How to start your own business from scratch: A 10-Step guide
Starting a small business may be one of the best decisions you can make. More than 33 million people have already done so and are seeing tremendous benefits. For many of them, setting up a company has made a world of difference, providing financial freedom and the ability to organize their schedule how they want.
Looking to start a business but unsure where to start? No worries — we’ll point you in the right direction in this step-by-step guide.
- Validate your business idea through thorough market research and competitive analysis.
- Pick the ideal business structure for your personal situation, considering factors like costs, liability protection, and ease of setup.
- A third-party business formation service can expedite the process of company creation, saving you time and effort.
Launch your dream business
Narrow in your big idea
Success as a new business owner rests in the ideation stage. What type of business do you wish to set up, and what’s your company’s purpose?
To answer these questions, start with your basic idea. Do you want to sell products or services? Will you develop a product or service of your own or re-sell existing offerings?
Whatever business idea you may have, it’s essential to narrow down your idea by doing a little market research. A crucial step in your analysis should be determining your target audience. Here are a few questions to help you do so:
- What problems does your product or service solve?
- What age group benefits the most from your startup offerings?
- How does your target audience shop? Do they mostly visit brick-and-mortar stores, or do they purchase items online?
After nailing your target audience, don’t think your work is over. It’s time to move on to another stage of your market research — competitive analysis. And don’t worry; you don’t run a risk of comparing apples to oranges here. Even though other companies are different from your own business, you have numerous similarities, such as your audience and offerings.
Competitive analyses boil down to determining what your industry leaders are doing. How do they reach their target audiences, and what pain points do their offerings address? Identify these and other crucial aspects of successful business entities and focus on areas where you can outperform them.
Many entrepreneurs rush headfirst into their business launch, but this is one of the most serious mistakes you can make when starting your own business. Rather than keep your business idea in your mind, why not lay down the details on paper? That’s where a detailed business plan comes into play.
The important elements of a business plan include:
Although this part comes first, it should be written last. It provides an overview of your business plan, summarizing its key points so you (and other stakeholders) can get the basic idea. More importantly, a compelling executive summary persuades other parties to read through the plan.
You have some leeway when describing your company. For example, you can provide some information about your background and how you got the idea to start the enterprise. Stating the purpose and briefly fleshing out your product or service is also useful.
Amazon and other giants are blowing their competitors out of the water in numerous markets worldwide, but you can’t follow this approach out of the gate. Instead, choose one or two markets where you’ll provide your offerings. Specify your target audience, mentioning their demographics, tendencies, and other relevant factors.
Next comes your SWOT (strengths, weaknesses, opportunities, and threats). The first two are internal factors you control. The other two are external factors you must respond to. It’s your job to take advantage of opportunities and adjust to potential threats.
You have several options when choosing your business structure, including LLC, corporation, and sole proprietorship. If you opt for the LLC or corporation structure, Block Advisors can help you file for your company within minutes, allowing you to focus on other aspects of setting up your enterprise.
This is where you go into more detail about your products or services. Highlight any patents, trademark rights, and plans to avoid trademark infringement. Focus on the key features of your offerings, outlining what makes them ideal for your customer base.
Even if you come up with the most amazing product or service, what good is it if no one knows about it? Choose your marketing channels and promotion strategies, but don’t go overboard. Be careful not to exceed your budget when devising your marketing strategy.
This is the nitty-gritty of a business plan. It’s where you detail your finances, including those available from day one and those you plan to obtain through loans. Be sure to include costs, including startup expenses and overheads.
A timeline will help keep you focused on moving your business plan forward. Not only will a timeline help you stay on track with your goals, but it will also help you remember critical deadlines, like quarterly tax filings, payroll responsibilities, and annual report and tax filings.
Choosing the right business structure is critical when starting your own business. The most common business models are sole proprietorships, limited liability companies (LLCs), corporations, and partnerships.
