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

How to start a business

Small businesses make up nearly all U.S. companies — about 35 million as of 2024, according to the Small Business Administration. They employ almost half of the private workforce and drive much of the nation’s growth. If you’re ready to join their ranks, the steps below will help you get started on the right path.

1. Refine your idea.

If you’re thinking about starting a business, you’ve got to start with a great business idea. The challenge lies in turning an idea into a product or service. 

Start by asking yourself a few important questions:

• What is the purpose of your business?
• Who are you selling to?
• What are your end goals?
• How will you finance your startup costs?

You don’t need concrete answers yet, but these questions will get you thinking more practically about what it takes to launch your business.

“In the words of Simon Sinek, ‘always start with why,'” advised Glenn Gutek, CEO of Awake Consulting and Coaching. “In this process, it may be wise to differentiate between [whether] the business serves a personal ‘why’ or a marketplace ‘why.’ When your why is focused on meeting a need in the marketplace, the scope of your business will always be larger than a business that is designed to serve a personal need.”

Your “why” might be:

• Creating a better version of a product that offers clear advantages.
• Offering a new subscription model.
• Providing the best customer service possible to outshine the competition. 

Or your “why” might be more personal, like building a freelance business to create an income stream through writing or design work.

Your “why” can be anything, but understanding it helps you determine how to structure your business to achieve that goal. Before you even start business planning, it gives you a North Star to aim for as you flesh out your idea.

2. Write a business plan.

You spent some time in step one asking yourself key questions; now it’s time to put pen to paper. A well-written business plan helps you map out where your company is headed, how you’ll tackle challenges and what resources you’ll need along the way. Treat it as a living document you’ll revisit as market conditions shift or your business evolves.

Here are three areas to focus on as you create your plan:

C/15751-conduct-market-analysis.html”>Market research is the foundation of any solid business plan. It helps you understand your target customer demographics and their needs, preferences and behavior, as well as your competitors and the overall industry. Start simple with free tools like:

• Google Trends
• Data from the U.S. Census Bureau
• SBA market research resources
• Social media analytics

Once you’ve validated your idea, you can explore paid options like industry reports, survey platforms or professional focus groups. The goal is to gather both numbers (quantitative data) and customer opinions (qualitative insights) so you can spot opportunities and limitations.

Clarify your target customers

Before you can market effectively, you need to know who you’re talking to — your target customer. Consider the problems your customers face, how your business solves them, and what budget they’re working with. Think about their age range, lifestyle and buying motivations so you can tailor your messaging to resonate.

Stephanie Desaulniers, owner of Business by Dezign, said entrepreneurs often skip this step, which is a huge mistake. 

“You need to clarify why you want to work with these customers — do you have a passion for making people’s lives easier? Or enjoy creating art to bring color to their world? Identifying these answers helps clarify your mission,” Desaulniers explained. “Then define how you’ll provide this value in a way customers are willing to pay.”

Later on, you might build detailed buyer personas, but for now, broad strokes are enough.

Consider an exit strategy

It may sound premature, but thinking about your exit strategy from the start helps you build with purpose. Will you grow and sell? Pass the business to a family member? Position yourself for acquisition? Identifying your long-term vision now gives you a clearer path forward.

Josh Tolley, founder and CEO of Kingsbridge M&A Brokers, put it this way: “When you board an airplane, what is the first thing they show you? How to get off of it. When you go to a movie, what do they point out before the feature begins to play? Where the exits are. Too many times, I have witnessed business leaders that don’t have three or four predetermined exit routes. This has led to lower company value and even destroyed family relationships.”

3. Assess your finances.

Starting a business comes with a price tag, so you’ll need to figure out how you’ll cover those costs. Do you have savings to fund your startup, or will you need to borrow money? If you plan to leave your current job, do you have enough savings to support yourself until you turn a profit? 

Here are some important steps to take when assessing your startup’s financial considerations: 

Calculate your startup costs

Understanding your startup costs is critical, since many businesses fail simply because they run out of money before revenue becomes consistent. It’s smarter to plan for more funding than you think you’ll need, as profitability often takes longer than expected.

Typical startup costs vary by industry. Ramp estimates that retail businesses often require $30,000 to $50,000 to get started, while manufacturing businesses may need $50,000 to $150,000, depending on equipment and facility needs, and service businesses typically require much less.

Your costs may differ, so it’s smart to calculate them carefully. The SBA’s startup cost calculator is a helpful tool for estimating expenses based on your specific business model.

Once you know your upfront costs, the next step is to figure out when you’ll actually start making money.

Perform a break-even analysis.

One way to figure out how much money you need to operate is to perform a break-even analysis. This tool shows when your company, product or service will start making money.

The formula is simple:

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

Use this formula to understand the minimum performance needed to avoid losses and set production goals. Entrepreneurs typically conduct break-even analyses to:

• Determine profitability: How much revenue do I need to cover expenses? What are my profit margins? Which products or services are profitable, and which aren’t?
• Price products or services: What are my fixed and variable costs? How much does labor or inventory add to total costs?
• Analyze the data: How many units do I need to sell to break even? How can I cut fixed or variable costs while boosting sales?

