Be your own boss: 10 steps to starting a business

November 10, 2020

This post was written by Village sponsor, Brex

Starting a business isn’t without risks, but there’s nothing quite like being your own boss. As an entrepreneur, you can enjoy unparalleled independence and gain personal fulfillment from growing and shaping your company. With diligent budgeting, pricing, and promotion, you may also turn a handsome profit. 

Whether you want to fix a problem, build wealth, or better serve the community, setting up a company isn’t as daunting as it may seem. 

Below, our beginner-friendly guide walks you through the 10 core steps to starting a business. Learn how to develop a product or service, register your business, get funded, and start selling in no time. We’ll also share additional resources to help you complete each step the right way. 

The 10 steps to starting a business 

Follow the steps below to introduce your new product or service to the world: 

1. Identify a business idea.

Many new businesses begin with an “A-ha!” moment, when you identify an opportunity to fulfill a market need with a new product or service. If you already know your business idea, you can continue to the next step. If you don’t have an ironclad business idea just yet, don’t worry. Here are some strategies you can use to find a product or service to sell: 

  • Use your strengths and interests: Many entrepreneurs leverage the experiences, skills, and hobbies they already have to get on the fast track to a great business concept. Family, friends, and other peers in your network can also be a valuable source of ideas or skill sets. 
  • Capitalize on current trends: Ideally, you’ll observe a product or service trend before the market is saturated with competitors. That said, you can use already-popular products as a jumping-off point. Think about how you can make an improvement, add a feature, pair it with a relevant service, and so on. 
  • Research existing niches: Look at customer reviews for different products and services. What are their complaints? For example, imagine a local landscaping company with a lot of three-star reviews. These customers want specific service times, better communication, and more accurate estimates. Your business could be the solution. 

You can use Google Trends and other consumer trend trackers, B2C and B2B industry publications, software review sites, web forums, and crowdsourcing platforms for further inspiration. 

2. Conduct market research. 

Even the best-sounding business concepts need to be proven. Your next step is to validate your idea and answer some key questions: 

  • Is there a demand for your product or service?
  • Who are your potential customers? 
  • How much are people willing to pay for your product or service?
  • Is your target market large enough or lucrative enough to justify the costs of starting up a business? 
  • Who are your competitors? How are they faring? 

Market research will help you uncover and understand your customers’ pain points, needs, and desires. It will also show how you stack up against the competition. The best way to do this is to ask your customers directly. Here are some common market research tools: 

  • Host a focus group
  • Send an online survey 
  • Run targeted advertisements
  • Hold a phone campaign

These responses can also form the basis of your marketing strategy. Once you have proof of concept, you can start developing and testing your product or service.

3. Create your business plan.

A business plan is a critical document. Not only is it a roadmap for your reference, but it’s also the snapshot of your resources, goals, and outlook that you’ll share with prospective investorsstartup incubators and accelerators, and lenders. 

Business plans can range from a single page (a “lean startup” business plan) to 30-40 pages. Most plans include the following sections:

In a nutshell, your plan should explain your business model, outline your business needs, and convince readers that you’re one step ahead of potential obstacles. On the Small Business Administration (SBA) website, you can see examples of business plans, and even find a counselor to review yours.

4. Determine a budget, and secure funding. 

If you’re like most new small business owners, you’re starting up with less than $50,000 at your disposal. Also, most businesses don’t make a profit for at least two to three years. One of the best ways to shorten that timeline — and avoid over-borrowing funds — is to make a comprehensive startup budget before you seek funding. 

Of course, different types of businesses will have different startup costs. You’ll need to account for your startup’s fixed costs, like your office space and payroll, as well as variable costs, like labor wages, credit card processing fees, raw materials, and shipping costs.

Once you have a ballpark figure, you can start considering different business funding options

5. Register your business entity

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One of the most important steps to starting a business is choosing the right business structure. How you organize your business will determine your personal liability protection, tax filing rules, accounting requirements, and much more. 

Here are the five main business legal structures:

Registering your business is simply a matter of filing paperwork with your state filing office, and paying any required fees. There may also be local-level requirements, so be sure to check with your city governing body. You’ll list your legal structure, business name, “doing business as” name (DBA), business location, owner information, and more. Read our step-by-step business registration guide for more details. 

