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18 Min. Read

How to Start a Business: From Registering to Launching a Startup

how to start a business

Starting a business can feel intimidating, but it’s not impossible. In fact, there are more than 30 million small businesses in the U.S. If those business owners can do it, you can too!

In this step-by-step guide, we’ll share information on how to create a business plan, complete all the legal paperwork and come up with ways to make your business successful. We’ll also help you learn how you can get money to cover your startup costs.

By the end, you should feel confident about starting your own business and working for yourself!

Do You Have What It Takes to Own a Startup?

Before anything, let’s talk about your mindset. It takes a special attitude and way of looking at the world to become a business owner. Even if these are not qualities you have a natural proclivity for, you can plan to cultivate them over time.

Here’s what you’ll need to become a successful startup owner:

  • A strong work ethic: Working long hours is normal for startup business owners. You’ll need to depend on yourself a lot since you can’t expect your business to have a lot of employees from the get-go.
  • A clear but creative vision: Thinking of different business ideas is an entrepreneur’s pastime. They’re always assessing information and thinking of new ventures to invest in.
  • A tolerance for uncertainty: Starting a business will require you to forego your paycheck in order to earn income from offering your own products and services. Depending on how your business performs, you could either earn a profit or sustain a loss.

How to Start a Business: A Step-By-Step Guide

The success of your future business largely depends on how well you prepare before its launch. Here is a detailed guide on what you should do before you open the doors to your new venture.

1. Write Down Your Business Idea

Every successful business comes from a great idea. But not just any idea—it needs to be a clear and feasible one. Here’s what you should do to find out if your concept will work.

Do Market Research

One of the first things you should do is to conduct market research. This refers to the process of gathering and interpreting information about a product or service to be offered for sale in a certain market.

Market research can be done by you or an outside research firm. If you’re building a startup, it’s likely that you’ll be the one finding a way to get opinions and feedback from customers. You can hand out surveys, run product tests and organize focus groups. People who participate in the tests are usually paid a small amount of money for their time.

After analyzing the data, you should be able to see if there’s enough demand for your product or service to sustain your business.

Think of a Catchy Business Name

A clear and catchy business name can be extremely helpful when marketing and branding your business, whereas a bad one will usually fail to find a way to connect with customers.

In general, you have to avoid a hard-to-spell business name. Also, you don’t want to put a specific city or service on your name, as it can be limiting once your business grows.

Next, check the internet for existing businesses under that name. It would be best to also check if you can purchase a .com domain name for the company you want to establish.

Finally, check the United States Patent and Trademark Office to put a trademark on the name you like. You wouldn’t want other people using the name of your company, or your offering, once your startup takes off.

Write Your Business’ Vision and Mission

A vision statement focuses on what you hope to achieve in the future. It can change in the next five to ten years, depending on what you’ve achieved and the current business environment.

Meanwhile, a mission statement describes your core business. It should answer the following questions:

  • What do we do?
  • Whom do we serve?
  • How do we serve them?

Your vision and mission will be the driving forces of your business. They’ll help you communicate your goals and promote unity within your future team.

2. Decide on a Business Structure

When you’re starting a business, one of the first things you have to think of is its legal business structure. The most common types are the following:

Sole Proprietorship

A sole proprietorship is a small business that’s run and owned by a single person. Examples include freelance designers, tutors and financial advisers. You can use your name as your business name or you can use a “doing business as” (DBA) name.

If you decide to become a sole proprietor, you’ll gain complete control over your business and handle all the financial decisions. Preparing taxes shouldn’t be too difficult since the business is not a separate entity from the owner. As long as you file your personal taxes, then you should be good to go.

You should also check how social security works for self-employed individuals. You’ll still qualify for social security credits but you’ll be eligible for business tax deductions.

One downside to being a sole proprietor is that you can be held personally liable for the debts and obligations of the business. Banks and lenders are also hesitant to lend money to sole proprietors.

