10 Steps to Starting Your Own Business

Happy small business owner hanging an "Open" sign

Starting your own business takes time and planning. When you’re ready, read this step-by-step guide to starting your own business.

Step 1. Write a business plan

A business plan is a roadmap to your business’s future. It will help you determine how viable your idea is and will allow you to track your progress and growth.

Step 2. Write a marketing plan

Your marketing plan is a crucial part of your business plan. It compels you to think about what your customers want and need from your company so you can develop marketing strategies.

Step 3. Finance your business

When starting a new business, there’s always the question of funding. If you don’t have the means to fund your business yourself, consider

  • bringing in partners
  • taking out a loan from the bank
  • using credit cards
  • borrowing money from your friends and family
  • looking into state and federal funding programs

Learn more about how to fund your small business.

Step 4. Choose a business location

When you’re looking for the perfect location for your company, consider government regulations, workforce availability, and the proximity to your ideal customers.

Step 5. Determine the legal structure of your business

You’ll have to decide on a legal structure for your business to ensure that you’re fulfilling your tax and reporting obligations. Choose the structure based on your business’s needs.

  • Sole proprietorships are the most common structure chosen because they’re the simplest. In a sole proprietorship, you own the company and are responsible for its assets and liabilities.
  • Partnerships are businesses owned and operated by two or more people. Each partner shares the profits and losses and must provide money, property, labor, or skill.
  • A corporation is one of the most expensive and complex business structures to start, so it’s generally only suggested for large businesses with multiple employees. A corporation is an independent entity owned by shareholders. The corporation is liable for the debts and other obligations of the business.
  • A limited liability company (LLC) combines the limited liability features of a corporation with the tax efficiencies and flexibility of a partnership. Like a partnership, the business is not taxed separately, but the profits and losses pass through to the owners, who then report the profits or losses on their personal tax returns.
  • S Corporations are a special type of corporation – formed through an IRS election – to avoid the double taxation that corporations often face. Profits and losses are “passed through” to shareholders, who then report the profits or losses on their personal tax returns. There is one major caveat to forming an S Corporation – any shareholder who works for the company must pay themselves reasonable compensation.
  • Cooperatives are owned and operated for the benefit of those using its services. Any profits and earnings generated are distributed among its members, who all have voting powers.

Step 6. Register your business name

Choose your business name, then register it with the federal government and state agencies. If you want your business to be known as something other than your legal business name, you’ll have to register your “Doing Business As” (DBA) name. A DBA name is also called a fictitious name or trade name. Depending on your location, you’ll either register your DBA name through your county clerk’s office or with your state government.

Step 7. Apply for an Employer Identification Number (EIN)

If you plan to hire employees, you’ll need an EIN. The IRS requires most businesses to obtain an EIN to identify employers’ tax accounts. You can register for an EIN online, by fax, or by mail.

Step 8. Register for state & local taxes

Every state has its own income, sales, and employment taxes, so you’ll have to register with your state to pay these taxes. You’ll have to pay workers’ compensation insurance and unemployment insurance taxes. In some cases, you’ll need to pay for disability insurance for injuries and illnesses that happen outside of work.

Step 9. Obtain a business license

Almost every business needs some form of license to operate within your state. The type you need will depend on where your business is located and what industry you’re in. If your industry is regulated by the federal government (such as alcohol or firearm sales), you will likely need a federal permit to operate your business.

Step 10. Understand your responsibilities as an employer

If you’re going to hire employees, you have certain obligations, including:

  • You must pay your employees at least minimum wage.
  • If a member of your staff is not exempt from overtime, you must pay them time and a half for all hours worked over 40 hours in a workweek.
  • You must provide your workers with a W-2 every year, showing their earnings, deductions, and withholdings.
  • You must withhold income, Social Security, and Medicare taxes from each paycheck.
  • You will need to carry unemployment insurance and workers’ compensation insurance.
  • You may be required to provide job-protected leave under the Family and Medical Leave Act (FMLA).
  • Under OSHA, you must provide your employees with a safe and healthy workplace.

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