Starting a business can seem daunting. That’s why we created this step-by-step guide on how to start a business.
We’ll answer all your important questions that will take your business idea from idea to a successful business.
1 – Business Plan
The way you translate your business idea for reality is through a business plan – and this should be the first step to start a business.
Think of a business plan as a structured, detailed guide that will keep you on track for success
. A business plan will help you understand exactly what you’re getting into: what your small business goals and obstacles are, as well as determine strategies for marketing, funding, and much more.
Why do I need a business plan?
You’ll need a business plan for showing others – such as investors, lenders, consultants, or potential business partners – your vision and projected course.
They’ll need to see your business plan to grasp your business idea and whether or not it looks like a promising financial decision.
It will also be a great tool to track your business milestones and make sure your business is on course to success.
What is in a business plan?
A business plan will include everything from a brief explanation of your business to market research and a financial plan. See below for a typical business plan outline:
- Executive summary
- Business description
- Market analysis
- Products and/or services
- Marketing and sales
- Financial projections
If you plan on asking for funding, you would also include this in your business plan and explain how much funding you would need and how you would utilize that funding.
How do I write a business plan?
Writing a business plan is not as hard as you think.
You can write it yourself, or you can always recruit a third party to help you draft your business plan.
2 – Business Structures – LLC, Partnerships, and More
Your business structure is how your business entity will be legally classified. This will determine how you pay taxes, your personal liability, and your business’ filing requirements.
You can always reorganize your business entity if ownership or partners change, as long as you notify the IRS and state tax agency.
We’ll briefly introduce the common business structures here, but there are more complexities to note than what you see here. You should consult an attorney when choosing the best business structure for your company.
The 4 main types of business structures
This is the simplest and easiest business structure to form, and it usually consists of one individual owner. If you are working alone, this could be the best structure for your business.
Sole proprietorships are the simplest structure largely because the business expenses and income are included on your personal income tax return. Though you’ll need to file a Form Schedule SE along with your 1040 personal income tax return. A Schedule SE calculates how much self-employment tax you owe.
The simplicity of the tax filings and control of your business is definitely a plus, but note that as a sole proprietor you do not have liability protection, because your personal and business assets are one. What this means is that, if someone were to sue you or if a creditor were to audit your business, your personal assets are at risk.
If you plan on working alone, consider a sole proprietorship as an option for your business structure.
Businesses that have two or more owners or operators of the business often operate under a partnership, as this is the simplest structure for multiple owners/operators. Partnerships are similar to sole proprietorships in the way that the owners share some sort of liability. That is, the owners and business are not separate, and the profits and losses will be taxed via the owners’ personal tax returns. The partnership will file a Form 1065 to report income and losses.
There are two main types of partnerships: general partnerships and limited partnerships.
In general partnerships, all liabilities and ownership is shared equally.
In limited partnerships, one partner is the general owner and has unlimited liability, and the other person(s) has limited liability and partial control of the business.
Limited liability company (LLC)
An LLC, or limited liability company, is like a hybrid of a corporation and partnership structure. As an LLC, you are protected from any personal liability. Meaning, if someone were to sue your business, they could only go after your business’s assets, not any of your personal assets. LLCs are an appealing option because of this, and LLCs also pay lower tax rates than corporations.
Keep in mind that LLC members are considered self-employed, so you’ll need to pay self-employment taxes, such as Medicare and Social Security.
Corporation (C Corporation)
A corporation, or C Corp, is a business entity that is separate from the owners. So, you and your business partner(s) will not be held personally liable for damages, debts, or assets the corporation accrues. Rather, the corporation itself is taxed and held liable, and operates independently of the owners.
However, taxes are significantly more expensive for corporations, and the requirements and regulations are extensive – an attorney’s assistance will likely be necessary. Corporations offers great liability protection to the owners, but at a cost.
3 – Business Bank Account
If you are spending money on your small business or accepting payments as your business, then it’s time to open a business bank account. Keeping your business costs separate from your personal expenses will save you some serious headaches in the future – and it makes your business look more credible and professional.
Why do I need a business bank account?
Having your own business bank account is crucial in keeping track of your new business spending and how much revenue your company is generating.
Think of financial planning and tax preparation. Imagine sifting through hundreds, even thousands of expenses and deposits over several months or a year because your personal and business expenditures are sharing the same account. Yea, this sounds like a nightmare in terms of keeping track of your business inflows and outflows. But you could also potentially lose out on tax deductions and end up spending way more time and money just to clean and organize your accounts.
4 – Accounting Software
As a small business owner, you (and your accountants, financial advisors, etc.) will need to use accounting software. Accounting software is key in keeping track of all your cash inflow and outflow. You use it to send invoices, record transactions, and to view all your financial reports, giving you insight to your profitability and shortcomings as a business. Accounting software will be imperative in making sure you are prepared for tax filings.
5 – Website and Platform
Next, you will need a business website. Especially for a new business, this is how your business name will get out into the world and it sets the first impression of your business. In this day and age, online presence is everything. You control your brand through it, most of your future clients will come from the internet, and your competition will have a website. Through an online website, you can reach thousands of potential customers and, depending on your business type, even market and sell products online.
It’s so important your business website operates optimally and reflects the brand of your company.
7 – Payroll
You may or may not require payroll for your business – but using payroll can be majorly beneficial to you and your small business. Using a payroll provider is a smart way to ensure you are consistently and accurately paying yourself and your employees, compliant with standards, codes, regulations, and laws, and it’s one less thing you’ll be juggling as a business owner.
Why should I use payroll?
Using payroll to pay yourself is a great idea in your key financial decisions. Often, small business owners who are starting out will pay themselves with no consistency, withdraw and transfer money from the business earnings blindly. Using payroll provides financial stability for both you and your small business.
8 – Financing (Loans)
Starting a business requires a lot financially. And that shouldn’t discourage you from taking your business idea to the next step. A small business loan can offer you the business funding you need to get things up and running.
Small business loans have several benefits. Through responsible financing, you can build your business credit, speed up and fuel your growth, and the interest on business loans is usually tax-deductible.
9 – Business Credit Card
Consider a business credit card for your small business.
Especially for small startup costs, a business credit card can be a great alternative to financing. They’re easier to apply for, offer quick and accessible spending, and help build up business credit and rewards.
Granted, the convenience of a business credit card should be used and appreciated with caution. Credit cards will usually charge a much higher interest rate than loans and you, as the owner, may have a personal liability to repay any debt.
There are tons of business credit cards to choose from, with varying benefits and interest rates, so choose one that best suits you and your business needs.
Check out our article on the best startup business credit cards that require no business credit history.