Thinking about starting a small business but not sure where to start?
Don’t worry. It’s not as complicated as you think it might be. In this article we’ll cover everything you need to know, including:
Ready to dive on in and learn how to start a small business, in just 12 steps?
The first step towards starting a small business is to come up with a business idea.
If you already have one, you can skip this step.
There are a variety of different methods and strategies you can use to develop an idea for a small business. Use these to pinpoint an idea — one that aligns with you as a person.
Do you have any hobbies or interests? Do you have any sort of expertise that’d make you equipped to start a business? Any degrees or work experience?
It makes sense to start a small business in something that you are knowledgeable about. Something you already have an existing skill set in.
It’s not surprising that a lot of big successful companies were started by those who already worked in the industry. Evan Williams — the co-founder of Twitter — worked at Google prior to 2006.
Are there any problems you have in your life — ones that currently lack a solution?
Why not create the solution yourself?
Many successful businesses were founded, based on this idea of self-interest. The founders were driven to fix an issue of their own.
When you can find the answer, you can then share it with the world. Odds are lots of others have the same problem. They’ll find great value in your product or service.
Keep your eyes and ears close to the trends because new industries are being created all the time. Simply being early to get into the game will increase your odds of business success substantially.
We’ve seen this turn out to be true again and again. The people who got in early on the internet and blogging made a killing. So did YouTubers, Viners and
The longer you wait to get into a new industry, the less likely you are to succeed. So, stay intune with news and where the world is heading. Try to get ahead of the curve,
Pretty much all businesses were inspired, or created by copying existing ones. There’s really no shame in it, everyone does it.
The trick to doing this successfully, is to not directly rip them off. Take their existing business idea/concept, and provide a new spin, or take on it.
For example, Uber didn’t reinvent the wheel, they just took the taxi model, and made it more accessible. They harnessed the power of the internet, smartphones, and apps.
What about TikTok or Instagram? Two of the biggest social media platforms in the world today. Neither of them were even close to being the first social media idea. They learned from the established ones, tweaked it a little, and found its niche and audience.
Hell, even Facebook took cues from Myspace.
Sometimes all it takes is a new angle on an existing product or service. Get creative, think outside the box. Find a way you can make a better experience.
Having an idea for your small business is good, but it’s just that — an idea. You need to find out if it actually has the potential to be profitable.
You need to conduct market research.
Doing this will help you uncover potential customers, as well as identify competitors in your industry. These two things will ensure your small business succeeds, giving you an advantage in the market.
Finding your market is crucial to validating your small business idea. Effective market research will observe not only how consumers behave, but track economic forecasts.
It’s essential that you get a clear picture of who your potential customers might be. You need to understand them before you even really begin to set up your business. This is why we’re performing market research.
To start, you’ll want to look at demographics — this will help you identify potential opportunities and shortcomings that you might face, acquiring customers. These demographics might include:
After that, you should then ask yourself some questions about your market.
To bolster your market research, you can not only use existing sources of data, but you can conduct research yourself.
Although it’s time consuming, doing your own research might be advantageous. You can make it more specific to your actual business. This is opposed to existing data, which is more generalized.
Here are some research strategies you can implement yourself:
These methods can be done online, on the phone, by mail, or in person.
You need to perform competitor analysis because it helps you gain an advantage. Learning from them is crucial to winning over the target customers and increasing your market share.
Identifying your competitors will involve you assessing your products and services, as well as your market.
Specifically, you should analyze and ask…
It’s also worth knowing that you might find competitors not only in your industry, but others. Ensure you do your competitor analysis, with industry categorization in mind.
When it comes to existing data, there are a lot of free resources at your disposal. These include real statistics that will help you as a small business owner.
The next step you need to take is to write a business plan.
A business plan is a document that outlines your business goals, going into the specifics of how they’ll be achieved. It’ll include a timeline, determining when these goals will be reached.
A business plan will help steer your business towards success. Think of it like a map, guiding you towards your goals, never letting you forget what journey you are on.
It’s standard practice for starting a small business.
Write a short overview, outlining the key aspects of your business.
Identify both what industry your business is in, as well as what business model you will be using.
What exactly are you selling? Identify these, including what problems they solve.
Who is your target market? Identify it, as well as the competitors, their unique selling points, and their market share.
