You have a million-dollar business idea. And after weeks, months, or even years of thinking about it, you decide to make your idea a reality. Do you know how to start a small business?

For 15% of business owners, getting started is the hardest part of being a business owner. After all, there are a lot of steps to take. Read on to learn how to start a business step-by-step. 

How to Start a Small Business: Table of Contents

How to start a small business

Once you’ve narrowed down whether you are starting a business vs. hobby, you can dive into business decision-making.  

What will your business name be? Who is your target audience? Should you work out of your garage or lease a storefront? What kind of payment methods will you accept? And so on.

When starting a small business, you may have countless questions swirling in your head. Here are 10 how to start a small business steps to get going. 

1. Make a business plan

Your business plan is your company roadmap. It’s a document that outlines key information about your business, including your target audience, products or services, and marketing strategy. 

Business Plan Section Purpose
Executive summary Brief overview of your business (e.g., mission statement, leadership, financial information).
Company description Brief overview of what your business does (e.g., what sets you apart?)
Market analysis Details your market, target customers, and competition.
Organization and management Details your business structure and leadership.
Products and services Details key information about what you will sell.
Marketing and sales Describes your marketing strategies (e.g., where you’ll advertise).
Funding request Defines your funding needs (e.g., how much money you need). This section is for obtaining outside financing.
Financial projections  Details your company’s future finances to help you budget (e.g., expenses, projected income, break-even point).
Appendix  Attach any additional documents (e.g., credit histories, prior financial statements).

To make your business plan, start with research. You’ll need to do a market analysis to learn more about the industry you want to break into, your target market, and your competitors. 

Do you plan to make funding requests? Lenders, banks, and investors want to see your plan before funding your business. 

Why the business plan matters: Creating your plan is one of the first and most important steps of starting your business, especially if you need outside funding. Without a plan, you may get off track and make decisions that don’t benefit your business in the long run. 

2. Choose and register your business name

The business name you choose is the first impression potential customers get of your company. Select a unique name, and check your state’s website for availability

Register the business name with the Secretary of State’s office, a Business Bureau, or a Business Agency. If it’s not available, head back to the drawing board. 

The state you operate in and your business structure determine how you register the name. For example, corporations usually register names to form the business.

You may choose to file for a small business DBA. A DBA is a doing business as name that differs from your company’s legal name. For example, the legal name of a sole proprietorship is the business owner’s name. The sole proprietor must register a DBA name to operate under a different name. 

Want to trademark your business name? You can register with the federal United States Patent and Trademark Office

Why the business name matters: What’s in a name? A lot! Your name is a key part of your brand. It can become a household name or get lost in the weeds. 

3. Pick a business structure

Your legal business structure determines how you pay business taxes, personal protection, and income reporting.

Once you have your plan, the structure tells you how to start forming your business. Take a look at some of the most common business structures. 

Business Structure Overview
Sole proprietorships Sole proprietorships are one of the easiest business structures to form. Owners enjoy pass-through taxation (income is only taxed once).
But, the owner is the same legal entity as the business, meaning the owner is responsible for company debts. The owner’s personal property is at risk.
Partnerships Partnerships involve two or more owners. Partners enjoy pass-through taxation.
Typically, the owners are the same legal entity as the business and are responsible for company debts. 
Corporations A corporation is a separate legal entity from its owners, providing limited liability for business debts.
Incorporating a business is the most expensive and complex structure to operate. Corporations are also double taxed (businesses and owners pay taxes on business income).
Limited liability companies (LLCs) An LLC combines aspects of corporations and sole proprietorships/partnerships. Like a corporation, an LLC has limited liability. And like a sole proprietorship/partnership, income is only taxed once. 

Why the business structure matters: Your structure determines day-to-day operations, how much you pay in taxes, your personal finances protection, and the paperwork you must file. 

4. Determine funding

You may have a million-dollar idea. But do you have a million dollars to finance it? Most business owners don’t. 

Although many businesses are self-funded, bootstrapping isn’t possible for every new entrepreneur. There are several ways to finance your company, such as small business loans and business credit cards.  

Many banks offer small business loans. But, bank loans can be more challenging to secure for new businesses. The Small Business Administration (SBA) also offers loans to small businesses. The SBA’s loan program offers bank funding backed by the SBA. With the SBA’s guarantee, it can be easier for new companies to secure bank loans. Remember, many lenders require a business plan in loan applications. So, draft a plan before applying for loans.

A business credit card is another option for financing a company. But, business credit cards can incur high interest fees. Avoid depending on credit cards to fund the entire business. And, pay off the credit quickly to avoid damaging your credit score.