Partnership

If you’re starting a small business with a family member or a close friend, then you can enter a partnership. Some examples of partnerships include professional groups (like law firms). Partners can be individuals, nonprofits or government organizations.

Partnerships can be further subdivided into several categories:

  • General partnerships: In general partnerships, everyone shares legal and financial liability and profits are shared equally.
  • Limited partnerships: This is a common structure for professional groups like accounting or architectural firms. Some partners have limited liability so if one partner is involved in a lawsuit, other partners are not at risk.
  • Limited liability limited partnerships (LLLP): In this arrangement,  some partners get greater liability over “general partners.” This is similar to limited partnerships, except it provides more protection for limited partners.

In the U.S., there’s no federal law that states how partnerships should be defined, but there are some states that have adopted a form of the Uniform Partnership Act.

Limited Liability Company (LLC)

If you want to separate your personal assets (including your house, vehicle and savings) from your business assets, you can try to start a LLC.

In this business structure, profits and losses will be recorded as your personal income, and you won’t be required to pay corporate taxes. However, you’re considered self-employed and must pay self-employment taxes.

This business structure is ideal for people who establish medium or high-risk businesses. This typically involves small businesses that will require you to take out a significant loan to pay for operating costs.

Corporation

Corporations are legal entities that are separate from their owners. They require extensive recordkeeping and reporting, plus they pay corporate tax on their profits.

Most corporations have an advantage when it comes to raising capital because they can sell shares of stock. If they want to attract employees, they can also offer stock in exchange for their service.

Small business owners who eventually plan to make a public offering or sell the business can choose to establish a corporation.

3. Create a Business Plan

Writing a business plan may seem daunting, but we’re here to guide you every step of the way. We’ll share which sections you’ll commonly find in a business plan and how to complete them.

Here are some of the sections you’ll commonly find on a business plan.

Executive Summary

An executive summary is just a fancy name for an overview. It should explain what your company is, your business structure, and your products and services. You should also include the findings from your market research.

Breakdown of Your Summary

Immediately after your executive summary, you should include a detailed breakdown of each section. Here’s what you should write for each:

  • Company profile: This is where you’ll talk about your mission statement and business goals.
  • Business structure: A business structure should outline all the people you’ll need to offer your products or services. It should say what roles people will have and which tasks and responsibilities will be assigned to them.
  • Products and services: This section will provide details on what you offer and what makes it stand out from what’s already available.

Marketing and Sales Strategy

Once you’re done with a market analysis, your target market should be clear to you.

For marketing, you should determine how you’ll communicate with your customers and how you’ll earn their interest. Make sure to provide details on which distribution channels you’ll use, like social media, print media or others.

Meanwhile, your sales strategy should include details on how you’ll price your products and how many sales calls you’ll make per week or month.

Financial Plan

Financial plans should include your business costs, revenue projections and details on the funding you’ll need. Here’s a quick overview of how to make one.

Cost Analysis

Examples of costs include leasing a retail or office space, plus purchase and maintenance costs for the equipment you’ll need.

Some people recommend that you double your estimates for advertising and marketing costs as they tend to increase beyond expectations. It’s also good to triple costs for insurance and licensing since it can protect your business against any legal issues you may experience in the future.

Make sure to justify the costs by comparing it with your revenue projections.

Break-Even Analysis

A break-even point is that stage where your revenue is equal to the costs of doing business. To compute for that point, you should use this formula:

Break-Even Point = Fixed Costs / (Revenue per Unit – Variable Costs per Unit)

Note that fixed costs refer to the items that are not affected by the number of items sold—like rent, computers and software.

Variable costs refer to the materials you use to produce your products or services. The more items you produce, the higher your variable costs will be.

Finally, the average revenue per unit refers to the total revenue divided by the average number of products or services you’ve sold.

It’s important to learn the break-even point because it tells you how you need to price your products and services in order to cover your costs. It also tells you how many products or services you need to sell in order to stay in business.

Here’s an example of a break-even analysis for you to get a better idea of how it should look.