Minimize and track startup expenses

It’s easy to overspend when starting a business. To avoid this trap, steer clear of flashy purchases that don’t directly support your goals, and track business expenses closely.

“A lot of startups tend to spend money on unnecessary things,” cautioned Jean Paldan, founder and CEO of Rare Form New Media. “Spend as little as possible when you start, and only on the things essential for the business to grow and succeed. Luxuries can come when you’re established.”

Explore funding options

Your startup capital can come from several sources, depending on your credit, funding needs and available programs. Typical startup financing options include:

• Business loans: Commercial bank loans can be hard to secure, but SBA loans and alternative lenders are worth exploring.
• Business grants: Business grants are competitive but valuable since they don’t need to be repaid. Look for privately funded or government grants tailored to women-owned, minority-owned or niche businesses.
• Angel investors: Angel investors are ideal for startups needing significant upfront capital in exchange for investor involvement.
• Crowdfunding: Crowdfunding platforms allow you to raise smaller amounts from many backers.

Choose the right business bank

You’ll need to open a business bank account with a financial institution that fits your needs. Marcus Anwar, co-founder of OhMy Canada, recommends working with smaller community banks because they understand local markets and make quicker decisions.

“They’re unlike big banks that look at your credit score and will be more selective to loan money to small businesses,” Anwar explained. “Small banks want to build a personal relationship with you and ultimately help you if you run into problems and miss a payment.”

When choosing a bank, ask yourself:

• What services matter most to me?
• Do I want a close relationship with my bank or a hands-off experience?
• How much flexibility do I need if challenges arise?

Write down your banking needs, then meet with a few banks to see how they support small businesses. This makes it easier to find the right fit.

4. Determine your legal business structure.

Before registering your company, you need to decide what kind of entity it will be. Your business legal structure affects everything from taxes to operations to your personal liability if something goes wrong. Typical options include:

• Sole proprietorship: Best for solo owners who want full control and responsibility. A sole proprietorship is simple to set up, but keep in mind that debts and obligations fall directly on you, which can impact your personal credit. According to the SBA, sole proprietorships make up 86.3 percent of nonemployer firms and 13 percent of small employer firms.
• Partnership: A business partnership means two or more people share ownership and personal liability. This can be a good option if you have a business partner with complementary skills, but be sure you’re comfortable sharing responsibility for debts and decisions.
• Corporation: Corporations (C corps and S corps) create a separate legal entity from their owners. When you form a corporation, the company can own property, pay taxes, enter into contracts and assume liability. “Corporations, especially C corporations, are especially suitable for new businesses that plan on ‘going public’ or seeking funding from venture capitalists in the near future,” advised Deryck Jordan, managing attorney at Jordan Counsel. More than half of small employer firms are S corporations, according to the SBA.
• LLC: A popular choice for small businesses, a limited liability company (LLC) combines the liability protection of a corporation with the tax benefits of a partnership.

The right structure depends on your current needs and long-term goals. If you’re unsure, talk with a business or legal advisor to weigh your options.

5. Register with the government and IRS.

Before you can legally operate, you’ll need to register your company and secure the proper licenses. The exact requirements depend on your structure, location and industry, but here are the main steps:

Business formation documents

You may need to file the following: 

• Articles of Incorporation and operating agreements: Corporations must file Articles of Incorporation, which include details like your business name, purpose, structure and stock information. Some LLCs also need an operating agreement to outline ownership and responsibilities.
• Doing Business As (DBA): If you’re a sole proprietor or general partnership using a fictitious business name, you’ll likely need to file for a DBA. Most states require one, and you can usually apply through your county clerk’s office for a small fee. A DBA doesn’t provide legal protection, but you may want to trademark your business name for extra security.

Tax IDs and forms

You’ll likely need to handle the following:

• Employer Identification Number (EIN): Most businesses need an EIN from the IRS, though sole proprietors without employees don’t have to get one. Still, it’s smart to apply to keep business and personal taxes separate. Registration is free and can be done online.
• Income tax forms: Your structure determines which tax forms you’ll file. Check your state’s website for local obligations, then use reliable tax software to manage quarterly and annual business and payroll tax filings.

Licenses and permits

Depending on your business and location, you may need the following:

• Federal, state and local licenses: Many states or cities require a general business license, and certain industries need additional permits. The SBA’s licensing database can help you check requirements based on location and business type. The IRS also provides a helpful list of state government websites where you can find license and permit information.
• Seller’s permits: If you sell taxable goods or services, your state may require a seller’s permit (also called a resale permit, reseller ID, certificate of authority and other names). These requirements vary widely by state. For example, Jordan noted that New York exempts services like education and medicine from sales tax, but requires permits for goods, utilities, hotels and restaurants.
• Professional licenses: Certain trades need specialized licenses, such as a commercial driver’s license (CDL) for operating buses, tank trucks or tractor-trailers.

6. Purchase business insurance.

Although it might feel like something you can put off, buying small business insurance is an important step before you officially launch. Unexpected events — like property damage, theft or a customer lawsuit — can be costly, so you’ll want to be protected.

