Starting a business requires research, smarts, and confidence—and a certain level of fearlessness. You may be wondering: How can I start my own business with no money? What is the right equipment? Am I getting the best advice?
Here you'll find the essential steps to starting a business, from choosing the right business idea, creating a solid business plan, structuring your business, opening a business bank account and choosing the right accounting software.
1. Find the right opportunity
Which company should you start? It depends on your expertise and how much time and money you can invest. Some small business ideas can be done from home with little effort, and e-commerce and remote businesses have become more common in the wake of the COVID-19 pandemic.
2. Write a business plan
A strong business plan can help you prepare for every aspect of your business. You'll also need one to present to potential investors and lenders. This document should include details about the products or services you want to offer, how you plan to make money, who you need on your team, and more.
You should also include detailed financial projections, budgets, and detailed explanations of how you plan to spend investor funds or loans. Because cash flow forecasts fluctuate as you adjust projected income and expenses, it is helpful to think of the plan's financials as a living, changing document.
Ultimately, your business plan will help you chart the course for your business, anticipate potential obstacles, and figure out how to overcome them—and will likely go through several iterations before your idea comes to fruition. Industry colleagues and accountants may be able to provide valuable feedback on how realistic your forecasts look and point out any overlooked costs.
3. Choose a business structure
The legal structure of your business can affect everything from your taxes to your liability. For example, there is no legal difference between a sole proprietorship and its owner. However, limited liability companies (LLC) and their owners are legally considered separate entities that can provide greater protection of personal assets.
Talking to a tax advisor can help you choose the right business structure for you. And you can change your structure as your business grows.
4. Obtain a federal tax ID
Most businesses need an Employer Identification Number (EIN) to file taxes, open bank accounts, and perform other important tasks. Even if you don't have employees, there are benefits to getting an EIN. The application is free and the online application only takes a few minutes.
5. Apply for licenses and permits
In general, restaurants require health inspections and liquor licenses. Hairdressers require a cosmetology license. Your city may require you to apply for a business license, regardless of what area you operate in. And if you're renovating a space to sell products or provide services, you may need to ask local authorities for a zoning change.
Take time early to find out what licenses and permits you need before you can open your doors. You typically don't need a lawyer to apply for a business license, but they can help you navigate the process and review other documents, such as leases or loans, before you sign them. Industry associations, city officials involved in economic development issues, and local business associations such as your chamber of commerce may also be able to provide advice.
6. Open a business bank account
Separating your business and personal finances is key to managing your business finances. This is standard accounting and makes it easier to deduct business expenses when filing taxes. A business bank account can be helpful and is easy to set up.
7. Understand your startup funding options
Most businesses need some capital to start. However, most business loans are not available to businesses that have been in business for less than six months, and most online lenders prefer a business lifespan of at least a year. Startups should consider alternative financing options or try to leverage other strengths of their business, such as strong credit or collateral. If your business is eligible for a loan, be sure to pay attention to interest rates, possible prepayment penalties and personal liability conditions.
Many entrepreneurs rely on their own savings to get started. You can also look into crowdfunding, personal loans, business grants, and more. Startups with high growth potential may also be eligible for equity financing, in which investors receive partial ownership or equity in exchange for capital.
8. Get a business credit card
Business credit cards can also be used as a short-term financing solution to help you obtain necessary supplies and pay bills while cash flow is still uncertain. Just make sure you spend within your limit and pay off your balance in full each month so you don't end up in a cycle of debt. Aside from startup funding, business credit cards also make it easier to separate business and personal finances. As an added bonus, you can also receive rewards such as cashback for the money you spend.
9. Choose the right accounting software
You must keep records showing how much revenue you generate and how much you spend. Accounting software helps you track and analyze these numbers by generating reports and recording sales trends—and there are even some free options.
As your business grows, you may want to work with an accountant. This person can help ensure your paperwork is complete and accurate, making it easier to file your taxes, apply for financing, and more.
10. Prepare to pay your taxes
As a business owner, you have some new tax obligations - possibly including the need to pay taxes all year round, not just during tax season. But you'll also likely discover some new tax breaks.
Filing taxes can be complex, especially as a small business owner. Building a relationship with an accountant early on can help you succeed, and they can later be a trusted advisor for your business.
11. Protect yourself with business insurance
It's important to protect your business and your personal assets, and that's exactly what business insurance is for. NerdWallet recommends that every business purchase general liability insurance in case of legal claims.
You may also need insurance to honor a contract, such as setting up a booth at an event or working as a subcontractor on a larger project.
12. Establish your online presence
An online presence is crucial for almost every business – especially if you want to sell products online. Setting up a website and social media profiles early, even if they are simple, can help you build relationships with potential customers right away.
13. Set up a payment system
If your business accepts credit and debit cards, you'll likely need a payment processor and a point-of-sale (POS) system. Many POS system providers double as processing companies, which can simplify the decision-making process. Remember to factor in upfront hardware costs for card readers or POS registers, monthly POS software fees, and processing fees. Online payments typically incur higher processing fees than in-person payments. When choosing your provider, be sure to take the entire fee range into account.
14. Hire employees
You may not need to hire employees right away—and some small business owners prefer to remain solopreneurs for the life of their business. However, if you decide to hire, you'll likely need workers' compensation insurance, payroll software, and more. Here you will find out what you need to consider when hiring your first employees.
15. Get financing to grow your business
Once you've been in business for six to twelve months, you can qualify for a business loan. Financing can help your business grow and expand—for example, by purchasing equipment, renovating an office, or expanding your inventory—or help you get through a slow season while preparing for increased future revenue.
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