Sales Forecasts

Making a sound sales forecast is one of the ways to get investors interested in your startup. You should look at the following factors to make sales forecasts:

  • Your customers: Identify the number of people who might be interested in your business and how many of them will actually sign up for your service or buy your products.
  • Your service area: Consider your geographical area. If you’re starting at a small place, your sales projections shouldn’t be as big as as they would be in a densely populated location. If you plan to grow your business, include that in your sales projections as well.
  • Market position: Check how likely it is for people to choose your business over your competitors. If you offer something most of your competitors can’t, you can increase your sales forecast.
  • Seasonality: Keep in mind that most businesses have fluctuating sales depending on the season.

As a rule of thumb, you should have two types of forecasts:

  • Conservative view: Make a “conservative projection” that’s based purely on conservative assumptions, such as using one-to-two marketing channels, having no sales staff and having a new product introduced once a year
  • Aggressive view: Create a “best-case scenario” which includes a marketing plan for three or more channels, a staff composed of skilled salespeople, and a plan to introduce a new set of products or services every year

Once you’ve made a revenue projection, compare it against your cost projections.

4. Gain Startup Funding

The most crucial step to starting a business is securing funding. Some small business owners can finance everything on their own, but most founders need to borrow money to cover startup costs.

Naturally, the first step is to determine how much funding you’ll need. You can calculate startup costs by identifying your startup expenses, like the following:

  • Market research
  • Office or retail space
  • Equipment and inventory
  • Salaries
  • Insurance
  • Utilities
  • Making and distributing marketing materials

Once you’ve computed your startup costs, you can start looking for ways to finance your business idea. Here are some of your options when it comes to startup funding:

  • Small business loans: If you’re confident about your business plan, you can try asking a bank or a lender for a loan. Not sure where to start? You can turn to the U.S. Small Business Association for assistance if you want to know which lender is best for you.
  • Seed financing: If you have a business idea that can get people excited from the get-go, you can try seed financing. You’ll accept money from family and friends, and then use it to cover your initial operating expenses and solidify your business plan.
  • Crowdfunding: Through crowdfunding, aspiring small business owners like you can accept money from fans or potential customers. You’ll only need to make a successful pitch at popular crowdfunding site Kickstarter or Indiegogo to get the money you need to cover startup costs.
  • Venture capital: Venture capitalists offer capital in return for equity. They focus on high-growth companies and usually are in it for the long run. While you don’t incur debt by getting venture capital, the investor will usually want a seat on your board of directors and to gain some level of control over your business.
  • Bootstrapping: This refers to building a business with nothing but your savings. More than 80% of startup operations are funded this way.

5. Register Your Business

The most crucial step to starting a business is getting it registered with the government and the Internal Revenue Service (IRS).

Without completing these steps, your small business won’t be considered a legal entity and you won’t be able to pay taxes or gain financing.

Register Your Business Name

If you’re not conducting business under your legal name, you will need to register your business name with state and local governments. Check your specific state regulations for more information.

Some businesses also need to register with the federal government. This will help you get trademark protection or tax exemptions.

You can also file for a “doing business as” (DBA) name, which you can use on business cards, bank forms and websites.

Tax Registration

The IRS has a step-by-step guide on what you should do to start a business. In general, you’ll need to do the following:

  • Apply for an employer identification number (EIN): You need an employer identification number for your small business to be identified as a legal business identity (you can apply for this online or by mail)
  • Register and comply with state tax requirements: The IRS provides information on how you can comply with taxation laws in your area
  • Learn the legal and state tax considerations for each business structure: The type of tax return form you have to file depends on your business structure (here are the IRS guides for each)
  • Choose a tax year: A tax year is the accounting period for keeping records. You can go with the calendar year or follow a 52- to 53-week fiscal year
  • Pay your dues: Depending on your legal business structure, you’ll either need to pay self-employment tax or corporate taxes

Apply for Licenses and Permits

Small businesses need to get licenses and permits from state agencies. You can visit your state’s website to see the permits and licenses you’ll need.