Although there are many types of business insurance, a few basics apply to most small businesses:

• Workers’ compensation insurance and unemployment insurance are required in most states if you have employees.
• General liability (GL) insurance or a business owner’s policy is advisable. These policies cover property damage, bodily injury and personal injury to yourself or others.
• Professional liability insurance is recommended if you provide services. This coverage protects you if you make a mistake or fail to deliver a service as promised.

Your exact needs depend on your location and industry, but starting with these core policies will give you a strong foundation.

7. Build your team.

Unless you’re planning to be your only employee, recruiting and hiring should be among your first priorities. You’ll need a strong team to get your company off the ground. Joe Zawadzki, general partner at AperiamVentures, said entrepreneurs need to give the “people” element of their businesses the same attention they give their products.

“Identifying your founding team, understanding what gaps exist, and [determining] how and when you will address them should be top priority,” Zawadzki advised. 

Zawadzki also noted that figuring out how the team will work together is essential to building a healthy company culture. “Defining roles and responsibilities, division of labor, how to give feedback, or how to work together when not everyone is in the same room will save you a lot of headaches down the line.”

8. Choose your vendors.

Running a business can be overwhelming, and you and your team probably won’t be able to do it all on your own. That’s where third-party vendors come in. From HR service providers to business phone system vendors, B2B partners can help you run your business more efficiently. For example, the best business phone systems often include an interactive voice response (IVR) feature that automatically routes calls to the right representative.

Not every company will need the same vendors, but most businesses rely on partners for a few key functions:

• Accepting customer payments: Offering multiple payment options makes it easier to close sales. Compare credit card processors to ensure you’re getting the best rates, since small business payment processing can directly impact revenue. The best credit card processors provide pricing that fits your budget, a model tailored to your transaction volume and contract terms that meet your needs.
• Point-of-sale (POS) systems: Setting up a POS system allows you to create an interface for in-person sales. The best POS systems integrate payment technology with inventory and customer management tools, making them especially valuable for product-based businesses.
• Managing finances: Many business owners start by handling their own accounting, but as you grow, you can save time by choosing accounting software or hiring an accountant.

9. Brand yourself and start marketing.

Before you start selling your product or service, you need to build your brand and create an audience that’s ready for launch. Strong branding helps customers recognize you, while smart marketing builds anticipation and trust.

Start with these core branding elements:

• Logo and visual branding: Create a corporate logo that makes your business easy to identify, and use it consistently across all platforms. Apply the same color scheme to your website, social media and marketing materials to establish a recognizable personality.
• Company website: Build your reputation online with a professional site. Many customers research businesses before buying, and a website serves as proof that your company exists. It’s also a hub to interact with current and potential customers.
• Social media: Use social platforms to spread the word, offer promotions and connect with your audience. The best social media platforms depend on where your target customers spend their time.

With branding in place, it’s time to market your business. There are many ways to get the word out — from content marketing to paid ads — but email marketing is one of the most cost-effective places to start:

• Use a CRM for contact management: Successful email marketing campaigns begin with a quality contact list. The best CRM software helps you organize customer data and market more effectively.
• Ask customers to opt in: Request permission before reaching out. Opt-in forms allow you to send emails, newsletters and promotions to people who want to hear from you. “Folks get so many throwaway emails these days that, by getting them to opt in transparently, you begin to build trust,” advised Dan Edmonson, founder and CEO of Dronegenuity.
• Stay persistent: Create a marketing plan that extends beyond launch. Brand awareness takes time, and consistent outreach helps you grow your customer base as much as offering a great product or service.

10. Grow your business

Your launch and first sales are only the beginning of your journey as an entrepreneur. To stay profitable and sustainable, you need to keep finding ways to grow. Growth takes time and effort, but you’ll usually get out of your business what you put into it. Here are a couple of tips:

• Collaborate with established brands: Partnering with more experienced businesses in your industry can help you reach new audiences. You might offer free samples or services in exchange for promotion.
• Give back through charity: Supporting nonprofit organizations or volunteering your products and time can boost visibility while strengthening your brand’s reputation.

Starting and growing a business is a big job, but you don’t have to figure it all out alone. Here are some trusted resources that can give you expert guidance, practical tools and even one-on-one support

Government resources

• SBA business guide: Step-by-step guidance on starting and managing a small business.
• IRS small business and self-employed tax info: Tax requirements and forms explained.
• USA.gov business resources: Federal licensing, permits and official information.
• State business registration websites: Check requirements specific to your state.

Educational resources

• SCORE mentor resources: Free business mentoring from experienced entrepreneurs.
• SBA Learning Platform: Free online courses and training.
• Small Business Development Centers: Local consulting and training programs.

Planning tools

• SBA business plan tool: Build a customized business plan.
• SBA market research resources: Methodologies and templates to help you size up your market.

These resources are reliable, up-to-date and designed to support entrepreneurs at every stage — from writing your first business plan to managing growth.

Max Freedman and Skye Schooley contributed to this article. Source interviews were conducted for a previous version of this article.