How to Start a Business: Steps in the Right Order

Test the idea before you spend money

Confirm that real people will pay your price. Talk to potential customers and, if possible, make a few sales before building anything big.

A good idea is one that people will pay for. Before you register anything, find ten potential customers and ask about their problem, what they use now, what they pay and what would make them switch. Even better, sell a small version: a pilot, a preorder, a trial service.

Look at competitors honestly. If a dozen businesses already do this, what will make you different and worth the switch? Our guide to market research shows low-cost methods.

Write down what would prove you wrong, such as fewer than three of ten prospects willing to pay, so you decide in advance when to change course.

Write a lean plan and work out the numbers

A short plan covers who you serve, how you make money, what it costs to start and when you expect to break even.

You do not need a hundred pages. You need clear answers:

• Who is the customer and how will you reach them?
• What do you charge, and what does each sale cost you to deliver?
• What are fixed monthly costs?
• How many sales per month cover them?
• How much cash do you need to survive until then?

Add up one-time costs such as equipment, licenses and deposits, and keep a cash cushion for the first months. See business startup costs and how to write a business plan. Use break-even analysis to set a realistic sales target.

Choose a structure and a name

Your legal structure affects liability, taxes and paperwork. Pick a name that is available as a business name, a domain and a social handle.

The common choices are sole proprietorship, partnership, LLC and corporation. A sole proprietorship is simplest but offers no separation between you and the business. An LLC adds liability protection with modest paperwork. Corporations suit businesses seeking investors or with more complex ownership. Talk to an attorney or accountant about your situation.

Check your state's business registry, trademark databases and domain availability before you commit to a name. Read choosing a business structure and how to check if a business name is available.

Register, get licensed and get an EIN

File with your state, register any trade name, get required licenses and permits, and apply for a federal EIN if you need one.

Typical steps: file formation documents with your state, register a trade name if it differs from your legal name, obtain city, county and state licenses, register for state sales tax if you sell taxable goods, and apply for an EIN with the IRS, which is free. Some professions need specific licenses, and some locations restrict home businesses.

Details differ by state and city, so check your state business portal and local clerk. Our guides cover registering a business, getting a license and the business tax ID number.

Open a business bank account and set up bookkeeping

Keep business money separate from personal money from day one. Set up simple bookkeeping before the first sale.

A dedicated business account makes taxes easier, protects the liability separation of an LLC or corporation, and builds a financial record that lenders will want to see. Use a business card for expenses and track every transaction in accounting software or a clean spreadsheet.

Decide who does the books and how often, and set aside tax money from each deposit. Learn the basics in small business accounting. A solid record also matters later: funders consider business bank statements, revenue and time in business.

Insure, price and set up to sell

Get the right insurance, set prices that cover costs and profit, and build the minimum tools to take orders and payments.

Insurance needs depend on your work: general liability is common, and many businesses also need property, commercial auto, professional liability or workers' compensation. Ask an agent who knows your industry.

Price from your costs, not just from competitors. Write a price list that covers materials, labor, overhead and profit. Then set up what customers need to pay you: invoices, a payment method, a simple website and a Google Business Profile. Keep it lean at first; you can add tools as revenue grows.

Win your first customers, and plan for when funding fits

Start with people you know, local partnerships and a clear offer. Plan cash carefully, since early months are rarely profitable.

Ask friends, former colleagues and neighbors for introductions. Offer a launch deal if your margin allows it. Collect reviews and testimonials only from real customers, with permission. Track where each customer comes from.

Be realistic about funding. Many lenders and funders want to see a track record. ROI Funder considers businesses with 6+ months in operation, $20,000+ in monthly revenue and 500+ FICO, and does not place startup loans for businesses under 6 months old. In the meantime, bootstrap, use savings, or look into SBA microloans and local programs. Once you have revenue, working capital can fund growth with a clear payback. See funding your business for the wider picture.