Each structure has pros and cons regarding liability protection, taxes, ownership flexibility, raising capital, and regulatory requirements. For example, sole proprietorships offer simplicity but no liability protection, while corporations provide liability shields but require more complex tax filings and administration. The sections below outline some key advantages and disadvantages of each model.
- Members can benefit from limited personal liability for business debts and lawsuits
- By default, profits pass through to members’ personal tax returns, avoiding double taxation. Owners can also choose different tax treatment, if it better suits their needs
- Flexible management structure not tied to ownership interests
- More complex tax filings and paperwork than sole proprietorships
- Not able to raise investment capital through sale of stock (like corporations)
- Less prestige than a corporation for some businesses
- Shareholders can benefit from limited liability for business debts and lawsuits
- Easier to raise investment capital by issuing stock
- Separate corporate tax rates
- Profits are taxed at both corporate and shareholder levels (double taxation)
- More complex regulations and formalities than LLCs or partnerships
- Less flexibility in allocating profits and losses to owners
- No government filing required to form
- No separate business taxes beyond owner’s personal income tax
- Complete control over business decisions
- Personal liability for business debts and lawsuits
- Difficulty raising investment capital
- Responsible for self-employment tax on all net earnings
- Easy to establish with a partnership agreement
- Profits pass through to partners’ personal tax returns
- Partners each bring unique skills and knowledge to the business
- Partners have personal liability for business debts
- Difficulty raising large amounts of capital
- Potential for conflicts between partners’ interests (each partner can act on behalf of the partnership with or without the buy-in of the other partners)
Depending on the business structure you choose, the next critical step is formally registering your business with the state. LLCs and C Corps require registration; Sole Proprietorships and General Partnerships do not.
The registration process typically involves choosing a unique business name, appointing a registered agent, filing formation documents like articles of incorporation, and obtaining a federal employer identification number (EIN).
While registration requires a lot of paperwork, services like Block Advisors Business Formation can help streamline the process so you can focus on launching your business.
You can’t register your organization if you haven’t named it, right? It might seem this only relies on your creativity, but a few other factors are at play. Namely, you’ll need to follow several state requirements when choosing a name for a new business. Generally speaking:
- The name can’t be the same as the name of another company in your state
- The name must contain a designation of your business structure, such as “LLC” or “corporation”
- The name can’t be similar to the names of government organizations, such as the “Department of State” or “IRS”
In addition to your business name, you may also need to file for a fictitious or doing-business-as (DBA) name. Banks in some states require it to open your bank account.
Choosing and reserving a business name, as well as filing a DBA, is relatively straightforward. In most cases, you can do it on the online portal of your Secretary of State’s office or send corresponding forms to the Secretary of State’s physical address.
A registered agent plays a pivotal role in your organization, as they accept service of process and other paperwork on your behalf. You can be your own registered agent, but you must be available during regular business hours to receive service of process and your address as a registered agent will be publicly available. Outsourcing the work to a third-party provider frees up your schedule, keeps your address private, and ensures private reception of sensitive documents. Additionally, you won’t be served in front of clients and employees.
All states require you to legally document the creation of an LLC or corporation If you want to establish an LLC, you’ll need to submit your articles of organization. Corporation owners are required to file articles of incorporation. Again, your Secretary of State usually processes these documents.
Your EIN enables the IRS to identify your company for tax purposes. Applying for an EIN is simple, but keep in mind that certain changes to your business may require you to get a new EIN in the future.
Red tape is a pain in the neck, but following rules is essential for your traditional or e-commerce-based online business to start on the right foot. More specifically, you may need to obtain a range of local, state, and federal permits when starting your new business, some of which may include:
- Business licenses
- Business tax ID (your EIN or state tax ID)
- Real estate, medical, auto repair, and other permits relevant to your type of business
If you want to eliminate the guesswork associated with this process, get in touch with your Secretary of State. Some states provide a list of the permits you need to get your company underway.
