How to Start a Business (12 Steps)

However—one out of three businesses don’t last longer than two years. And only half make it past five. So, if you want to be self-employed, you need to do it right. But where to begin?

Here’s how you start your own business, broken down into 12 not-too-complicated steps. Follow these steps, keep your wits about you, and you’ll be starting out on the right track—so your business is a success, and not just another statistic.

1. Research competitors and potential customers

Early research lets you know who your business will be competing with, and who you’ll be selling to. This info helps shape your business plan, plus other decisions you’ll make down the line.

Research your competitors

How much competition your business faces will depend on the nature of your business. If you’re launching a dating app, you’ve got a lot of competition to research. If you’re launching a dating app exclusively for borzoi owners and breeders, the field narrows.

First, make a list of your competitors. Then you’ll want to dig up:

• Online reviews by customers. What does your competition do well? What are their weaknesses?
• Their website and social media profiles. What do they have to offer? What is their brand identity?
• Public records. If you’re going up against a corporation, their financial filings are public. You can search them for free on the US Securities & Exchange Commission website.

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You can also do some primary research. Take a walk around their store. Sign up for their online service, and let their sales team court you. Subscribe to their newsletter, follow their blog, find out where the CEO lives (jk).

A little friendly stalking can give you a better idea who you’ll be competing with.

Research your potential customers

Your goal is to fulfill your customers’ needs better than anyone else. To find out what customers are looking for, look at what they’re already saying.

Here are four effective ways to get inside your potential customers’ heads.

Research Amazon reviews for similar products

Once you know which products you’ll be competing with, you can zero in on them and find out what customers are saying. Amazon is a good place to start—store owners can’t delete negative reviews.

Be sure to take into account both the good and the bad. Amazon lets you view all the one star reviews of a product, as well as all the five star reviews, and everything in between.

Keep in mind—some sellers use fake reviews to boost their products. Fakespot is a simple, free tool that helps you weed out fake customer reviews.

Look for recurring keywords: what are people frustrated with from the competition? What are they happy with? This info is a goldmine for starting your business off on the right strategic foot.

Read competitors’ help forums

When you’re using a product or service and you hit a snag, the first question you ask is, “What happened?” The next is, “How do I fix it?”

Users go to online help forums to help them overcome barriers using a product. Taking a deep dive into your competitors’ help forums, and seeing which problems come up again and again, or which ones seem to upset customers the most, can help you plan a better alternative: Your product.

For instance, if your competitor’s dating app has a 500KB size limit on photos, and their forums are full of people asking how to make their photos smaller, you’ve found an opportunity. Maybe your app will offer a larger size limit, or a built-in feature to resize photos.

If your competitors don’t have online help forums, look for customer-created support forums, or enthusiast forums for your customer base.

Look for niche blogs

Did you know there’s a blog entirely devoted to vacuum tubes and vacuum tube reviews?

Chances are, if there’s a blogger out there obsessed with Cold War audio technology, there is someone blogging about the types of products your business offers.

Niche bloggers can give you helpful insights into the most devoted segment of your customer base. Think pet peeves, common complaints, inside jokes—all ready for the taking, if you’re prepared to do the research.

Visit local meetups for your customer base

Local meetup groups give you the chance to do some in-person, anthropological research into potential customers. For instance, if you’re planning to launch a label-making service for amateur beer makers, you could drop into a local homebrew enthusiast’s gathering.

If you’re comfortable with the idea, be forthright about your business plans, and your reasons for visiting the meetup. When they feel like they could be shaping a new product, people are often too happy to talk your ear off about their hobbies and interests. Be prepared to take notes.

2. Use a business plan to take your business for a test ride

Your business plan is a blueprint for how your company operates. This isn’t just essential for planning how you’ll start your business. You’ll also need a business plan if you’re planning to apply for a loan or bring on investors. And once your business is established, you’ll refer to it when you’re making important decisions, planning your marketing, or hiring new staff.

