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How to Start a Small Business in 10 Steps

So you have an amazing idea for a business and you’re ready to make the leap from concept to reality. But how do you actually start your own business? What steps must you take to transform your vision into a fully-functioning and eventually profitable endeavor? 

Well, if you do already have that million-dollar idea, then you can check off Step 1. The seedling of any great business is inspiration. Whether you’re opening a retail store, building a website, establishing your own consulting firm, or selling handcrafted furniture out of your garage, it all begins with an idea. 

Once you’ve got that down, everything else should simply fall into place. Just kidding. The Small Business Association says that 25% of all new business startups fail in the first year. The failure rate jumps to 50% by the fifth year. These ominous figures aren’t meant to discourage you, but to caution that you’ll want to proceed carefully, thoughtfully, and in a logical sequence.  

If you’re thinking of starting your own business but you’re not quite ready to quit your day job, check out our look at 10 Reasons to Get a Side Hustle.

However, if you’re ready to dive full-throttle into the exciting world of entrepreneurship, follow these ten steps. The exact sequence may vary depending on the nature of your business and your personal circumstances but in most cases, you will need to check these items off of your list on the way to a viable business.

1.    Research the Marketplace

Whatever your idea is, you’ll likely be entering into a business market with existing leaders, established best practices, emergent technology and, in many cases, a host of other startups with their own exciting ideas. Before you launch your idea into the universe, you must understand exactly what you’re getting into. The SBA advises that you begin your research by addressing questions about demand, market size, economic indicators, location, market saturation, and pricing. 

Follow this with a competitive analysis in which you assess characteristics such as market share, strengths and weaknesses, your window of opportunity, key target markets, barriers to entry, and the specific competitors who may impact the success of your business.

You should also understand how encompassing factors well beyond your control can shape the destiny of your business. For instance, in an era marked by unpredictable supply chain issues, how might shipping delays, fluctuating costs, and materials shortages impact your business plans? And during a time when the impacts of global climate change are becoming more visible and severe, how must you adjust your approach to energy, sustainability, and emissions? What does the regulatory environment look like for your industry, what steps must you take to be in compliance, and what kind of costs will that likely impose on your fledgling business? 

These are all questions you’ll need to ask and answer as you familiarize yourself with the marketplace where you’ll ultimately be competing. The better you understand the opportunities, risks, and idiosyncrasies of your industry, the better prepared you’ll be to steer your business through its first stages of development. 

2.    Assemble a Business Plan

Creating a meaningful and compelling business plan is an essential step. This will be your roadmap from funding to launching, from daily operations to long-term growth. While your business plan is not set in stone, this will be an important document both for guiding you forward and for persuading potential partners, investors, and team members of the value in your business idea. A traditional business plan will be a well-organized and clearly stated explanation of your business. It should begin with an executive summary of everything contained within, and should include, at a minimum:

  • A description of your company;
  • Comprehensive market analysis;
  • Delineation of the company’s structure both organizational and legally;
  • Elaboration on the product(s) or service(s) offered;
  • Identification of marketing and sales strategies;
  • Explanation of funding including required capital, delegation of funds, and future repayment plans; and
  • Short-, mid- and long-term financial projections.

While the Small Business Administration (SBA) offers access to both traditional and “lean” startup business plan templates, there is no single correct way to format a business plan. Take a look at the array of templates available online for free to get a sense of how other startups approach this important step. However you craft your business plan, make sure the information is clear, presented in a logical sequence, and perhaps most importantly, that it is intriguing enough to capture the attention, interest and even the imagination of those who read it. 

3.    Get Funding

One of the most important functions of your business plan is to provide potential investors with a reason to believe in your idea, whether you’re seeking a partnership, an outside investment or a traditional loan. The SBA notes that there are countless ways that a startup can gain the backing to launch, including:

In any of these arrangements, you must demonstrate that you’ve given full consideration to the financial outlook for your business. Those who agree to fund your idea will only be compelled to do so if given a reason to believe they can profit from this investment. 

4.    Consider Geographical Locations

Part of your preliminary market analysis should include a closer examination of the geographic realities impacting your business. Every state and municipality imposes its own set of costs and regulatory conditions on a given business. The cost of operation in some states is higher than the cost of operation in others. Property and office space may be far more costly in a densely populated metropolitan area than in a more remote rural community. Business taxes, property taxes, sales taxes and other features can vary from state to state. So too can labor laws, environmental laws, and minimum wage rates as well as the cost of materials, utilities, and fuel. These variations can have a determinant impact on the profitability of your business. Give full consideration to the geographical conditions that can shape your financial outlook and plant your brick-and-mortar roots accordingly. 

