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Part of the Series How to Start a Business: A Comprehensive Guide and Essential StepsResearching a Market
CURRENT ARTICLEPlanning and Developing Your Business
Starting Specific Businesses
Starting a business in the United States involves a number of different steps spanning legal considerations, market research, creating a business plan, securing funding, and developing a marketing strategy. It also requires decisions about a business’ location, structure, name, taxation, and registration. Here are the key steps involved in starting a business, as well as important aspects of the process for entrepreneurs to consider.
Before starting a business, entrepreneurs should conduct market research to determine their target audience, competition, and market trends. The U.S. Small Business Administration (SBA) breaks down common market considerations as follows:
Market research should also include an analysis of market opportunities, barriers to market entry, and industry trends, as well as the competition’s strengths, weaknesses, and market share.
There are various methods for conducting market research, and these will vary depending on the nature of the industry and potential business. Data can come from a variety of places, including statistical agencies, economic and financial institutions, and industry sources, as well as direct consumer research through focus groups, interviews, surveys, and questionnaires.
A comprehensive business plan is like a blueprint. It lays the foundation for business development and affects decision-making, day-to-day operations, and growth. Potential investors or partners may want to review and assess it in advance of agreeing to work together. Financial institutions often request business plans as part of an application for a loan or other forms of capital.
Business plans will differ according to the needs and nature of the company and should only include what makes sense for the business in question. As such, they can vary in length and structure. They can generally be divided into two formats: traditional and lean start-up. The latter is less common and more useful for simple businesses or those that expect to rework their traditional business plan frequently. It provides a vivid snapshot of the company through a small number of elements.
The process of funding a business depends on its needs and the vision and financial situation of its owner. The first step is to calculate the start-up costs. Identify a list of expenses and put a dollar amount to each of them through research and requesting quotes. The SBA has a start-up costs calculator for small businesses that includes common types of business expenses.
The next step is to determine how to get the money. Common methods include:
Different methods suit different businesses, and it’s important to consider the obligations associated with any avenue of funding. For example, investors generally want a degree of control for their money, while self-funding puts business owners fully in charge. Of course, investors also mitigate risk; self-funding does not.
Availability is another consideration. Loans are easier to get than grants, which don’t have to be paid back. Additionally, the federal government doesn’t provide grants for the purposes of starting or growing a business, although private organizations may. However, the SBA does guarantee several categories of loans, accessing capital that may not be available through traditional lenders. No matter the funding method(s), it’s essential to detail how the money will be used and lay out a future financial plan for the business, including sales projections and loan repayments.
Businesses operating in the U.S. are legally subject to regulations at the local, county, state, and federal level involving taxation, business IDs, registrations, and permits.
Where a business operates will dictate such things as taxes, zoning laws (for brick-and-mortar locations), licenses, and permits. Other considerations when choosing a location might include:
The structure of a business should reflect the desired number of owners, liability characteristics, and tax status. Because these have legal and tax compliance implications, it’s important to understand them fully. If necessary, consult a business counselor, a lawyer, and/or an accountant.
Common business structures include:
A tax ID number is the equivalent of a Social Security number for a business. Whether or not a state and/or federal tax ID number is required will depend on the nature of the business and the location in which it’s registered.
A federal tax ID, also known as an employer identification number (EIN), is required if a business:
An EIN can also be useful if you want to open a business bank account, offer an employer-sponsored retirement plan, or apply for federal business licenses and permits. You can get one online from the Internal Revenue Service (IRS). State websites will do the same for a state tax ID.
How you register a business will depend on its location, nature, size, and business structure. For example, a small business may not require any steps beyond registering its business name with local and state governments, and business owners whose business name is their own legal name might not need to register at all.
That said, registration can provide personal liability protection, tax-exempt status, and trademark protection, so it can be beneficial even if it’s not strictly required. Overall registration requirements, costs, and documentation will vary depending on the governing jurisdictions and business structure.
Most LLCs, corporations, partnerships, and nonprofits are required to register at the state level and will need a registered agent to file on their behalf. Determining which state to register with can depend on factors such as:
If a business operates in more than one state, it may need to file for foreign qualification in other states in which it conducts business. In this case the business would register in the state in which it was formed (this would be considered the domestic state) and file for foreign qualification in any additional states.
Filing for the applicable government licenses and permits will depend on the industry and nature of the business and might include submitting an application to a federal agency, state, county, and/or city. The SBA lists federally regulated business activities alongside the corresponding license-issuing agency, while state, county, and city regulations can be found on the official government websites for each region.
Every business should have a marketing plan that outlines an overall strategy and the day-to-day tactics used to execute it. A successful marketing plan will lay out tactics for how to connect with customers and convince them to buy what the company is selling.
Marketing plans will vary according to the specifics of the industry, target market, and business, but they should aim to include descriptions of and strategies for the following:
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Business start-up costs will vary depending on the industry, business activity, and product or service offered. Home-based online businesses will usually cost less than those that require an office setting to meet with customers. The estimated cost can be calculated by first identifying a list of expenses and then researching and requesting quotes for each one. Use the SBA’s start-up costs calculator for common types of expenses associated with starting a small business.
Entrepreneurs seeking to start their own business should fully research and understand all the legal and funding considerations involved, conduct market research, and create marketing and business plans. They will also need to secure any necessary permits, licenses, funding, and business bank accounts.
Start-up capital can come in the form of loans, grants, crowdfunding, venture capital, or self-funding. Note that the federal government does not provide grant funding for the purposes of starting a business, although some private sources do.
Business plans are comprehensive documents that lay out the most important information about a business. They reference its growth, development, and decision-making processes, and financial institutions and potential investors and partners generally request to review them in advance of agreeing to provide funding or to collaborate.
Starting a business is no easy feat, but research and preparation can help smooth the way. Having a firm understanding of your target market, competition, industry, goals, company structure, funding requirements, legal regulations, and marketing strategy, as well as conducting research and consulting experts where necessary, are all things that entrepreneurs can do to set themselves up for success.