On top of that, creating a business plan now lets you take your business for a test ride—putting down on paper how your business will function, how all the moving parts will work. That can let you better determine what you’ll need for funding and personnel.

What you need to write a business plan

To put together a business plan, you’ll need the following:

The purpose of your business plan

Are you using your plan to apply for a loan, or only to roughly sketch out how your business will operate? This will determine whether you need an in-depth, heavily researched plan, or a leaner, temporary one.

An audience

Who are you writing your plan for? Investors? Business partners? Figure out who your business plan needs to target before you get started, so you know you’re including the right information for the right people.

Research materials

After doing research for your business plan, you should have:

• A list of main competitors, and their strengths and weaknesses
• A detailed explanation of what your clients or customers are looking for
• Projections for your industry—both in terms of how it’s changing, and how it’s expected to perform in the future
• A history of your industry. Who has gone before, and how does that affect what you’re offering?
• An overview of potential roadblocks your business may face down the line—you can’t afford to be romantic about the future

Documentation

Prepare a list of positions you plan to fill in your company, even if it’s only one or two people. Also, include a list of any licenses or permits your business will rely on.

A company profile

This is a public-facing document that lets the world know what your business does. It should be no longer than a page.

Include:

• The problems you solve for clients and customers
• What sets you apart from the competition
• The resources your business depends on
• Your mission statement and vision for the future
• What inspired you to go into business

Financial projections

Using as much data as you can muster in these early stages, create financial projections for your business. You should have a projection for your first twelve months in business. This will let you know how much funding you need.

A highly detailed projection will take into account revenue as well as expenses. It’s best to create estimates for good, bad, and average scenarios, so you can see how different volumes of revenue might affect your business in each situation.

At the very least, project your expenses for your first twelve months in business. That way, you can plan how you’ll use your startup funding, ensuring you don’t overspend on some expenses and underspend on others.

Once you’ve been in business for at least a year, you’ll have financial records for your business. You can use them to create project farther into the future, like five years down the line. Those types of projections are important for securing business loans.

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This is just a rough overview. Our guide to business plans has everything you need to plot out and create a plan to suit your needs. And don’t forget to include a cover page that can catch people’s attention.

3. Get funding (one way or another)

You need to make sure you have enough capital to get your business running, and then keep it going for a while, no matter how many bumps you face along the road.

To finance your business, you should have enough cash to pay for:

1. Startup expenses. This can include renting commercial property, buying equipment, hiring staff, launching a website or online store, buying inventory, launching some Facebook ads, hiring a bookkeeper—anything you need to get your business up and running.
2. Operating expenses for 12 months. Make sure you have enough to keep the lights on and open sign out for one whole year. You’ll spend that year building a customer base, creating brand awareness, and improving your products or services—but you won’t necessarily be making a profit. Consider this 12 month safety fund an investment in the future.

You’ve got a few options when it comes to getting funding for your business:

• Bootstrap. Doable if your business is exceptionally lightweight, you’re a solopreneur/freelancer, or you have deep pockets.
• Get a loan. Apply for either a standard business loan from the bank, or an SBA loan.
• Bring on investors. These could be angel investors, venture capital firms, friends and family, or that rich, eccentric uncle.
• Crowdfunding. If you’ve already got enough capital to launch an online marketing campaign, and you’re planning to create a really unique product or service that hasn’t been done before, crowdfunding could be the grassroots solution you’re looking for.

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Once you’ve got funding, you’re ready to plan a location for your business and get it registered.

4. Find a location that suits your business needs

Determine what kind of real estate your business needs. Are you turning your guest bedroom into a home office? Could be time for a trip to Ikea.

Setting up a brick-and-mortar store? Time to talk to a commercial real estate agent. Make sure you approach them with a detailed list of your needs—such as a location with lots of foot traffic, an industrial dishwasher, or storage space for inventory.

Also, check with your county clerk’s office to see what types of zoning regulations could affect your business. This might help you narrow down where you look for real estate—some areas will have more zoning for certain types of businesses than others.