5.    Determine Your Legal Structure

The brick-and-mortar building isn’t the only structure you’ll have to produce. You’ll also want to decide on the legal structure of your business, which will be an important determinant of your legal and tax liability, of your insurance and licensing requirements, and of your regulatory and compliance obligations. It’s advisable that you familiarize yourself with the fairly wide array of common business types before determining the structure best suited to your market, goals, size, and product or service offering. The Small Business Administration identifies the leading business entity structures as the following:

  • Sole proprietorship: A one-person organization with unlimited personal liability and personal tax filing
  • Partnership: A small organization joining two or more people and typically facilitated through personal liability and self-employment taxes
  • Limited Liability Company (LLC): An organization of one or more people where owners are protected from legal liability, and in which self-employment, personal, or corporate taxes may be filed
  • C Corp: An organization of one or more people where owners are protected from personal liability, and in which corporate taxes are filed
  • S Corp: An organization of between 1 and 100 U.S. citizens where owners are protected from personal liability and in which personal taxes are filed.
  • B Corp: An organization of one or more people where owners are protected from legal liability, and in which corporate taxes may be filed
  • Nonprofit Corporation: A tax-exempt organization of one or more people where owners are protected from legal liability and in which corporate profits may not be distributed

Sites like Legal Zoom may provide excellent guidance as you determine the right structure for your budding business.

6.    Build Your Brand

Now that you know what your company is, it’s time to figure out who your company is. This is when you’ll begin to define your brand—the identity that you’ll convey to your prospective partners, investors, clients, and target audiences. Naturally, one of the most immediate and critical needs is to name your company, as well as your key service offerings. The visual approach, marketing tone, and lingo should extend from these key features and ultimately inform additional decisions such as logo, slogan, color scheme, website layout, and more.

The brand you establish should be informed by conventions within your sector, by target audience preferences, and by the unique value proposition that your company brings to the marketplace. If your new company will offer life insurance policies, you will likely select a company name and a brand identity that reflects the serious and sensitive nature of your industry. By contrast, if you’re starting a microbrewery out of your basement, you may choose a more irreverent and edgy brand identity. 

While all organizations go through some form of evolution in terms of their name, identity, and appearance, it’s important to get off the ground with a strong sense of who you are. 

7.    Register Your Business

Once you’ve landed on a name for your company, you should have everything you need to officially register your business. This is when things get real. Your company is no longer an idea, but a living entity. Naturally, the first step is to determine if and where you need to register. In most cases, registering may be as simple as filing your company’s name with your state and local governments. Federal registration is generally reserved for those seeking specific trademark protections or specialized tax status. Otherwise, federal registration will generally occur organically when you file for a Federal Tax ID (see below). 

Depending on the nature of your company, you may not be required to register at all. For instance, says the SBA, “If you conduct business as yourself using your legal name, you won’t need to register anywhere. But remember, if you don’t register your business, you could miss out on personal liability protection, legal benefits, and tax benefits.”

In other words, it may be worth registering your business regardless of its legal structure, but the value of this registration (as well as associated fees) can vary from state to state. The Small Business Administration offers a state-by-state portal where you can determine the business registration requirements specific to your state. Contact your local city hall or chamber of commerce to learn of any requirements specific to your municipality. 

8.    Get Your Tax Filing Status in Order

As noted above, registering your company at the federal level may simply be a matter of filing for your company’s tax status. When you do this, you should receive an IRS-issued Employer Identification Number (EIN). The Small Business Association describes this as the rough equivalent of a Social Security number for your business. You will use this identification number for critical functions like filing your taxes, creating bank accounts, applying for required licenses and permits, and producing financial reports. You can use the IRS Assistance Tool to begin the process of being assigned an EIN. Once you’ve taken this step, you should be in a position to get your finances in order, which should include creating the proper business banking account and any other accounts you’ll use to manage company profits, investments, expenses, and more.

9.    Ensure Regulatory Compliance

One of the final steps you’ll need to take before getting your company off the ground is to make sure that you’re poised to be in compliance with everything that is legally required in your state, locality, and industry. Your requirements may vary considerably from one state to the next, from one business type to the next, and even from one product offering to the next. If you’ve conducted exhaustive market research (as per the first step on our list), you should have a strong sense of the licensing, certification, bonding, and iInsurance required for your company, as well as the costs, fees, and renewal requirements associated with each. You should also be aware of any specialized safety requirements, procedural demands, consumer protection issues, and any of the particular legal liabilities against which you’ll need preemptive protection. Before you open your doors, make sure you’re doing everything by the book.

10.    Nurture Relationships

Once all your paperwork is in order, it’s time to focus on the human side of organizational development. You can’t do it all by yourself, even if you are a sole proprietor. Building a company means building relationships—with potential partners and investors, with prospective vendors and distributors, with team members and independent contractors, with investment advisors and technical support. Before you launch, build the groundwork for the types of connections you’ll need to succeed. Get to know the people who will work alongside you on the way to your top objectives. Know who you can trust, what skills they bring to the equation, and how best to delegate responsibilities. 

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Now that you know what steps you’ll be taking on the way to launching your business, dig a little deeper with our comprehensive Ultimate Guide to Starting a Business.