How to Start a Business

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Browse beginner guides on everything from writing your first business plan to forming an LLC. Free!

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Plan Your Business

If you want to know how to start a business, than you have to learn your market. Market research is important for large corporations but it is also critical to small businesses.

Market research helps you identify and target your ideal clientele. It is the first question to answer in business. Is there a market for What you’re selling?

Market Research at a Glance

Demand: Does demand for your business already exist, or will it need to be created?

Market size: What is the total number of people that could be potential customers for your business?

Economic indicators: What is the income range and employment rate of your ideal client base?

Location: What’s the potential geographic reach of your company?

Market saturation: What’s the current market saturation?

Pricing: What are people currently paying for similar alternatives to your company’s product or service?

Competitive Analysis Who is your competition? What are their strengths and weaknesses? What makes your business stand out from your competition? It could be pricing or quality or even your expertise.

The next step in learning how to start a business is taking your market research and using it to write a solid business plan. Business plans are a crucial component of starting a business.

Business plans help you to define the structure and objectives of your business. They outline how you will achieve those objectives.

Business plans help you predict and plan for risks and obstacles that may arise. They also help investors see the viability of your company.

How to Start a Business in Depth:

How to Write a Business Plan

Business Plans at a Glance

Executive Summary: Brief description of your product or service and why it will work.

Company Description: What are your biggest strengths and assets as a company.

Market Analysis: Layout what you see for the future of your industry and your industry’s market.

Organization and Management: Define your business’ legal structure and the organizational structure. How will your company be managed?

Service or Product Line: Describe your product/service. What separates you from your competition.

Marketing and Sales: Your marketing strategy is going to change over time, but you can still make some goals. Describe what making a sale or closing a deal means.

Funding Request: What resources will you require and where will you get them. How will those resources be utilized in your business and how long will they take to pay off.

Determine what the financial requirements will be to get your business profitable. This is a crucial part of learning how to start a business. What will be the initial and ongoing costs and how long will it take to turn a profit?

Financial Evaluation at a Glance

The break-even analysis

At what point does your business break even? Determine this number and say it over and over to yourself until you see it in your dreams:

Fixed Costs ÷ (Average Price – Variable Costs) = Break-Even Point

Watch your expenses. Look, we all like nice things, and the old adage is true, you get what you pay for, but keep in mind, many a business has gone under due to overspending too early. There is an art to riding this line.

Maybe you don’t need that giant office space or the top-of-the-line piece of equipment. As a small business, you want to turn a profit quickly and avoid drowning in debt.

Understand this, and you’ll have come a long way in learning how to start a business.

Consider your funding options. When people want to know how to start a business, they are often thinking about financing. Startup capital for your business can come from various means.

The best way to acquire funding for your business depends on several factors, including creditworthiness, the amount needed and available options.

Small business loan. It’s very common for people interested in starting a new business to inquire about a small business loan.

It’s funny that this term is so widely known, because actually securing an uncollateralized business loan is very rare. For most small business entrepreneurs, this is not really an option.

Business grants. Learning how to start a business means knowing it’s expensive. A grant is better than a loan, because you don’t have to pay it back (assuming you fulfill the terms of the grant). There are government and private grants available for small businesses.

Grants for small businesses are similar to scholarships in that they are many and varied and finding a good one is hard but can change your life.

Check Grants.gov for federal grants. The key to landing a business grant is finding one that pertains to your exact situation.

Investors. It’s possible an investor could find your business interesting enough that they’d like to be part of it.

In exchange, an investor will likely want to own a percentage of your business or receive a princely fixed rate of return.

Crowdfunding. Lots of small businesses have gotten their startup costs covered this way in recent years. Try GoFundme or SeedInvest.

Once you know how to start a business, you’ll need to secure the domain for your business’ website. This is critical to complete early on.

If you wait until you’ve formed an LLC or until after you’ve searched your ideal domain name several times, you risk someone securing it before you can. This can be a costly mistake.

How to Start a Business in Depth:

A Comprehensive Guide to Domains

Start Your Business

The structure of your business will have big implications on everything from your personal liability protection to how you pay taxes.

When learning how to start a business, take some time to consider which business structure will work best for you.

How to Start a Business in Depth

Business Structures at a Glance

Sole Proprietor: Good for a single owner who wants full control over the business and does not require liability protection.

