How to Start a Business? (Step-by-Step Guide & Expert Tips)
Starting a business is a worthwhile endeavor that involves strategic planning, decision-making, and management. As part of the process, ensuring compliance with state laws is essential.
To help you navigate this path with certainty, Venture Smarter has consulted a team of established entrepreneurs with decades of hands-on expertise in running their businesses.
Deriving from their vast experience, this article covers the important foundational steps of starting a business.
Quick Summary
- To start a business, understand the governing laws, conduct market research, choose a business structure, and create a detailed business plan.
- A business name should reflect your brand and services, be memorable, and checked for trademark and availability.
- Approximately 20% of new businesses fail within the first year, underscoring the importance of thorough planning and legal compliance.
- We often advise new startups to invest time in creating a comprehensive business plan for lon-term success and navigating early challenges.
12 Steps to Start a Business
To start a business, you must take certain steps to help you set your goals, develop plans and, ultimately, form your business legally.
These twelve steps outline what to do and what to expect when starting a business:
1. Understand Business Laws
As a prospective business owner, you must familiarize yourself with the business laws that apply to your company.
To assist you in understanding these business laws, Venture Smarter compiled a list of the type of business laws you need to be aware of as you're starting:
- Tax laws: Specific taxes apply to businesses, such as income tax, employment tax, and excise tax on specific goods and industries.
- Intellectual property laws: These regulate intangible assets like patents, trademarks, copyrights, and trade secrets that help businesses separate from one another.
- Privacy laws: It's important to communicate your data use policies to consumers and employees since they care about protecting their personal information.
- Finance laws: These regulate how businesses can spend money and expand.
- Employment laws: These are general sets of regulations that apply to businesses with employees known.
- Healthcare laws: Laws controlling medical care and employer-sponsored health insurance.
- Advertising laws: The purpose of advertising laws is to prevent deceptive or unfair advertising acts and practices [1].
"Business laws such as contracts, property rights, taxation, and other general business law safeguard various entrepreneur rights. Understanding business law helps you avoid mistakes that could hold you legally liable."
- Delina Yasmeh, J.D./Tax LL.M, Expert in Mergers and Acquisitions
2. Conduct Market Research
Market research will inform you if there's an opportunity to turn your own business idea to fruition.
It's a way to collect information about potential customers, businesses, and customers in the area.
We recommend conducting conduct market research through questionnaires and census data.
3. Choose a Business Structure
Choosing your business structure, whether sole proprietor or corporation, will often have legal and tax implications. Because of it, this choice is crucial.
According to a review by CIN7, consumers have higher expectations for small businesses than larger corporations, with 71% of them willing to pay for better-quality services offered by small entrepreneurs [2].
Some of the most well-liked business structures include:
- Sole proprietorship: The most typical business type if you want to run the business yourself.
- Partnership: A partnership structure may suit you if you begin a business with one or more people.
- Limited liability company: An LLC combines a corporation's limited liability protections with a partnership's tax benefits and operational flexibility.
- Corporation: It's more complex from a legal and tax perspective; thus, it's best if you are looking to open a big business.
4. Create a Business Plan
A business plan is an essential document that acts as a blueprint for starting a successful business.
In my experience, I've seen how this document significantly aids potential investors and financial institutions in understanding the fundamental elements of your business.
It acts as a crucial bridge between your vision and their decision-making processes.
Here are the important sections a solid business plan should include:
Executive Summary
Establish the executive summary to begin the write-up. The executive summary describes the proposed new business idea and highlights the goals of the company and the steps to achieve them.
Market Analysis
This part of the business plan examines how a business stacks up to its competitors. It includes a target market analysis, market size, segmentation, growth rate, trends, and a competitive environment evaluation.
Products or Service
Anyone looking at this section should be able to understand the operational procedures for your company.
It outlines the products you'll provide to customers, how they compare to your competitors, how much they cost, who will be in charge of making them, where you'll get your raw materials, and the cost of production.
Financial Plan
The financial plan is the most important part of the business plan. Your financial plan should include a proposed budget and projected financial statements.
Management Structure
The management portion describes your organizational and legal structure. It also describes your leadership team and your anticipated staffing needs. If you plan to apply for funding, briefly describe your advisory board here.
5. Choose a Suitable Business Name
After choosing your business structure, it's time to choose how the public will recognize your company.
Your business name should be:
- Show off your principles and brand.
- Describe the products or services you offer.
- Effortlessly serve as a logo and be memorable on social media and other marketing channels.
You should also check if your intended business name is already used. Contact your state's filing office or look it up online to confirm availability.
