Starting a business is one of the most significant steps you can take towards achieving financial independence.
That being said, you should always keep in mind that the path to entrepreneurship is filled with financial, operational, and emotional obstacles, and it shouldn’t be viewed as a shortcut to instant success or “easy” money.
In our How to Start a Business overview, we have prepared everything you need to know to get started, providing practical tips, expert advice, and actionable strategies to help you confidently navigate each stage of launching your business.
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Steps to Starting a Business
Below, we’ve broken down all the important steps you will need to take to get your business off the ground.
Step 1: Find the Right Business Idea
The foundation of any successful business starts with the “right” idea, which, in a conceptual sense, means an idea that is scalable, sustainable, and profitable.
Having said that, in practice, the right business idea is not about finding a universally good idea, but rather discovering the right idea for you — one that aligns with your unique skills, experience, and passions.
Even though countless factors play into selecting the right business idea, generally speaking, you should focus on:
- Leveraging your existing skills and experience to gain a competitive advantage.
- Choosing an area you can realistically learn and grow in, ensuring your business remains practical.
- Targeting real market needs, so your idea stays relevant and valuable over time.
- Adopting a problem-solving approach to address common issues people encounter daily.
- Refining your idea by assessing its potential for sustainable growth, scalability, and competitive positioning.
This approach will help you land on a final idea that leverages what you already know, allows for manageable growth, and addresses a real demand in the market, giving you a clear picture of the business idea that’s both practical and suited to your strengths.
If you’re ready for a deeper dive, you should check out our detailed How to Find the Right Business Idea guide or use our Business Idea Generator Tool.
Step 2: Find the Right Business Name
Choosing the right business name is both important and challenging.
This is because your name will need to be eye-catching, memorable, and (at least somewhat) related to your industry.
If you do have a name in mind, we recommend researching the following:
- Your state’s business records
- Federal and state trademark records
- Social media platforms
You will also need to make sure that your business’s name is available as a domain — this is your website’s URL address.
Step 3: Create Your Business Plan
A business plan, simply put, is a written guide that outlines your business goals, explains how you plan to achieve them, and details how your business will operate.
A mistake many new entrepreneurs make is basing their plan on what they want to happen, rather than what is likely to happen. This often leads to overly optimistic financial projections or unrealistic expectations about market demand, which can set you up for disappointment or failure.
A practical and grounded business plan is far more valuable than an overly optimistic one; when drafting it, be sure to include an executive summary, market analysis, organizational structure, content strategy, marketing strategy, and financial projections.
Remember to include as many relevant data points, research insights, and concrete examples as possible to support your claims and demonstrate the viability of your business model.
The more comprehensive and data-driven your plan, the better equipped you’ll be to make informed decisions and attract potential investors.
Step 4: Register Your Business Entity
One important aspect that cannot be overlooked when starting your own business is the need to establish a solid business structure.
While sole proprietorships and partnerships are the most common entity types for small businesses, they’re a far less stable and advantageous option than LLCs.
This is because unincorporated business structures (i.e., sole proprietorships and partnerships) expose you as an owner to personal liability for your business’s debts and legal actions, while LLCs protect you by keeping your personal assets separate from your business’s liabilities.
In practice, this means that if your business were to face a lawsuit or incur any debts, your savings, home, and other personal assets could not be used to cover these costs.
On top of this, forming your business as an LLC also helps it to appear more legitimate and trustworthy.
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Step 5: Get an EIN
An Employer Identification Number (EIN) is a nine-digit number that the Internal Revenue Service (IRS) uses to identify your business. You need this for things like paying federal taxes, hiring employees, getting a business bank account, and applying for licenses.
You can obtain an EIN in a number of ways:
- Online: You can apply for your EIN on the IRS’s official website by using the EIN Assistant. You should be granted your EIN shortly after completing this application.
- By Fax/Mail: After completing Form SS-4, you can apply for an EIN by submitting it to the IRS via mail or fax.