There are also online services that handle your business registration for you, such as LegalZoom and BizFilings. 

6. Apply for an EIN.

An Employer Identification Number (EIN) is like a Social Security number for your company. Business owners use their EIN to complete tax forms and hire staff (that’s what the “Employer” part refers to.) Most business entities, including corporations, LLCs, partnerships, and some types of sole proprietorships are required to have an EIN. Even if you don’t hire full-time or part-time employees, your independent contractors may need your EIN to complete their taxes. 

Having an EIN also allows you to: 

  • Open a business bank account
  • Get a business credit card 
  • Request federal and state tax exemptions
  • Apply for your small business licenses and permits
  • Establish a business credit score

Apply for an EIN through the IRS website — it’s free and takes just a few minutes if you have your business documents handy.

7. Apply for federal, state, and local taxes, licenses, and permits. 

Many states and localities require you to apply for a state tax ID, as well as seller’s permits, health permits, zoning permits, occupational licenses, and other certifications. Certain states have additional financial requirements, like mandated workers’ compensation and unemployment insurance. Some companies are also regulated at the federal level, such as those selling alcoholic beverages or firearms. 

Our guide to acquiring small business licenses offers details on how to apply, as well as resources you can use. We suggest visiting the SBA’s licenses and permits page for a complete list of state and federal requirements, including the governing agencies for each industry. It may help to consult a corporate lawyer to ensure you haven’t missed any new laws or regulations. 

8. Open a business bank account.

Depending on the type of legal structure you choose, you may need to open a business bank account. For instance, sole proprietors can combine their personal and business spending into one account. Corporation shareholders, on the other hand, must keep their personal finances and business finances separate. 

In any case, having a separate company bank account makes it easier to monitor cash flowtrack your spending, and get valuable business deductions at tax time. The best business bank accounts offer a combination of convenient features and useful perks. Look for these qualities: 

  • Easy-to-meet account opening requirements 
  • Low or no account fees 
  • Generous transaction limits 
  • High returns on cash
  • Superior business debit and credit cards 
  • Intuitive online and mobile banking
  • Ample account integrations
  • 24/7 fraud monitoring and customer service
  • Dynamic customer rewards 

9. Set up your bookkeeping and accounting.

This is one of the steps to starting a business that some entrepreneurs miss, but it’s essential to building a sustainable company. Bookkeeping refers to day-to-day expense tracking, account reconciliation, and recordkeeping. By contrast, accounting involves generating and analyzing financial statements, identifying business opportunities, and preparing for annual business tax filings. 

A successful business must take care of both of these tasks. We recommend reading our small business accounting guide to get the lay of the land. Fortunately, you don’t need 40 years of fiscal know-how to manage your finances today. Accounting software like QuickBooks and Xero has made it possible for busy entrepreneurs to manage their finances.

Another option is to hire an accountant, either seasonally or permanently. They can help you set up an accounting system, get your business taxes in order, and avoid any early mistakes that could bring the IRS knocking.

10. Promote your business and start selling.

Congratulations! You’re nearing the finish line. By this point, you should either have a physical business location or an ecommerce website that’s ready to go. 

The final step is to expand on and execute the marketing strategy you developed back in step three. Think of the promotional channels, unique selling proposition (USP), and campaign messaging that will resonate with your target audience. 

Make sure your brand is front and center, and explore out-of-home advertising, email, social media, phone, and direct mail campaigns. You can also test out different pricing strategies for your product or service. 

Establish some key performance indicators (KPIs) at the outset so you can measure the success of your launch.

From idea to reality

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Once you’ve confirmed there’s a demand for your business idea, you can craft a business plan that wins over lenders and investors. Register your business and apply for your necessary licenses, permits, and tax IDs. Organize your company’s finances by opening a business bank account and setting up your accounting system. Finally, open your company’s doors — online or in-person — and start selling. 

A successful business isn’t built overnight, but using this checklist of steps to starting a business will certainly speed up the process. Next, review our list of 64 startup resources and tools to help you get up and running.

November 10, 2020
Hilton Thompson