- Talk to candidates. When you are seeking the best candidates for your team, make sure to ask questions that align with your mission and vision. Dig deep during the interview so you have a thorough understanding of a candidate’s motivation and skills.
- Make an offer. Congratulations! You are ready to extend the offer. Make sure you are transparent with candidates about salary and benefits. Leave room for negotiation if possible and give the candidate time to review their contract before signing.
- Onboarding. Once you’ve hired, the real work begins. You will now need onboard your employees with processes, culture, and initial tools for them to be successful. You will also need to file a Form I-9 and Form W-4. To help create a smooth transition for you and the employees, consider contracting an HR service for onboarding and a lawyer to ensure all state requirements are met.
Protect Your Business
You’ve worked hard to start your business, so you need to make sure that it is protected. You’ll want to make sure to set standards, get insurance, protect your files and intellectual property, and file for copyright and trademark.
In this digital age, it is more important than ever to protect your business online and on social media. Consider creating a social media policy and communication guidelines for you and your employees to abide by. (Tip: When in doubt, don’t post!)
Depending on the industry and state that you are in, you will be required to have insurance. However, there are many types of insurance available to help protect your business.
Protect Your Files
Maintaining and storing files is an important organizational decision. Choose between a local database or the cloud, and ensure that your team is aware of the expectations on file storage. Make sure to follow the legal procedures with collecting, retaining, and disposing of your files. This will help to protect your ideas and files.
Protect your Intellectual Property Using Copyright and Trademark
Copyright and trademark are two tools to help protect your intellectual property. Copyright protects literary and artistic works, whereas trademark protects words, phrases, symbols, or designs. It is best to contact a business lawyer or seek legal advice to determine the steps to registering a copyright or trademark.
Promote and Grow Your Business
You have set up your business, but now you need to promote and grow your business and attract customers. Branding and marketing your business is an important step because this is how you will bring in customers. Follow these steps to market your business:
- Create a logo. You should make a logo or catchphrase, but make sure your brand is not already protected under trademark or copyright laws.
- List your business on Google.
- Use social media. Create interesting content and high-value visuals to make a connection with your potential customers and promote your services.
- Create an SEO-optimized website. Search engine optimization (SEO) helps to rank your business high on Google.
- Press Releases. Press releases help to promote newsworthy content.
- Participate in local events.
- Offers promotions.
Learning how to start a business takes hard work, but you can rest assured that you’re already steps ahead by doing your own research and following our guide to starting a business. If you would like help starting a business, post your legal needs on UpCounsel to get free quotes from some of the top lawyers in the nation.
If I have no money, how can I start my own business?
Finances are an important part of any business. When you do not have the initial financial resources, first tap into local free resources. Then connect with your community, friends, and family. Look for alternative funding sources, like grants.
What business is the easiest to start?
Services businesses are the easiest to start as a beginner. For example, a handyman service.
What’s the best time to start a business?
January is the best time to start a business because there’s less red tape and fewer tax implications.
What business structure is the best?
While it depends on what type of business you want to pursue, typically corporations are the best business because they offer the most protection for its owners from personal liability.
Am I able to run a business from my home?
You can run most businesses from home. Make sure to check any local or state legal requirements.
Is a permit or special license needed to start a small business?
Yes, you are required to apply for a business license. When registering your business, you must also check with local, state, and federal laws to ensure you’re meeting specific requirements for the industry.
What should I consider when selecting a name for my business?
You can choose whatever name you would like so long as it complies with your state’s naming laws and it doesn’t violate any existing copyrights or trademarks.
As an employer, how can I minimize risk?
Reduce your risks as an employer by conducting a risk assessment, reviewing your state’s and organization’s safety protocols and requirements, and seeking out expert advice when you are unsure which direction to take.
What are ways to protect my intellectual property?
Protect your intellectual property by using proper file management systems, and filing a copyright or trademark, when applying your business.