Ten Steps to Starting a Business

Photo of two women putting Post-its on a whiteboard.

Learning Outcomes

  • List the steps of starting a business
  • Briefly describe the steps of starting a business

Starting a business involves planning, making key financial decisions, and completing a series of legal activities. These ten steps can help you plan, prepare, and manage your business.

Step 1: Write a Business Plan

A business plan generally contains the following parts (which we will expand on later):

  • Executive Summary
  • Company Description
  • Market Analysis
  • Organization and Management
  • Service or Product Line
  • Marketing and Sales
  • Funding Request
  • Financial Projections
  • Appendix

Step 2: Get Business Assistance and Training

Take advantage of free training and counseling services, from preparing a business plan and securing financing to expanding or relocating a business.

Step 3: Choose a Business Location

Get advice on how to select a customer-friendly location and comply with zoning laws.

Choosing a business location is perhaps the most important decision a small-business owner or startup will make, so it requires precise planning and research. It involves looking at demographics, assessing your supply chain, scoping the competition, staying on budget, understanding state laws and taxes, and much more.

Here are some tips to help you choose the right business location.

Determine Your Needs

Most businesses choose a location that provides exposure to customers. Additionally, there are less obvious factors and needs to consider, such as the following:

  • Brand image: Is the location consistent with the image you want to maintain?
  • Competition: Are the businesses around you complementary or competing?
  • Local labor market: Does the area have potential employees? What will their commute be like?
  • Plan for future growth: If you anticipate further growth, look for a building that has extra space should you need it.
  • Proximity to suppliers: They need to be able to find you easily as well.
  • Safety: Consider the crime rate. Will employees feel safe alone in the building or walking to their vehicles?
  • Zoning regulations: These determine whether you can conduct your type of business in certain properties or locations. You can find out how property is zoned by contacting your local planning agency.

Evaluate Your Finances

Besides determining what you can afford, you will need to be aware of other financial considerations:

  • Hidden costs: Very few spaces are business ready. Include costs like renovation, decorating, IT system upgrades, and so on.
  • Taxes: What are the income and sales tax rates for your state? What about property taxes? Could you pay less in taxes by locating your business across a nearby state line?
  • Minimum wage: While the federal minimum wage is $7.25 per hour, many states have a higher minimum. View the Department of Labor’s list of minimum wage rates by state.
  • Government economic incentives: Your business location can determine whether you qualify for government economic business programs, such as state-specific small-business loans and other financial incentives.

Is the Area Business-Friendly?

Understanding laws and regulations imposed on businesses in a particular location is essential. As you look to grow your business, it can be advantageous to work with a small-business specialist or counselor. Check what programs and support your state government and local community offer to small businesses. Many states offer online tools to help small-business owners start up and succeed. Local community resources such as SBA Offices, Small Business Development Centers, Women’s Business Centers, and other government-funded programs specifically support small businesses.

The Bottom Line

Do your research. Talk to other business owners and potential co-tenants. Consult the small-business community and utilize available resources, such as free government-provided demographic data, to help in your efforts.

Step 4: Finance Your Business

SBA offers a variety of loan programs for very specific purposes. Take some time to study the programs described on this Web site to learn more about which types of businesses qualify for different loans.

Step 5: Determine the Legal Structure of Your Business

Decide which form of business ownership is best for you: sole proprietorship, partnership, Limited Liability Company (LLC), corporation, S corporation, benefit corporation, nonprofit, or cooperative. (Refer to the chapter on Business Ownership, which discusses these forms ownership at length.)

Determine Your Federal Tax Obligations

Your form of business (e.g., sole proprietorship, partnership, LLC) determines what taxes you must pay and how you pay them. Most businesses must file annual income tax returns, pay quarterly estimated taxes, and collect and pay employment taxes for owners and employees. You can visit the IRS here to learn more about the particular tax requirements for each business structure.

State Income Taxes

Nearly every state levies a business or corporate income tax. Like federal taxes, your state tax requirement depends on the legal structure of your business. For example, if your business is an LLC, the LLC is taxed separately from the owners of the business, while sole proprietors report their personal and business income taxes using the same form used to report their business taxes. Consult the State Tax Obligations section of the SBA Web site. 

Step 6: Register a Business Name (“Doing Business As”)

Register your business name with your state government.  Naming your business is an important branding exercise, but if you choose to name your business as anything other than your own personal name then you’ll need to register it with the appropriate authorities. This process is known as registering your “Doing Business As” (DBA) name.

Step 7: Get a Tax Identification Number

Learn which tax identification number you’ll need to obtain from the IRS and your state revenue agency. An Employer Identification Number (EIN) is also known as a Federal Tax Identification Number, and is used to identify a business entity. Generally, businesses need an EIN. You may apply for an EIN in various ways, and now you may apply online. You can find out more EINs here.

Step 8: Register for State and Local Taxes

Register with your state to obtain a tax identification number, workers’ compensation, unemployment, and disability insurance.

An accountant or lawyer can explain your state’s requirement for filing various forms and for taxes.

Step 9: Obtain Business Licenses and Permits

Get a list of federal, state and local licenses and permits required for your business.

Federal Licenses and Permits

If your business is involved in activities supervised and regulated by a federal agency—such as selling alcohol, firearms, commercial fishing, etc.—then you may need to obtain a federal license or permit. For example, if your business broadcasts information by radio, television, wire, satellite, and cable, you may be required to obtain a license from the Federal Communications Commission. Or, if you import or transport animals, animal products, biologics, biotechnology, or plants across state lines, you’ll need to apply for a permit from the U.S. Department of Agriculture (USDA). Visit the SBA’s Web site for more information: Business Licenses and Permits.

State Licenses and Permits

Virtually every business needs some form of license or permit to operate legally. However, licensing and permit requirements vary depending on the type of business you are operating, where it’s located, and what government rules apply.

To help you identify the specific licenses or permits your business may need, you’ll need to visit the State Business License Office for the area where your business is located. You can access the directory here.

Step 10: Understand Employer Responsibilities

Learn the legal steps you need to take to hire employees. To do this, consult with an accountant and lawyer to get expert advice on employee law and find out what’s required. Many counties and nonprofits such as SCORE offer free advice. 

The eight steps below cover the legal aspects of the hiring process to ensure that you are compliant with key federal and state regulations:

  1. Obtain an Employer Identification Number (EIN)
  2. Set up Records for Withholding Taxes
  3. Employee Eligibility Verification
  4. Register with Your State’s New-Hire Reporting Program
  5. Obtain Workers’ Compensation Insurance
  6. Post Required Notices
  7. File Your Taxes
  8. Get Organized and Keep Yourself Informed

In addition to requirements for keeping payroll records of your employees for tax purposes, certain federal employment laws also require you to keep records about your employees. Complying with standards for employee rights in regards to equal opportunity and fair labor standards is a requirement. Following statutes and regulations for minimum wage, overtime, and child labor will help you avoid error and a lawsuit. See the Department of Labor’s Employment Law Guide for up-to-date information on these statutes and regulations.

Check Your Understanding

Answer the question(s) below to see how well you understand the topics covered above. This short quiz does not count toward your grade in the class, and you can retake it an unlimited number of times.

Use this quiz to check your understanding and decide whether to (1) study the previous section further or (2) move on to the next section.