- By Phone: International applicants and businesses located outside US Territories are required to call the IRS at (267) 941-1099 to obtain their EIN — which they should receive during this call.
Note: If you operate as a sole proprietorship, you will be able to use your Social Security Number (SSN) instead (as long as you do not hire employees).
Step 6: Secure Funding (If Applicable)
Nearly every business, especially in the early stages, will require some level of financing to get off the ground; the most common options available are:
- Small Business Administration (SBA) loans
- Traditional bank loans
- Private investors
- Angel investors
- Crowdfunding campaigns
Having said that, you should note that one of the biggest mistakes new businesses make is either giving up too much equity or taking on too much debt from the outset.
This is a mistake because a new business might need six months, a year, or even longer before it becomes profitable, and even though a loan can help keep things moving during this time, taking on too much of it can cripple your progress and lead to failure before your business has even had a chance to succeed.
A good principle to follow is to only borrow what you’re absolutely confident you can repay, regardless of your projected success. This means that you shouldn’t rely on future growth or best-case scenarios — you should always stick to amounts you know you can manage under any circumstances.
Of course, the right funding decision will ultimately depend on your individual circumstances, the nature of your business, and your overall financial situation.
Step 7: Secure All Required Licenses And Permits
Before you can officially open your doors for business, you’ll need to ensure that you have all the necessary licenses and permits required for your industry and location — without them, you could face fines, penalties, or even the forced closure of your business.
The specific licenses and permits you’ll need will largely depend on your location, as different states and regions have varying requirements, but some of the most common types include:
- Business Operating License: Some businesses will typically need to obtain a general business license to legally conduct business within their city or county.
- Zoning Permits: If your business will operate from a brick-and-mortar location, you’ll need to ensure that your type of business is permitted to operate in that area by obtaining the necessary zoning permits.
- Health and Safety Permits: If your business will involve handling food, providing healthcare, or any other activity that impacts public health and safety, you’ll likely need to obtain a number of health and safety permits to comply with local regulations.
- Sales Tax Permit: If your business will involve the selling of physical goods, you’ll likely need a sales tax permit from your state or local tax authority, which will allow you to collect sales tax from customers and remit it to your state’s appropriate agency.
- Professional Licenses: Certain professions — such as healthcare providers, accountants, and contractors — require specific state or industry licenses to operate legally; this typically involves completing a certain number of prelicensing education, passing an exam, and submitting an application along with a licensing fee.
- Environmental Permits: If your business activities could impact the environment — such as generating waste, emitting pollutants, using water resources, or altering land use — you will need to obtain the appropriate environmental permits, either from the Environmental Protection Agency (EPA) or your state’s environmental department.
- Federal Licenses (if applicable): Certain industries, such as alcohol distribution, broadcasting, aviation, and firearms manufacturing, are regulated at the federal level and require specific licenses to operate legally.
Remember to thoroughly research and comply with all local, state, and federal licensing and permit requirements before launching your business to avoid any unexpected legal hurdles down the road.
Step 8: Start Marketing Your Business
In today’s digital age, almost every type of business will need a solid marketing strategy to succeed, with the exact formula for success depending on your specific business, industry, and goals.
That said, a common mistake that many business owners tend to make is dedicating a large portion of their budget to marketing efforts — such as influencer partnerships, content marketing, or brand collaborations — without effectively tracking the results.
The issue is that if you can’t measure your marketing performance, you can’t optimize it, and without optimization, your marketing strategy won’t be sustainable.
A well-thought-out marketing strategy should not only help you reach your target audience but also allow you to track performance, optimize your approach, and ensure that every dollar you invest is directly tied to measurable results.
For example, if you choose to increase your spending on a particular campaign, you should expect to see a clear impact on your business, whether that’s increased sales, more leads, or improved engagement.
If those results aren’t visible or measurable, you may be wasting resources, and you would be better off reallocating those funds toward strategies that offer more transparent and trackable results.
Can a Business Be Passive Income?