What could possibly go wrong with regards to your business? What could be the consequences? What’s the likelihood that they could occur?
Outline your predictions regarding sales and marketing? What is going to be your marketing strategy and unique selling point?
What are your goals and milestones? When do you expect to reach them? How much time will they take to achieve?
What sort of system will you use to keep yourself accountable with regards to your set goals and milestones.
Identify all the members of your team, as well as their strengths and weaknesses.
Outline your project sales, as well as your expected expenses.
Outline how your initial capital will help you start your business, as well as keep it running. Note any debt/loans/financing.
Starting a small business obviously costs money. You need to find out how you’re going to finance your small business. As a business owner, this is one of the most important things you need to do.
There are generally 5 ways that you can finance your small business.
If you’re starting a small business solo, by yourself, then you’re probably going to be funding a lot of it. Depending on your personal financial situation, you might have a wide array of sources to pull from.
These personal sources might include:
There are both upsides and downsides to self-funding your small business.
The upside is that you have complete, 100% control of your small business. With investors, crowdfunding, loans and grants, you don’t.
The downside is that you assume absolutely all of the risk. It’s all coming from your own, personal pocket. You should think carefully about drawing from your retirement accounts. They generally have rules, fees and penalties.
Best to seek the services and opinion of a financial advisor.
If you don’t want to finance your business all by yourself, then you might try looking for investors. They can provide financial support in the form of venture capital investments.
Venture capital investments are a form of financing where in exchange for money, you give them part ownership. Sometimes it might also include them having an actual role in the business too.
It’s important to know how venture capital investments differ from normal financing.
Here are the differences:
Whether or not your small business is right for investors will require research and due diligence. Not all are suitable, as venture capital investors want a particular type of business to invest in.
Another financing option at your disposal is crowdfunding. This involves taking lots of really small investments, from a large group of people. These individuals are called crowdfunders, and they don’t get ownership stake, or a financial return.
What they do get is usually a gift of some sort from the business. It might be the product or service sold, or some form of perk. For example, if people were crowdfunding a movie, they might get featured in the credits.
Crowdfunding is particularly popular for physical products and creative projects.
As a form of financing, it’s effective as a business owner, because it’s incredibly low risk. You don’t have to give up any ownership, and you don’t have to pay anyone back.
There are a number of different crowdfunding platforms out there, like GoFundMe. They usually have detailed terms and conditions, so read the fine print carefully.
One of the more popular ways for small businesses to finance their setup and operation, is a loan. Small business loans are sums of money given to you by lenders, which you eventually pay back.
Lenders are typically banks, but can also be online business lenders and P2P lenders. Each type of lender has its own advantages and disadvantages. Finding the best one for your small business will require extensive research.
To secure a loan, a lender is going to assess and audit you financially. They’ll typically look at:
Loans are great for small businesses because they give you money like an investor, without giving up equity. The downside is you could lose a lot personally, but not as much as if you bootstrapped it.
Do extensive research when it comes to looking for small business loans. Talk to banks and credit unions. Shopping around will get you the best deal possible.
There are a wide variety of potential government grants for small business available to you.
Discussing the specifics of these grants is beyond the scope of this article. Do your own research — there are programs out there that can help you start your small business.
The next step towards starting your small business is to choose a business structure.
A business structure is essentially a classification for how your company is organized, in a legal sense. It influences a variety of things, such as:
The ideal business structure for your small business will protect you legally, as well as provide benefits.
There are actually quite a lot of different business structures you can choose from. Not all of them will be suitable for you. We’ll cover each briefly.
A sole proprietorship is a business run by only one individual — some countries refer to it as a sole trader. This type of business structure pays personal income tax on profits earned.
In a legal sense, sole proprietorships are not considered separate legal entities from the individual owner. This means the assets and liabilities of the business are not separate from the individual’s personal ones. If your business were to be sued, you personally will be held liable.
Sole proprietorship is a good business structure for low risk businesses, as well as though testing the waters.
On the other hand, it’s not great for investors as you can’t sell stock. Banks also tend to avoid giving out loans to these businesses as well.
Partnerships are a basic structure for businesses with more than one founder/owner. There are 2 types of partnerships:
Limited partnerships allow one partner to have unlimited liability, meaning they can legally be held personally liable. It’s kind of like being a sole proprietorship.