If you’d rather not have to leave your house, an ecommerce or dropshipping model is worth checking out.

5. Pick a business structure that protects you from liability

Your business structure determines how you’ll file your taxes. It also sets the ground rules for liability. Certain business structures can protect you from being personally being sued, or having your personal property tax levied.

The four types of business structure you have to choose from are:

Sole proprietorship

The moment you go into business for yourself, you’re a sole proprietor. For tax purposes, you and your business are identical. This business structure offers you zero liability protection. This is fine if you’ll be running a simple freelance business.

Limited liability company (LLC)

With an LLC, you can choose either to file your taxes as a C corporation, or an S corporation; each has different benefits and drawbacks. The LLC is a separate entity from you personally—so you get liability protection.

Partnership

If you and one or more people want to share ownership and control of a business, you could form a partnership. You all sign a partnership agreement, which determines how the company is run. And, while you need to report to the IRS how much your partnership earns, each partner files a share of that income personally, on their own tax returns. With a partnership, liability is split evenly between partners.

Corporation

To form a corporation, you and your shareholders—investors, business partners, or employees—elect a board of directors. Then you file the articles of incorporation. A corporation takes more work than any other business structure to set up. But it shields you from financial liability, and lets you distribute some of your company’s value in the form of shares. That can be helpful for getting funding. You don’t need to be a giant business to form a corporation—even a company with just a few employees can sometimes benefit from the corporate business structure.

For a deep dive into business structures—and help finding the right one to suit your needs—check out Bench’s guide to business structures.

6. Name your business, then register it

If you’re a freelancer operating under your own name, there’s no need to register a business name. But as soon as you decide to name your business, there are two steps you need to take:

Make sure no one else is using your name

First, check at your county clerk’s office to see if anyone else locally is using your chosen name. Then, do some research online. Finally, if you want to be really sure, talk to a patent and copyright attorney.

File a doing business as (DBA) form

If you’re operating as a sole proprietorship under a name other than your own, you’ll need to file a DBA form with your state.

If you’re operating as an LLC, partnership, or corporation, you’ll submit your business name when you elect that business structure for federal and state tax purposes. However, if you want to be known under a different name than the one you’ve registered—on your tax return you’re “Has Beans,” on your product packaging you’re “Haz Beanz”—you’ll need to file a DBA.

7. Sort out federal and state tax IDs, so you can file taxes

Your state and federal tax IDs are the numbers your state tax authority and the IRS use to keep track of your business. You include them when you file your tax returns.

At the state level, you can visit your Secretary of State’s website to find out how to apply for a tax ID locally.

At the federal level, the term “tax ID” actually refers to multiple types of ID numbers, any one of which can serve as your ID. Sound confusing? There’s a silver lining: Without knowing it, you may already have one. Find out with our guide to federal tax IDs.

8. Make it legal with a local business license

Depending on your state, county, or city, as well as what type of business you plan to start, you may need special licenses to operate legally. Your best bet is to visit the websites of your state, county, and city/municipal governments, and check out the sections for businesses.

Here’s a list of common licenses:

• General business license. You’ll probably need one of these. It allows you to operate legally in your state or county.
• Sales tax permit or “seller’s permit.” If you sell goods or services, and your state charges sales tax, you may be required to collect it.
• Zoning permit. Your local zoning regulations specify what types of business can operate where. These can even apply to home businesses—if you’re planning to operate in a residential zone, you may need to apply for a conditional-use permit.
• Health permits. If you operate a restaurant, you will likely need a food services permit. Be prepared for regular inspections, too. Other types of businesses, like piercers or tattoo artists, may also need health permits.
• Environmental permits. If your business involves hazardous materials or pollutants, your county or city may require you to have an environmental permit.
• Sign permit. Some municipalities require you to get a permit before you set up a sign for your business, and follow certain restrictions.
• Construction permit. If you’re planning structural modifications or additions to your place of business, you may need one of these.
• Special state licenses. Your state may need you to get a permit if your business will be selling alcohol, tobacco, or cannabis products.