Many people are drawn to the idea of starting a “passive” business, often inspired by online trends or side hustle stories promising easy income with minimal effort.
While there are business models that can generate passive income, it’s important to understand that starting and building any business — whether full-time or part-time — will require significant upfront work, time, and investment.
In reality, it would be more accurate to think of passive business models as a spectrum of involvement, where you may be more hands-on or less hands-on, but you will still need to be present in some capacity to ensure success.
You should always be cautious and skeptical of online gurus or influencers touting the concept of “passive income,” as many of these claims often oversimplify the reality of running a business, presenting only the positives of a specific model without addressing the challenges, risks, and hard work that are also part of the equation.
Remember, starting a business — any business, even the most automated or seemingly effortless — will still require a tremendous amount of hard work, as you’ll be competing in the marketplace and will need to outperform the majority of your competitors to achieve profitability and success.
How Important is Cash Flow?
Surprisingly, a business can be profitable on paper yet still struggle financially, or it can be temporarily unprofitable but continue to operate without major issues.
The difference will often come down to one factor: how well you manage your cash flow, as this is one of the most important elements of running a successful business.
Below we’ve included two examples to illustrate this in more detail:
Example 1
Your business operates on terms where customers pay it in 60 to 90 days, but you cover expenses like payroll and inventory immediately; as a result, a sudden surge in sales can leave you struggling to cover these costs upfront.
This is because even with rapid growth, the gap between receiving payments and paying expenses could strain your cash flow and potentially cripple your business.
Example 2
On the other hand, imagine that your business sells a product temporarily at cost due to a rise in the price of a raw material needed for production, but you’ve set up favorable terms where you get paid by customers immediately while paying your suppliers three to six months later.
In this case, you will have the breathing room to manage the temporary cost increase without immediately feeling the financial strain, allowing your business to ride out the production cost hike.
In both cases, the ability to manage cash flow effectively will be the deciding factor between financial strain and smooth operations.
Tip: One solution businesses often use to bridge cash flow gaps is known as “factoring”. Factoring allows you to sell outstanding invoices to a third party at a discount, giving you immediate cash without waiting for customers to pay. This can be especially helpful if you operate on long payment terms but need funds right away to cover essential expenses (e.g., payroll, inventory, etc).
How to Start a Business FAQs
How can a beginner start a business?
If you are thinking of starting a business, you will first need to identify a market need that aligns with your skills or interests and create a thorough business plan outlining your goals, strategy, and financial projections.
Next, you will need to register your business, obtain the necessary permits or licenses, open a business bank account, and develop a marketing strategy to attract customers and grow your business.
What is the easiest business to start?
Well, it depends.
The easiest business for one person might not be the easiest for another, as it will all depend on your individual skills, experience, and resources.
To explore which business might be the best fit for you, check out our How to Start a Business guide for step-by-step advice.
How do I choose the right business idea?
To choose the right business idea, you will need to start by evaluating your skills, experience, and interests, and look for a market need that aligns with them.
You will also need to consider the feasibility of your idea — whether it’s scalable, sustainable, and fits your budget.
What are common mistakes to avoid when starting a business?
One of the most common mistakes you should avoid is copying others or jumping into trends without considering your own strengths or market needs — this is often referred to as the “frozen yogurt effect.”
Another mistake is entering a business you don’t fully understand or underestimating the importance of cash flow management, both of which can lead to costly errors and missed opportunities for growth.
How long does it take to make a business profitable?
The time it will take for a business to become profitable will depend on many factors, such as your industry, business model, and overall market conditions.
Having said that, on average, most businesses can expect to reach profitability within six months to two years of operation.
Interested in accelerating the process? Check out our How to Buy a Business overview for insights on purchasing an already profitable venture.
What do I need for an affiliate marketing business?
To start an affiliate marketing business, you’ll need a website or platform where you can promote products or services and establish affiliate partnerships with companies in order to earn commissions.
You will also likely need to set up accounting software to track your income, as well as consider securing business insurance to protect your business from potential risks.