Meanwhile, businesses that deal with the following will need to register with the federal government:

Set up a Business Bank Account

Opening up a business bank account is necessary once you’re ready to start accepting payment for your products and services.

You can only open a business bank account once you’ve already registered your business name and obtained an EIN. Usually, you’ll want a business bank account for the following:

  • Checking account
  • Savings account
  • Credit card account
  • Merchant services account (this allows you to accept credit and debit transactions)

It might be tempting to use your personal account for your business, but there are several benefits that come with opening a bank account under your business name, such as:

  • Professionalism: Customers will feel more confident about using their credit or debit cards if they’re paying your business instead of sending their money to a personal account.
  • Purchasing power: Having a business credit card makes it easy for you to buy equipment or inventory for your startup.
  • Protection: Keeping a business bank account forces you to separate your personal funds from the money you make from doing business. This protects you from personal liability in the event you run into financial issues.
  • Tax considerations: Keeping all your business transactions separate will help you identify items that are tax-deductible.
  • Easier accounting: Linking your business bank account to accounting software makes it easy to plan budgets and generate financial reports.

When you’re opening a business checking or savings account, always check their interest rates, transaction fees and minimum balance fees. Meanwhile, always check the transaction fees and monthly minimum fees for a merchant services account.

6. Get Your Business Insured

Even if you have a solid business plan, starting a business can be risky. Make sure to purchase insurance for your business before you start.

Here are some of the types of insurance you should consider getting:

  • Professional liability insurance: This offers protection against negligence claims.
  • Property insurance: This helps you recover when your equipment, inventory or furniture is damaged by a fire or a storm. It also protects you against theft.
  • Product liability insurance: This provides protection in case someone files a lawsuit due to damages caused by your products.
  • Business interruption insurance: If you don’t want to lose income due to events that interrupt the normal course of business, you can file for business interruption insurance.
  • Vehicle insurance: Getting comprehensive vehicle insurance will offer you protection in case your business vehicles are involved in accidents or injuries.

7. Hire Employees

Depending on its legal structure, a small business can run without employees or even with just two or three staff members.

If you want other people to help you run the business, you’ll need to first define roles and responsibilities. Decide how you’ll divide labor and work together.

8. Choose Vendors

Depending on your industry, you’ll need to choose vendors for your small business. This refers to your suppliers, third-party service providers, subcontractors and more.

Make sure to look for vendors that have experience serving businesses in your industry. You can also ask them to provide you with feedback they’ve received from existing clients.

9. Advertise Your Products or Services

Your business plan should contain information on how you intend to market your small business. This includes using social media, building a company website, or handing out flyers and business cards.

It would also be helpful to create a business email address since it helps you gain customer trust. Using a professional email also improves email deliverability, which prevents marketing messages from ending up in a person’s spam folder instead of their inbox.

Be sure to charge all marketing and advertising expenses to your business account so you can track your expenses easily.

10. Launch Your Business

Now that you’ve registered your business and have secured funding to start operating, you’re ready to launch.

In case you want more guidance, you can team up with like-minded individuals and join a business support group. You can also join a trade association.

Additionally, eligible business owners can apply to become a Women-Owned Small Business (WOSBs) or Economically Disadvantaged WOSB (EDWOSB). This will make you eligible to compete for federal contracts set aside for the program. Minority-owned businesses can also benefit from the government’s business development programs.

Regardless of whether or not you want to grow your business, you’ll need to come up with a continuous improvement plan. This will lay out what you need to do to improve processes, products and services in order to stay competitive.

The Best Time to Start Your Business Is Now

Building a startup from the ground isn’t easy, but it’s a rewarding and worthwhile endeavor. Depending on how successful your business becomes, you can eventually make your startup your main source of income.

To help you manage your money, you’ll want to automate some tasks like bookkeeping or generating financial reports. It’s best to use a business invoicing and accounting solution like FreshBooks to get this done without breaking a sweat.

Now that you have all the information you need to start a business, it’s time to take the plunge!

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