The rest of the partners have limited liability, which ultimately protects themselves legally. The tradeoff is that these partners have less control in the company. This is all legally documented in a partnership agreement.
The profit made by the business goes through the partners personal tax returns. The partner with unlimited liability also has to pay self-employment taxes.
Limited liability partnerships give limited liability to all partners of the business. This protects them all legally speaking, from debts of the business.
Partnerships are ideal for those that have multiple owners, and want to test the waters before trying something more concrete.
Limited liability companies combine corporations and partnerships, essentially taking the best of both.
An LLC creates a barrier between the business and the owner as an individual. You and your assets will be protected from business related issues like bankruptcy, fraud and lawsuits.
There is no need to pay any corporate taxes, but self-employment taxes must be paid.
LLCs don’t last forever — if a partner leaves, you might have to create a new partnership. Although you might have a document already in place for ownership changes.
If you have a lot to lose personally, an LLC is a great choice to protect yourself. Typically those with businesses that are high risk use this structure. It’s also used by partnerships looking to pay less taxes.
A corporation — known as a C corp — allows a business to be separate from its ownership, providing ultimate personal protection. This also means that both the business and its owners are taxed separately.
The downside is that a C corp costs more than the other business structures. Corporations must pay income taxes on profits, and again when the shareholders get paid.
Record keeping is also more extensive, which will ultimately cost you more money.
On the plus side, corporations are more robust when it comes to people leaving. There is no need to dissolve, as their shares can be sold. This also makes C corps ideal for investors and loans.
C corp is a great business structure for companies that are looking for financial help. Typically high risk businesses, and those planning to go public.
S corps are very similar to C corps, except that they are designed to avoid the “being taxed twice” issue. This works by allowing some of the profits and losses of the company to avoid corporate tax. They go straight to the personal tax returns of the shareholders/ownership.
You can only use an S corp business structure in some US states, as not all of them acknowledge it. Instead, they’ll simply treat it as a typical C corp.
To become an S corp, you’ll have to register and complete a form with the IRS. S corps are also limited to a maximum of 100 shareholders, whom all of which must be American citizens.
Like C corps, an S corp doesn’t need to be remade every time a shareholder leaves.
If you’re suitable for a C corp, you should definitely check to see if you’re applicable for an S corp. You might find it to be advantageous.
A B corp, which stands for benefit corporation, are tax-wise, the same as C corps. They however, have a different function — a moral clause. They must file an annual benefits report, which details how they positively affect the public community.
B corps are kind of like a middle ground between not for profits, and corporations.
A close corporation is basically the private version of a B corp, except with less rules to follow. This is due to a difference in corporate structuring — the company is owned by a small group of shareholders.
Because of its private nature, close corps cannot trade shares publicly on the market.
A nonprofit organization is as the title intends, a business that doesn’t operate for personal gain. They are intended to serve a philanthropic, public good. This could be a host of things, including:
Nonprofit organizations are tax exempt, which means they don’t pay any federal or state taxes on profits generated.
As far as rules, they follow similar guidelines to a C corp, except for a few differences. For example, they aren’t allowed to contribute to political campaigns.
A cooperative is a company that is run by a group of people who actively benefits from its operation. The profit generated is shared among these people, who are called “user-owners.”
Cooperatives are “democratically run,” in the sense that each member gets an equal vote. This is irrelevant of how many shares they have in the company, or how much they’ve invested.
It’s possible to run a business with multiple structures. For example, you could be an LLC, but get taxed as a C corp.
These multiple business structures are quite rare and complex.
Now that you’ve selected an appropriate business structure, it’s now time to choose a business name.
A business name is important because it’s your brand. It’s the first thing potential customers see about you — it’s what differentiates you from your competitors.
You also largely need a business name for legal purposes. Most, if not all states require you to register a business name.
In general, there are 2 types of business names:
Brand business names are unique and stand out… But they don’t really tell you what the company does.
Industry business names specify what the company offers to potential customers and clients.
As a small business, you should look to have a mix of both. You need something unique to make you stand out, but you also need to advertise what you do.
For example, if you’re a lawn mowing business, your business name could be “A1 Lawncare.” People will know you as A1 — that’s your brand, what separates you from the competitors… And lawncare tells potential customers and clients exactly what you do.