We also recommend checking with the US Patent and Trademark Office (USPTO) to see if the name is protected by trademark law, even if it is not used [3].
Note that some business structures require a doing business as (DBA) name, which is an assumed or fictitious name different from your business entity name.
Sometimes, a DBA may be required to open a business bank account.
6. Legally Form Your Business Entity
To legally form your business entity, you must register with the state in which you intend to conduct business.
Registration documents differ by state, but here is the general requirement:
- Business name and address.
- Registered agent's name and address.
- Management structure.
- Number and value of shares (if you're a corporation).
7. Apply for an EIN
Once you form your business, you should get an Employer Identification Number (EIN) from the IRS. This tax number is required to open a business bank account, file federal taxes, and hire employees [4].
Additionally, certain states have tax ID numbers, so you may need to pay state income and unemployment taxes.
Venture Smarter recommends you visit your state's official Secretary of State website to find out the state-specific tax requirements.
8. Get Licenses and Permits
Before you launch your business, ensure you have all the appropriate legal licenses and permits.
Suppose your business operates in certain industries, such as agriculture and broadcasting; you may require a federal license.
Other industries, like health care, usually need professional licenses. Even if you don't fit into one of these categories, your city or county may still require you to get a business license.
9. Set Up Business Bank Accounts
As you establish your business, you will receive and spend money. For example, if you have an LLC, opening an LLC bank account helps you mitigate risks.
That's why separating your business bank account from your personal account is critical.
By setting up a separate business bank account for your recently launched company, you establish a financial history that will guide your future business decisions and prospects.
Below are the three important business bank accounts you should consider opening:
- Business checking account.
- Business savings account.
- Business credit card account.
10. Fund Your Business
Your business plan helps determine the funds you'll need to start your business. You must consider other funding options if you don't have the funds.
They include:
- Investors: Investors will be willing to fund your business. However, they typically demand a seat on your board of directors or ownership in the business. To obtain a capital investment, you require a thorough business plan.
- Business loans: Small business owners must provide banks and credit unions with a comprehensive business plan and their estimated expenses and financial projections when applying for a loan.
11. Apply for Business Insurance
The business model you run will determine your insurance needs, but other requirements differ from state to state.
Examples of types of insurance to consider include:
- Workers' compensation: This mandatory insurance offers job-related injury or illness coverage. Employees often receive compensation for lost wages and medical benefits for voluntarily giving up their ability to file negligence lawsuits.
- General liability insurance: It typically covers mishaps, injuries, and negligence claims.
- Commercial property insurance: This property insurance typically covers losses and damages to property triggered by fire, smoke, storms, vandalism, and other occurrences.
- Product liability insurance: It protects against financial loss from a faulty product that causes injury or bodily harm and is frequently crucial for firms engaged in production or distribution.
- Professional liability insurance: If you provide a service, professional liability insurance can shield you from malpractice and carelessness claims.
- Business owner policy (BOP): BOP bundles property insurance and general liability insurance into one cost-effective policy for small and medium-sized businesses.
12. Finalize Other Business Setups
Here are the other setups to complete before launching:
Get Accounting Software
If you offer a product, your accounting software must have an inventory component to handle and track inventories.
The software should be able to create financial statements, ledgers, and journal entries. This software lets you track your earnings and expenses, create invoices, run reports, and compute taxes.
Marketing
Advertising your new business before opening your physical or virtual doors is crucial.
Here are some steps to take to let them know you're open for business:
- Create a website and optimize it.
- Use social media campaigns.
- Maintain an online presence.
- In-person events and promotions.
- Free content to promote your business.
Hiring Staff
To successfully run a business, you must hire qualified employees, including managers, administrative officers, accountants, legal counsel, and board of directors.
You must build a foundation for the job description, advertise the position, conduct interviews, and hire.
Note that you'll need to make it legal once you hire someone.
Related articles:
- How to Form a Candle Business
- How to Create a Makeup Line
- Opening a Sticker Business
- How to Start a Business as Black American
FAQs
How Do I Start a Small Business with No Money?
You can start a small business with no money by obtaining funds from investors and loans from banks or credit unions. Ensure you have a comprehensive business plan with expenses and financial projections.
How Much Does It Cost to Create a Business?
It costs $3,000–$40,000 to create a business. However, the cost varies depending on the size and type of business you want to create.
References:
- https://www.law.cornell.edu/wex/table_business/
- https://cin7.com/blog/small-business-statistics/
- https://www.uspto.gov/trademarks/basics/trademark-patent-copyright
- https://www.sba.gov/business-guide/launch-your-business/get-federal-state-tax-id-numbers#
