A Simple Guide to Starting a Business
Intro to Starting a Business
So you’ve decided to venture out on your own and start a business. First off, congrats on taking the plunge—being in business for yourself has personal rewards above and beyond any monetary success you might achieve. There’s autonomy—and knowing that every milestone is the result of your own blood, sweat, and tears.
But whether this is something you’ve been dreaming about for years or an idea that’s just recently struck, you need to make a plan before you fully dive in. This guide walks you through the steps required to start a business. Once you’ve checked all these off, you’ll be ready to hit the ground running.
In this guide
- How to write a business plan
- How to register your business
- How to seek business financing
- Legal and tax requirements for starting a business
Five Frequently Asked Questions About Starting a Business
How do you start a business?
There are several crucial steps involved in starting a business, including writing a business plan, securing financing, researching and choosing a location, registering your business, complying with tax requirements, and filing local and state licenses and permits.
How do you write a business plan?
A business plan is like a blueprint for how you’re going to start, run, and grow your business. Key components include an executive summary, business description, market and competitive analysis, your service or product line, an operations plan, and any financial considerations.
How do you finance your business?
There are a variety of ways you can finance your business: traditional bank loans, asking your friends and family, or other sources like Square Capital.
How do you decide on a business structure?
Types of business structures include sole proprietorships, partnerships, limited liability companies (LLCs), corporations, S corporations, nonprofits, and cooperatives. It’s a good idea to consult with an accountant or lawyer as you decide on a business structure.
What paperwork do you need to do to start a business?
To start a business, you need to register your business and your business name, get a Tax Identification Number (also known as an Employee Identification Number), register for state and local taxes, and obtain licenses and permits.
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Starting a Business: A Deep Dive
Write a business plan
A stellar idea is great, but you can only see it through to its full potential if you lay the groundwork. That’s where the first crucial step of starting a business comes in—writing a business plan.
You need a business plan for a couple of reasons. First off, it’s a blueprint for how you’re going to start, run, and then grow your business—something you can look back on for reference and measure yourself against. Secondly, if you’re seeking outside funding for your venture, you need a business plan to show that you’ve thought things through carefully.
A solid blueprint is critical for your prolonged success.
When it comes to writing a business plan, there’s no one size fits all. To land on the plan that fits your business, it might be a good idea to enroll in a course at a local community college, or even online. There’s a bounty of resources out there to help entrepreneurs like you get started.
But even though business plans may vary from business to business, they all typically contain a few key components. When you think about formatting, it’s a good idea to use the below sections as a template—including visuals like graphs and projections where appropriate. Length can also fluctuate depending on what you’re trying to do, but typically, business plans are between 15 and 20 pages long. Here’s what they should include.
An executive summary
As the first section of a business plan, an executive summary should be a top-line synopsis of your business and how you plan to accomplish your goals. Because it’s often people’s first impression of your business, it’s the most important section. You might consider writing your executive summary after you’ve completed all the other sections of the business plan—so you know the key points to stress.
Think of this section like your elevator pitch, i.e., how would you concisely answer the question “What’s your business all about?” This part should also include where you see the most potential and opportunity for your business, and why.
Here’s where you dive deeper into the specific market you’re entering. What relevant data points would help people get an idea of your business segment? Where are the weaknesses in the market, and how will you fill that void?
Walk through your competition—what are other businesses in the space doing well, and where are they falling short? If you don’t currently have competitors, walk the reader through how you’ll continue to stay ahead of the game should another business choose to enter the market.
Service and product line
This section details exactly what type of service or product you’re offering. Be sure to include any copyrights, as well as research and any associated development that might be required to offer your product or service.
Operations and management plan
Present a clear picture of how you’ll actually run day-to-day operations. Will you need employees? A space for shipping or inventory? Describe all that here.
Here’s where you talk money. First off, how much do you need to start? And then to grow? Detail any capital you already have. And if you need more, describe your strategies for procuring it.
Seek additional training and resources
It’s rare that you have all the skills you need to start and run a business—especially if you’re doing this for the first time. You may have the skill set and certifications necessary to do facials, for example, but might be shooting in the dark when it comes to running the day-to-day financials of your business.
Write a list of all the areas where you could use a little coaching. Then seek out training or education to fill those gaps. Community colleges or online courses are a great way to get these additional skills and training affordably. Here’s where you may also seek out mentors, or even ask fellow small business owners how they got up to speed.