Why the funding matters: You need to know how much your business will cost before starting a small business. How much does it cost to start a business on average? The average cost is less than $10,000, but every startup is different. Estimate your startup costs to prepare an accurate financial request in your business plan. 

5. Apply for federal and state tax IDs

Taxes are part of business ownership. Federal and state laws require you to pay taxes on your business’s income. You must also report profits and losses to the government. To do this, you need federal and state tax ID numbers.

The first tax account you should create is the federal tax ID number, or Employer Identification Number (EIN). Use your EIN to file taxes, open business bank accounts, and secure business licenses or permits. You must have an EIN if you have employees, structure as a corporation or partnership, or meet other IRS requirements. You can easily apply for EIN with the IRS.  

Your state may also require registration for a business tax ID number. The state tax ID number lets you file taxes and hire employees. Check with your state to see if you need a state tax ID number.

Why the tax accounts matter: Think of federal and state tax ID numbers as your company’s Social Security number. Government agencies identify your company with its tax IDs. 

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6. Open a separate business bank account

Open a separate business bank account to separate your personal and company finances. A separate account can help you legitimize your business, keep organized accounting records, avoid overspending, and more. 

To open a business bank account, choose a bank, gather documents (e.g., business name filing document), and open the account online or in-person. After you verify the information on your new account is correct, you’re good to go. 

Why a separate business bank account matters: Create a clear audit trail and simplify recordkeeping by separating your company and personal funds.

7. Decide what payment methods to accept

Consumers have more options to pay than ever. Cash, credit and debit cards, checks, and mobile wallets are common payment methods. 

However, there is legwork involved in accepting credit card payments for small business and mobile wallet payments. Being a cash-only business might be the easiest route for you, but it could limit your sales and deter customers, especially since 81% of shoppers prefer to pay with cards over cash. 

If you decide to accept credit cards, you’ll need to get started with a payment processing platform, like Stripe. 

Why your accepted payment methods matter: It might seem like small potatoes, but the payment methods you accept can drive cash flow up or down. 

8. Register for business licenses and permits

Almost every business needs licenses and permits to operate. Your requirements vary by state and industry. 

Most small businesses need to register for a basic business license in their city. Also, you may need zoning and land use permits, especially if your business is home-based or involved in manufacturing.

You must get a sales tax license to collect and remit sales tax if you sell items with sales tax. You may need additional licenses if you sell liquor, lottery tickets, gasoline, or firearms.

There are several other types of business licenses and permits. Check with your state and industry standards.

Why business licenses and permits matter: It’s the law! Register for the licenses and permits that apply to your business to stay compliant. 

9. Get insurance

Part of knowing how to start a small business is knowing how to protect it. Business insurance coverage protects your company against financial threats. 

There are several types of insurance available, including workers’ compensation, general liability, and business interruption. Some insurance types, like workers’ compensation, are required. 

Why business insurance matters: Give your company the best chance of success by protecting it against events like property damage, injury, or lost business income. In some cases, insurance is required (e.g., workers’ compensation). 

10. Equip yourself with must-have tools 

Learning how to start your own business wouldn’t be complete without tips and tricks to streamline operations. 

There are several tools companies use to run their businesses, including:

  • Accounting software: All businesses need a reliable way to track all incoming and outgoing money. Easy-to-use accounting software, like Patriot Software’s online accounting, lets you enter transactions, invoice customers, pay vendors, accept credit card payments, and generate financial reports all from your account. 
  • Email marketing software: Part of your marketing strategy might include emailing customers. You can streamline this process with email marketing software
  • Payroll software: If you have employees, you can use payroll software to calculate payroll taxes, pay employees with direct deposit, and more. 
  • Project management software: With this software, you (and employees, if applicable) can efficiently track and manage every stage of a project workflow, including due dates, statuses, and more. 

Why business tools matter: Starting and running a business is demanding. It requires long hours. How many hours do business owners work? Most business owners regularly clock more than 50 hours per week. Tools automate manual tasks and get you back to what matters—your business.

Starting a business checklist

Overwhelmed? You can use our starting a new business checklist to visualize your responsibilities—and tick tasks off your list.

Starting a business checklist: Make a business plan, Choose and register your business name, Pick a business structure, Determine funding, Apply for federal and state tax IDs, Open a separate business bank account, Decide what payment methods to accept, Register for business licenses and permits, Get insurance, Equip yourself with must-have tools

Patriot’s accounting software for small business offers a markedly different approach to recordkeeping. Track your expenses and income, record payments, accept credit card payments, automatically import bank transactions, and so much more. Watch our video demo to see it in action! 

This article has been updated from its original publication date of March 2, 2017. 

This is not intended as legal advice; for more information, please click here.

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