NOTE: Make sure to check to see if the name isn’t already taken. Read the next section about how to register your business name — there’ll be a checker tool.
There are 4 ways you can register your business name:
You don’t have to register for all of them, but if it’s affordable for you, it would be wise.
An entity name protects your business name at the state level. Whether or not you need to register one depends on:
Your entity name is how your business is identified in your state, and stops anyone else from using it.
Each individual state has its own technicalities, so be sure to do your research and due diligence.
A trademark name protects your business at the federal level. This means that no one else is allowed to use your business name, except you. Generally it only applies to the same, or similar industries as you, though.
If you try to use a trademarked business name, you could get hit with a very costly lawsuit.
A DBA name stands for “Doing Business As,” which is sometimes also called a trade name. It provides no legal protection — it’s simply required by some states. Multiple different businesses in the same state can use the same DBA name.
NOTE: Certain business structures also require you to have one.
Your domain name is your website address, which should align with your business name. It doesn’t have to be an exact match, it’s just preferable. Ideally you would have checked to see if the domain name was available, prior to registering your business name anywhere.
You now need to register your business legally. This will make it an official entity for trade — a business if you will.
You might need to register for a few things, or a lot. It all depends on the nature of your business. Specifically, the structure of your business, as well as its location.
There are 3 government levels that businesses register with:
You might have to only register with one of them, or perhaps all of them. Once again, it depends on business structure and location.
For the majority of small businesses, you’ll only have to register with your state, and perhaps your local council/government.
Aside from attaining a federal tax ID, the majority of businesses won’t need to register at the federal level. The exception might be if you’re looking to trademark your business name, or gain a tax exemption.
If your business has a physical location, you’ll definitely need to register with your state. That goes for every location your business has. If you have storefronts in multiple states, you need to register with all of them.
In general, if you are an LLC, nonprofit, corporation, or partnership, you’re likely to need to register with your state.
Most counties or cities won’t require small businesses to register. The exception is if you are either a:
If your business structure is one of these, you’ll most likely have to register for licenses and permits. You might also need to register a DBA name.
Next step: acquiring licenses, permits and taxes.
As a business, you will have to register for taxes. There are 2 categories of taxes you can register for:
Your federal tax ID — also known as an employee identification number — is needed to pay federal taxes. It’s also required for paying employees, and licenses and permits.
It’s absolutely free — it is also needed to be able to open a business bank account.
You might need one, you might not. It depends on the specifics of your business. What’s your business structure? Do you pay employees? This is something you must research.
Depending on the state your business is operating in, you might need to pay state taxes. If you are one of these businesses, you must register for a state tax ID.
If you don’t know whether you need to pay state taxes, you’ll need to research your state’s specific tax laws. Employment and income taxes are the most typical type of state taxes you as a small business might pay.
As a small business, you’ll most likely need a mix of licenses and permits to operate. Which ones you need will depend on the nature of your business, its location, and state laws.
Like taxes, licenses and permits come in 2 general forms:
Given that you’re a small business, you’ll most likely not need any licenses and permits on the federal level. Though, there are exceptions.
If your business is in any of the following industries, you’ll need federal licenses and permits:
There’s more categories — that’s only just a few. Be sure to do your own research.
State licenses and permits can exist for an entire state, county, or city — each will have specific criteria. In general, states tend to regulate more activities than the feds do.
It’s important to note that both the fees of permits vary, as well as how long they’re valid for. Make sure to do your research, and consider this in your budgeting and financing.
You’ve registered your business, set up taxes, and acquired the appropriate licenses and permits. Now it’s time to find you a storefront location.
Where you choose to set up your small business matters because different locations have different rules. Each state, city, and local county have different tax, zoning, regulation issues to follow. There are also incentives for choosing certain areas.
Basically? You need to be calculated with where you choose to locate your physical business. It can be rather advantageous, if you pick the right area.
The best place to set up your small business depend on a variety of factors:
These are all things you should consider and look to answer.
The specific area you choose to set up your small business will have local zoning requirements. You have to adhere to them, regardless of whether you’re buying, renting, or building.
Certain areas are classified as either residential or commercial. You’re simply not allowed to open a small business in some places.