There may be areas, however, that have too steep of a learning curve to tackle on your own—legal or tax considerations, for example. In these cases, it’s best to seek out professionals who already have years of training and degrees in those disciplines. When hiring these people, be sure to do extensive research and call references to make sure you’re bringing on someone reputable.
Find a location
Where will you be conducting business? For obvious reasons, this can vary widely based on the type of business you’re running. If you’re a home contractor, for example, you may not even need to rent a physical office. But if you’re opening a salon, on the other hand, you need a space you can use for cutting hair.
Choosing a physical space is one of the most challenging aspects of starting a business. But it’s also one of the most important and requires loads of research and planning. For starters, you have to understand your city’s zoning laws and have a solid grasp on all the financials (like taxes and any hidden costs) associated with renting a space. For help with this, talk with your city and neighborhood councils, or consider bringing on a professional agent to help.
Aside from laws, fees, and regulations, you should also consider your brand image, the safety and accessibility of the neighborhood, your proximity to any suppliers you might need to work with, and any plans for expansion. Talk to fellow business owners in the area and consult free government-provided data on neighborhood and city demographics to help inform your decision.
Seek financing (if necessary)
If you don’t have the capital required to start your business, you need to seek financing. (Here’s where that business plan you wrote comes in handy.) Luckily, there are a number of avenues for securing small business financing—traditional bank loans, asking your friends and family, or other sources like Square Capital. But before accepting money from any of these sources, there are some questions you need to think through. For example, evaluate how you’d like to structure ownership of the company. If you don’t want to give up a stake, bringing on investors may not be the right option for you. If you’re accepting a loan or financing from an institution, be sure to read all the details. You should be careful about how much money you really need—and do meticulous math on how long it will take to pay it back. For more tips on how to think through financing options, check out our guest post on LinkedIn.
Understand the tax and legal implications of your selected business structure.
Decide on your business structure
There are a number of different ways you can set yourself up as a business. Each type of business structure has a variety of tax and legal implications. Your business structure determines which types of income tax forms you have to file on both the state and federal level, for example. Because of this, it’s smart to consult a reputable accountant and lawyer before officially deciding on what form of business entity you want to establish. It’s also a good idea to spend some time with the IRS Small Business and Self-Employed Tax Center, as well as the the State and Local Tax Guide.
But to give you a cursory lay of the land, the main types of business structures are sole proprietorships, partnerships, limited liability companies (LLCs), corporations, S corporations, nonprofits, and cooperatives. Check the Small Business Administration’s website for more detailed explanations of each of these business structures.
Choose a name and do all the required legal paperwork
It’s time to make things real. First things first: decide on your business name (an important branding exercise in itself) and register it with the government. You can also choose to register a fictitious name for your business with something called a “doing business as” name (DBA). You’ll need to register your name or DBA with the county clerk’s office or your state government, depending on where your business is located.
Now for all the legal paperwork. You need to get a Tax Identification Number (TIN), also known as an Employer Identification Number (EIN). You can file for an EIN in a number of ways, including online, by fax, or by mail. Check the IRS for a detailed explanation of how to apply for an EIN.
Starting a business requires that your legal paperwork is in order.
You also need to register for state and local taxes. Each state and locality has its own taxes, so it’s important to have a solid knowledge on this front to help you avoid problems and save your business money. (This one’s another place where an accountant or lawyer comes in handy.) Check the Small Business Administration for more information on determining your state and local tax obligations.
You may also need a number of state and local licenses and permits. The required licenses and permits vary from business to business—so be sure you have all the ones you need before you set up shop.
If you’re planning on hiring employees, now is the time to familiarize yourself with all your legal obligations as an employer. You’ll want to cross your t’s and dot your i’s before you hire your first new team member.
The steps can seem overwhelming—but they’re worth it.
Get a payments processor
Now comes the fun part—making your first sale. To do this, you're (obviously) going to need a way to accept payments. Do your research, but any solution you go with should be affordable and easy to set up. It should also accept credit cards and have no complicated fees.
People are increasingly ditching paper bills and opting for plastic. A recently released Nilson Report projects that cash and check payment volume will decline by 24 percent and 46 percent (respectively) in the United States by 2018. At the same time, card-payment volume is set to grow by over 50 percent. So if you don’t accept cards, you're likely to miss out on some sales. The Square magstripe reader, which accepts all major credit cards, plugs right into your phone so you can securely accept card payments everywhere. The reader is free, and you pay just 2.75% per swipe.
The steps to starting a business can seem overwhelming—but they’re all worth it. No matter how stellar your business idea is, laying the groundwork is a crucial component of your success. Follow these steps, and you’ll be off to the races.