9. Open a new bank account to separate personal and business finances

Maybe you’re starting an Etsy shop to sell your borzoi-themed Valentine’s Day cards. Maybe you’re securing millions in funding and launching Slobber, the Tinder for dog owners. Either way, you need a business bank account.

Your business bank account will keep personal and business funds separate. That makes it easier to manage bookkeeping and file your taxes. Plus, it can help you build a relationship with your bank—which could be helpful if you decide to apply for a loan in the future.

Ready to get started? Here are some of the best banks for small businesses.

10. Start bookkeeping ASAP to make life easier later on

Bookkeeping is the act of recording and categorizing day-to-day business transactions. Your bookkeeper records money entering and leaving your business, and prepares financial reports that tell you how your business is performing.

When you have a good bookkeeping setup in place, you can guarantee you’ve got all the info you need to make smart business decisions, file your taxes, and take advantage of tax deductions at the end of the year.

There are two good reasons to get bookkeeping set up ASAP.

1. Do it now, and you won’t have to go back and do it later. A lot of small business owners wait until the end of the year to go back and do their bookkeeping retroactively, so they can file taxes. This is time-consuming, expensive, and could lead to errors.
2. You’ll be able to confidently make important decisions. Bookkeeping gives you the info you need to make smart business moves. Want to know how much profit you’re making? Wondering if you can afford next month’s expenses? Your books will have the answer. Especially when your business is just getting started, informed decisions are super important.

If you have the spare time for it, you may choose to do your own bookkeeping using software. Or you can sign up for Bench—and let us handle it for you.

11. Figure out who you need to hire, and how to pay them

As they say, teamwork makes the dream work. (Unless you’re a solo entrepreneur. There’s no rhyme for that.)

If your business depends on the support of other humans, you may need to hire employees or contractors.

Employees are on your payroll. You pay continuously for the work they do for you, and issue them a Form W-2 at the end of the year. It’s up to you to handle payroll taxes for them. To hire employees, you may want to use a free job posting site like Glassdoor.

Contractors work independently, completing a set amount of work and then invoicing you. At the end of the year, you’ll file a Form 1099-MISC for them. You don’t need to withhold or pay taxes for contractors. You can hire contractors on sites like Upwork.com.

It’s important to know the difference between employees and contractors. If you misclassify an employee as a contractor, and don’t pay employment taxes, you could land in hot water with the IRS.

12. Get the word out

Once you’ve got your business up and running, the final step is to get some customers.

Obviously, the way you promote your business depends heavily on what kind of company you have. A local flower stand will market itself differently than a national flower delivery service.

Start by writing out your unique selling proposition (USP). This is the “special sauce”—the main benefit you’re offering your customers, and why it’s better than the competition. To write a USP, take some time to review your business plan, and think about the biggest pain point your customers face.

Then, plan how you’ll bring yourself to the attention of new customers. That could include:

• Advertising. Even if your business is small and local, you can benefit from tools like Facebook ads, which lets you target potential customers who live near you.
• Branding. What’s your company’s personality? What associations do you want people to have when they hear of it? This could be a good time to hire a designer or brand consultant.
• Special offers. Figure out what types of special savings you can offer potential customers. Even if these offers cost you some money, they could be worth it for the sake of building brand awareness and attracting long-term customers.

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The average American is exposed to 4,000 to 10,000 ads per day. Marketing is the water we swim in. When you take that into account, marketing your small business can seem like a big task to tackle.

Luckily, Fundera has put together a very thorough, actionable guide to small business marketing for beginners. It won’t turn you into Don Draper overnight, but you’ll get the advice you need to start marketing your small business now.

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Once you start your own business, you’ll find your schedule quickly filling up. While it’s nice to feel needed, too many tasks can lead to entrepreneurial fatigue. The solution? Learn how to automate your small business.

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