Owner and business are a single legal entity.
No formal structure to register with the state.
Pass-through taxation (profits are reported on owner’s income tax).
No liability protection for personal assets.

Limited Liability Company (LLC): Good for businesses that desire limited liability protection for the owners while allowing for flexible management and tax benefits.

Personal assets of the owner are generally protected from debts and obligation of the business.
Flexible management structure (owners can self-manage or hire an outside manager.
Pass through taxation (profits are reported on owner’s income tax).
Easy setup.
Flexible profit distribution (profits can be distributed based on agreement, rather than ownership percentage).

Partnership: Good for businesses that are jointly owned and managed by two or more individuals who share profits, losses, and legal liability.

Two or more partners own and operate the business.
Simple setup.
Pass through taxation (profits are reported on owner’s income tax).
Shared risk and liability.
Limited continuity (the partnership dissolves if one person dies).

Corporation: Good for businesses that need to raise capital, have multiple shareholders, and want to limit the personal liability of their owners.

Shareholders enjoy limited liability protection of their personal assets.
Ability to raise capital by issuing shares of stock.
May enter into contracts, sue and be sued as a separate legal entity.
Centralized management structure including, board of directors overseeing management for shareholders.
Double taxation (corporate profits are taxed and then shareholders pay income tax when profits are distributed).
More complex setup and compliance.
Transferability of shares, making for easy ownership exchange.

Additional Resources:

Learn More About Non-Profits

If you choose an LLC or corporation, you’ll need to file formation documents with the state, get a registered agent, and file annual reports. Sole proprietors and partnerships can skip this step.

How to Start a Business in Depth:

Business Formation at a Glance

File Formation Documents: Whether you’re forming an LLC or a corporation, filing formation documents with your secretary of state is what brings your business structure into being.

Assign a Registered Agent: LLCs and corporations are required to maintain a registered agent. This is the official contact between the state and the business.

Doing Business As (DBA): If you are operating as a sole proprietor or partnership and want to use a name other than your own legal name, you may need to register that you’re Doing business as (DBA) another name.

Employer Identification Number (EIN): An EIN is like a social security number for your business. All corporations and multi-member LLCs, or LLCs with employees are required to obtain an EIN.

An EIN isn’t a required step when learning how to start a business for sole proprietorships, but it’s still a good idea to get one even if you are a single member LLC as it helps bolster the separation between you and your business.

EINs are free and are assigned by the IRS. The application process is quick and you’ll receive your number immediately.

Business Licenses Federal, State, County, City: What licenses you’ll need to operate depends entirely on what type of industry you are operating in. The best thing to do is contact your city hall.

Don’t be intimidated by this. City Hall employees talk to people all day who are just learning how to start a business, and they’ll tell you exactly what to do.

If your industry is a trade, you’ll want to contact the Department of Labor & Industries. Federal licenses are reserved only for those industries that are regulated at the federal level.

This includes: agriculture, alcohol, aviation, broadcasting, firearms, commercial fisheries, maritime transportation, mining and drilling, nuclear energy, and transportation.

When you start an LLC or a corporation, you’ll be required to maintain a registered agent in each state where you conduct business.

A registered agent is a deceptively big part of learning how to start a business. They have a big impact on your compliance with the state and your privacy.

How to Start a Business in Depth:

Registered Agents at a Glance

A registered agent is a person or business who agrees to serve as an official contact and receive official mail for an LLC or corporation.

The requirements for registered agents vary by state, but typically a registered agent is required to maintain a physical address in the state they serve. They’re also required to be available for service of process during business hours.

Manage Your Business

If you form an LLC or corporation, you’ll likely need to file an annual report each year to stay compliant with the state.

Each state has slightly different requirements and fees associated with their annual report.

Don’t worry, they aren’t the exhaustive financial reports required of large public companies. They are typically a brief information update and nominal tax charged by the state.

But you must file them each year (sometimes every other year) to maintain good standing with the state.

This is a critical piece of learning how to start a business, but it’s not the hardest. Read the guide below to learn what’s required in your state.

How to Start a Business in Depth

How to File an Annual Report in Your State

You’ll want a business bank account to run all customer payments through, even if you’re a sole proprietor, so that you can keep your business and personal finances separate. This is crucial for good bookkeeping and accounting.