As a future small business owner, your financial life might seem challenging. A business bank account can make your life much easier and will help with limited liability protection by creating separation between your business and personal assets. You can do a lot with a checking account for your new business, including:
- Separate personal from business finances for easier organization
- More easily categorize spending
- Enable small business loans
- Smoothly manage business taxes
To apply for your account, visit the desired bank and provide the necessary documents. Most banks require the following paperwork:
- Business license
- Ownership agreement
- Formation documents (articles of organization or incorporation for LLCs and corporations)
- EIN or other tax ID number
Insurance isn’t just useful for your house or car. Small business owners and other entrepreneurs should also consider business insurance. Some benefits of business insurance include:
- Peace of mind (for you, your customers, and any employees)
- Cover the cost to replace or repair damaged equipment
- Lost business income coverage
- Financial assistance in case of a lawsuit
When applying for a policy for your new business, it’s a good idea to talk to a lawyer. They can help you select the right policies for your enterprise, such as:
- General liability insurance
- Commercial property insurance
- Product liability insurance
- Workers’ compensation insurance
Strong financial management is key to success in the entrepreneurial landscape. To start, conservatively estimate expenses and revenues in your business plan. Then implement strategies to control costs, separate business and personal finances, secure adequate capital, and leverage accounting tools. Essential financial steps include:
Lease instead of buying properties, reduce overheads, and only hire indispensable staff to minimize startup expenses. Be sure to keep good records of these costs as they may be tax deductible.
Open a dedicated business bank account to avoid commingling personal and business finances. Business accounts help organize finances, earn credibility with suppliers, enable capabilities like merchant services, and limit personal liability.
Many accounting programs can streamline your financial management, whether you want to launch a dropshipping e-commerce enterprise or a brick-and-mortar organization. They have data synchronization and robust security features to elevate your budgeting.
Look for low-interest loans from reputable lenders to increase your startup budget. Consider grants and business credit cards, which can offer rewards, cash flow management, improved credit rating, and many other perks.
How do you plan on presenting your small business to your target market and establishing a firm position in your market? Keep these principles in mind when devising your brand strategy:
Whether launching a traditional or e-commerce business, empathize with your customers. If necessary, revisit your business plan to determine the pain points you wish to address. Make sure all content released within your SEO and marketing plans makes it clear that you understand your audience.
Stick to a specific niche at first. For example, if your business idea is to target middle-aged women, don’t include other groups in your strategy right away.
Consistently put out great content to build your authority. For instance, you can start a podcast or social media vlog and invite guests with experiences relevant and interesting to your target audience.
We’ve laid down the basic business idea and business plan for budding entrepreneurs who want to start a company. The rest is up to you. Once your business gets off the ground, make sure it goes in the right direction. Hire committed employees, work with an experienced tax advisor, collaborate with other brands, and choose your financing sources carefully to skyrocket your growth.
Want professional help starting your own business?
As you navigate launching your business, it’s important to consider your personal situation and needs of your business. Laws vary from state to state. This article is intended to be informative, but it is not legal advice or a substitute for legal advice. A business attorney can help you understand your specific circumstances and guide your decisions. Likewise, the Secretary of State’s office in most states offers resources for small business owners, including online information that may help you decide on the best options – and possible requirements – for your specific circumstances.
The four basic elements of starting a business are coming up with a business idea, creating a business plan, securing financing, and registering your business.
The best way to start a small business for beginners (and even those with a more advanced skill set) is to create a bulletproof roadmap that lists key milestones (financing, creating a business plan) and follow it to its tiniest details.
If you have no money, consider asking your family or friends for a loan or applying for one at a bank. As for limited experience, many online guides, like this one, can point you in the right direction. You may also want to join your local chamber of commerce to connect with more experienced business owners in your area.
Depending on your business, yes. An initial investment of $1,000 can be enough to start a business, such as photography, personal coaching, or virtual assistance.
This article is for informational purposes only and should not be construed as legal advice. You may want to seek the advice of an attorney to evaluate all relevant considerations.
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