How to start a small business

As appealing as working for yourself sounds, starting a small business entails a lot of hard work to get your business off the ground and running smoothly. After all, the skills it takes to create the product or service that you’ll be selling are often very different from the skills you’ll need to run a successful business. You’ll need to ensure that there’s a sizable market for your business idea and a unique slant or market gap that your business can fill.

In this guide, we’ll help you sort out how to start a business, including writing a business plan, getting funding and figuring out your business insurance and legal requirements.

1. Find your inspiration and write a business plan

People get inspired to start a business in different ways. You might start with a skill, product or business idea in mind based on the industry you already know or have a passion in. For example, you might see a product that’s missing in the market and develop a product to fill the gap. Some small business ideas are novel enough that you may be able to sell your products nationwide.

Alternatively, some people start with the goal of opening a business in mind, and they just need to find the right idea. You can research the most profitable businesses to find the right fit for you. You could also consider buying a business that is already up and running, helping you bypass some of the startup stages.

Once you’ve decided on the business you want to start, you’ll need to write a detailed business plan to understand how to make the business successful. You’ll want to include certain things like your plans for how to organize and market your business, what products or services you’ll offer, market analyses and financial projections.

Startups with a formal business plan are more likely to succeed

Successful business owners are split in terms of whether they wrote a business plan or not, a study from Babson College for Entrepreneurship Research found. About a third didn’t begin with any business plan at all, a third had an informal plan scribbled down somewhere and another third started with a formal written business plan. People who write a formal business plan are 16 percent more likely to succeed, according to an analysis by Harvard Business Review — a good thing to keep in mind if you’re thinking about starting a company.

2. Choose a business structure and register your business

When you’re ready to formally register your business with the government, you’ll first need to decide on a business structure:

• Sole proprietorship: A simple one-person business or side gig, where the owner is responsible for the business’s debts and liabilities
• Partnership: A partnership is a business owned by more than one person, usually with all partners personally liable for business debts
• Limited liability corporation (LLC): An LLC is a common small-business structure in which owners are generally not responsible for business debts.
• Corporation: A corporation is a larger business with even more rules and regulations.

You’ll also need to create formal written business formation documents, such as Articles of Organization for an LLC or corporation, which you can hire an attorney to do or write yourself.

Certain types of businesses, such as S-Corporations, may need to file a form with the IRS. Otherwise, most businesses generally only need to register with their state and/or local governments to make things official. You should also check with your state and local governments to see if you need any licenses or permits and if so, how to get them and stay in compliance.

Once you’ve decided on a business structure and a name, you can apply for an Employer Identification Number (EIN) from the IRS. It’s free and easy to create, and similar to your Social Security number but for your business. You will use this number to report your business taxes and potentially to apply for a business loan.

3. Secure business financing to pay for startup costs

Your business will live and die by your ability to get a firm handle on your finances. Namely, you’ll need to learn how to control your business costs and pricing, so you can maximize your profit.

You can get started on this by doing a break-even analysis, where you’ll calculate the minimum price for your goods and services in order to break even. You’ll also want to do a preemptive cash flow analysis to understand how much money will need to go out and come in to turn a profit.

Once you have an idea of costs, you can create a plan for funding your business until you start turning a profit. Starting a business with no money may be possible in a very limited number of cases, but most of us will require some cash outlay. Here are some of the most common ways business owners get startup funding:

• Bootstrapping: You use money from your personal savings to fund startup costs to get your business off the ground.
• Small business loans: You get a startup business loan from a lender that approves startups. These funds will need to be repaid over a specific time period with interest and fees.
• Small business credit card: You can use a business credit card to fund small purchases up to the available credit limit assigned by the lender. As you pay back money borrowed, you can reuse the credit for future purchases. Plus, you can avoid interest payments if you pay the card in full each month.

4. Purchase business insurance

According to a Next Insurance survey, 71 percent of small-business owners carry business insurance, and for good reason. Without it, you can face costly lawsuits that can derail your business. Business insurance is designed to insure you against various types of disasters and emergencies, including natural disasters.

An analysis by The Hartford insurance company found that more than 40 percent of small businesses will experience a property or liability claim in the next 10 years. The most common claim is burglary and theft, affecting 20% of small businesses. And according to FEMA, about 25 percent of all businesses close their doors permanently after being hit by a natural disaster like a hurricane or a wildfire.

You’ll need to select which areas of the business will receive insurance based on the coverage you choose. For example, you can insure against lawsuits against your business with liability coverage or damage to your business buildings with commercial property insurance. Spend time researching the types of coverage are most relevant for your business to make sure you have adequate protection.

5. Start your business

Next, you’ll need to set up all the tools, processes and hiring for the company to get off the ground and start generating revenue. Steps to starting a small business include:

Focus on marketing

You want to make it as easy as possible for your target audience to find you and understand what you offer. Depending on your business, you might start with cold-calling customers and relying on word of mouth to spread the word about your business. Other tangible options include getting your business logo on objects (such as clothing and trinkets) and using business cards.

At some point, you may want a more reliable form of advertising to ensure you get a steady stream of new customers. You can decide on how to establish a digital presence to get inbound leads coming directly to you with less effort on your part.

The first step for many entrepreneurs is creating a website, which 71 percent of small businesses do have, according to Top Design Firms. Social media is a powerful option as well, with people spending nearly $220 billion in social media ads in 2024, according to Statista. Then, don’t forget to add your business to Google and other online directories to help customers find your business in local search results.

Invest in business tools

Next, you’ll need to research tools that your business can use to automate processes, store customer data and more. Here are some of the broad categories of tools you’ll need to consider for running your business:

• Customer relationship management (CRM) software
• Safety equipment
• Accounting software
• Communication systems
• Online and in-person security systems
• POS systems and credit card processors

Choose your team

Finally, you can decide whether to hire out for specific roles within your company. According to the Chamber of Commerce, 70 percent of small businesses are owned and operated individually. But if scaling your business up is a goal of yours, you’ll need to learn how to delegate your tasks to new team members.

Keep in mind that you don’t necessarily need to hire employees to build your team. You can also hire freelancers and contractors, and even work with professionals that bigger firms might have in-house, such as accountants or virtual assistants. This can be a good way to dip your toes into the world of expanding your business before you hire full-time employees.

6. Manage the business with a growth mindset

Once you’ve checked off the basics of establishing your business, it’s time to learn yet another new skillset: growth. You’ll start by assessing where your business is at in the startup phase and whether you’re in a place to expand the company. You want to see steady sales as the foundation before you think about growing your business.

You’ll want to go back to your business plan and have a full understanding of current business costs plus what you might need in terms of costs and revenue to grow. Then, revise the business plan’s marketing strategy and revenue and customer projections so that you can tangibly measure your success as you go.

As you put the marketing plan into action, you’ll want to monitor how the marketing is translating into sales and revenue. Then, you can analyze and adjust to meet your goals. If your growth tapers off, you may want to analyze the competition to see if you need to reposition your company, add products or otherwise update your strategy. Continue revisiting your business plan and strategies to keep your business growing.

The bottom line

Starting a small business is daunting. But if you’re a self-starter with a passion and you enjoy tackling new challenges as they come up, it may be one of the most rewarding things you ever do. Give yourself grace when you make mistakes, and remember that you can take it step by step. Not everything needs to be formalized before you get started.