You’ll need to check with your local government to get the lowdown on the specifics. Each city and county will have its own zoning laws for every area, neighborhood and suburb.
Tax rates can vary dramatically from state to state, city to city, and even local counties. Things like property taxes, income taxes, and sales taxes all vary. If you’re a corporation, corporate taxes are different, too.
It’s a fact certain states have created favorable tax environments to encourage businesses to the location. You should keep an eye out for any opportunities.
Certain states and local counties have incentives for small businesses who choose to set up shop in the area. Some of these incentives might include potential loans, or tax credits.
The local and state governments offer these incentives because they try to encourage community growth. They might be trying to decrease unemployment, improve urban development, or improve energy efficiency.
At the federal level there is the HUBZone program — it stands for Historically Underutilized Business Zones. They are essentially incentivizing business owners to move to specific areas to spur economic growth.
As a small business, you’ll likely need to build a team of people to help run your operation. It’s important you know your tax and legal obligations, among other things. You’ll also need to know where and how to find them.
Let’s get into it.
It’s really important that you know the difference between an employee, and an independent contractor. It could save you lots of money.
An independent contractor is a freelancer who operates from their own, or someone else's business. They’ll send you — the small business owner — an invoice for work they’ve done.
An employee is someone who works from and as a part of your team. They exist under the same business name, which their personal tax returns reflect. As a small business owner, you pay their salary, as well as provide benefits.
There are instances in which an independent contractor can be deemed an employee. There are laws in place to combat businesses trying to get around not having employees. If you a contractor is legally found to meet the criteria of being an employee, big fines and expenses will occur.
To hire and pay employees, there are a host of responsibilities you’ll take on as an employer.
You must pay various benefits, like social security, workers compensation, disability, leave, and unemployment.
You must have a payroll system that is actively managed.
Your employees must complete W-4 and I-9 forms, and give their name and social security number.
These are just some of the things you must have in place as an employer. The IRS has an Employer’s Tax Guide to cover all employer tax related issues.
If you do need to hire employees, you need to do some extensive research. It’s one of the more complicated issues when starting a small business.
There are a variety of ways for you to find employees to fill out your small business team. Here are some examples:
We’re nearly at the end — let’s create a website for your small business.
You need a website because people have shifted from directory pages to Google search. If you want to show up on Google when potential customers are looking for options, you need a website.
The internet is also the prime place to advertise, market and promote your business. You need a website as a digital representation of your business, where they can find you.
There are really only 2 things you need to create a website:
There are many providers that offer these, at very low prices. Here are some examples:
A website for your small business is going to be one of your cheapest expenses, costing no more than $200 a year. You might spend more money on a designer to put your website together.
The actual process of creating your website will be done with the help of a CMS or website builder.
A CMS (content management system) is a platform that allows you to control and edit the content of your website. The most popular example is WordPress.
A website builder is a more specific tool that allows greater control over the design of your website. It’s like a CMS, but more premium — it’s usually included in other platforms like Squarespace or Wix.
They’re technically different, but accomplish the same thing: building your website.
You might also want to include a pricing page and a testimonials/case study page.
If your website sells your products and services online, you’ll need certain features and functionalities. If that’s the case, you’d be best using a platform specifically designed for eCommerce.
The 2 most popular platforms for eCommerce are:
Last, but not least, you must get the word out — time to promote and market your small business.
Below, you’ll find various strategies you should implement.
Create and verify your Google business profile with a My Google Business account.
Place flyers at shopping centers, local supermarkets, community libraries and centers.
Network with people and hand out business cards.
If you have an interesting story to share with them, use it as a way to gain publicity.
As a small business, you should be on a number of different social media platforms. Here are some of them you should consider joining:
You should create a complete content strategy that targets the right keywords. You should be creating high quality blog posts that rank well on Google, bringing in traffic to your website. Ensure all content is SEO optimized.
Make sure your blog posts and website pages have opt in forms with effective lead magnets. Build your email list up by converting your content marketing website traffic.
Get on YouTube and create high quality videos about topics about your niche. Put links to your website, blog posts, landing pages, and social media accounts in the description.
Buy ad space on Google, Facebook and YouTube to drive traffic to your website and other important pages.
In this article we covered everything you need to know to create a small business.
You should now know:
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