You’ll also need a business banking account to set up any kind of debit or credit card processing.

How to Start a Business in Depth

How to Open a Business Bank Account

Setting up a good bookkeeping might be the most intimidating part of learning how to start a business.

You can take complete control of this system by tracking all your financial transactions on a spread sheet, or you can hire a bookkeeper to do it all for you.

But for most small business owners, the best option is to spend a little time familiarizing yourself with the basic concepts of bookkeeping, and then employing a high quality accounting software to help you get it done.

Regardless of how involved you are in your own bookkeeping and accounting, you’ll want to familiarize yourself with the basic concepts of double-entry bookkeeping.

How to Start a Business in Depth

Small Business Bookkeeping for Beginners

Double-Entry Bookkeeping

Double-entry bookkeeping is the standard bookkeeping method for modern business accounting. In double-entry bookkeeping every financial transaction is first recorded in a journal and then a general ledger.

Each transaction is recorded twice—for every credit recorded in one account, an equal debit is recorded in another account and vice versa.

This way, the total credits will always equal the total debits, and if they don’t, a bookkeeper knows an error has occurred.

Chart of Accounts and General Ledger

The chart of accounts is like a table of contents for the general ledger. It makes it easy to find the name of an account, its number, and a brief description. The general ledger is set up the same way, but it is in the general ledger that transactions are recorded and balances kept.

Credits and Debits

Credits and debits are crucial to understanding bookkeeping, but they often confuse beginners who assume debit simply means subtract and credit means add.

Before you can understand bookkeeping, you’ll first need to alter your concept of these terms.

All businesses can benefit from general liability insurance, but some businesses are required to have certain other types of insurance.

General liability insurance covers property damage, bodily injury, and personal injury to yourself or a third party.

If your business provides a service, you may also want to consider professional liability insurance.

Liability Insurance covers you if you do something wrong or neglect to do something you should have done while operating your business.

Small businesses often also carry Business Property Insurance and Business Income Insurance. Many insurance companies offer packages that include these three policies.

If your business has employees, you’ll need to carry workers’ compensation and unemployment insurance.

Grow Your Business

If you are learning how to start a business, you will need to learn about branding. Brands build trust and recognition.

Once you have a brand logo established, you’ll be able to use it on your website, social media platforms, and everywhere else that potential customers come into contact with your services or product.

Marketing at a Glance

Customer Relationship Management Software:

A critical new component of small business marketing is setting up good Customer Relationship Management (CRM) software.

Do this early. You’ll have a much easier time and become more comfortable with the process of collecting and storing your customer information for marketing purposes if you do it from the start.

Marketing Plan:

A good marketing plan is also essential to develop and implement early on. Spend some time developing one before you open your doors.

You can make learning how to start a business a lot easier by learning how to export technical tasks to third party vendors.

Third Party Vendors at a Glance

You’ll need partners to set up credit card processing, book keeping, and Running a business can be overwhelming, and you and your team probably aren’t going to be able to do it all on your own. That’s where third-party vendors come in.

Companies in every industry from HR to business phone systems exist to partner with you and help you run your business better.

Third-party vendors are designed to be helpful to people who are just learning how to start a business, and are adept at it.

Be discerning with third party vendors, though. They’ll have access to sensitive data and often that of your customers.

For each new state in which you do business, you’ll need to apply for foreign qualification with that state’s Secretary of State.

How to Start a Business in Depth:

Get a Certificate of Good Standing in your State.

Foreign Qualification at a Glance

To apply for Foreign Qualification Documents with the new state’s Secretary of State and pay the required fees. To do so you’ll typically need to:

Get a certificate of good standing from your home state.
File a foreign qualification document with the new state (similar to articles of organization in your home state).
File annual reports in the new state.

Because you shouldn’t need a business degree to run a great business.

How to Start a Business

Plan

Start

Manage

Grow

Table of Contents

Plan Your Business

Market Research at a Glance

Business Plans at a Glance

Financial Evaluation at a Glance

Start Your Business

Business Structures at a Glance

Business Formation at a Glance

Registered Agents at a Glance

Manage Your Business

Double-Entry Bookkeeping

Chart of Accounts and General Ledger

Credits and Debits

Grow Your Business

Marketing at a Glance

Third Party Vendors at a Glance

Foreign Qualification at a Glance