The U.S. Chamber of Commerce reports that more than 5.5 million new business applications were filed in the United States in 2023. This record number has continued to grow since the surged started in 2020. If you’re one of the millions of Americans with a dream of starting your own business, I’m happy you to say you’re in good company. As someone who has formed a number of small businesses, I’d like to provide some advice and walk you through the steps of getting started.

Opening your own company, whether it’s a Sole Proprietorship, Partnership, Limited Liability Company (LLC), or C Corporation, doesn’t require an advanced degree or years of professional work experience. And it shouldn’t end up costing you a fortune to hire expensive attorneys and other professional help.

What it does require, however, is a lot of thought, research, and preparation. Once you’ve decided on the type of business you’d like to start, you’ll need to determine the feasibility of your plan by conducting market research to get an idea of your customer base and competition. Once you’re convinced that your idea is sound, you should write a business plan that describes your business and how you plan to move it forward.

You’ll have to decide which business structure makes the most sense for your company and figure out how much funding you’ll need to get started and where the money will come from. Your company will need a name, and you’ll have to choose where it will be located. After that, you can research how to get it registered and maintain compliance with state and local regulations. Let’s take a step-by-step look at how you can get your business started.

1. Confirm Your Business Idea

Before you do anything else, you’ll want to be sure that the business you’re planning to start is a good one. Choosing to start a business in which you have no knowledge or expertise is setting yourself up for failure, as is choosing a business that’s already overly represented in the market where you’ll be competing.

If you haven’t yet decided what type of business you want to launch, start by identifying what you’d be happy doing day after day. If you love animals, investigate the logistics of starting a grooming business or a pet care service. If your favorite activity is baking, think about how you could turn your hobby into a business.

When considering what business to start, consider your skills and talents. If friends and family members are always asking you to sew curtains or alter clothing for them, there may be an opportunity to parlay those skills into a business venture.

You also can get good ideas by listening to people. What types of businesses do people feel are missing from your market area? Do you hear people complaining about always having to wait to get their hair cut at the walk-in salon or not being able to find someone to paint their house? Are your friends saying they would love to know a good caterer who could provide food for special events or find a daycare center that would allow their children to stay until 6 o’clock instead of 5? Those types of conversations signal there’s a problem. If you’re qualified and willing to start a business that solves a problem, you’ve way ahead of the curve.

Once you’ve got what you think is a great idea for a business, ask people if they think it’s viable. Would the parents who want to have their kids stay in childcare until 6 o’clock be willing to switch centers if one with those hours became available? If not, find out why and try to think if there’s a way you could adapt your idea to better meet their needs.

You’ll learn more about your target market, how much you can charge for your product or service, customer trends and behavior, your ideal customer, and your competitors when you conduct market research and competitive analysis, which are discussed in the next step. For now, however, you’ll need to make a brutal assessment of whether you’re passionate enough about your business idea to put in the time and effort it will take to get the company off the ground and assure its viability. If it’s not something you’re good at and enjoy doing, your chances for success are limited.

2. Conduct Market Research

Market research is the process of gathering information that can help you gauge the feasibility of your product or service. It looks at consumer trends and behaviors to help you define your target market and understand the needs and wants of potential customers. You can do this by reaching out directly to consumers through focus groups, surveys, questionnaires, or interviews, employing tools such as SurveyMonkey, Visme, Google Forms, or SurveySparrow. Use the information you gather to create a buyer persona, which is a profile that represents your ideal customer. You can find tools to help you do this, such as HubSpot’s Make My Persona.

Or you can dig into existing sources that provide information about buying trends, customer preferences across different regions, pricing, different industries, and other important topics. Some sources to check include Google Trends, the Bureau of Labor Statistics, and the Pew Research Center.

There are books written and websites dedicated to instructing readers how to conduct market research, and I suggest you take the time to research and plan how you’ll proceed. The better you understand your potential customers, the better you’ll be able to tailor your product or service to give them what they want.

Once you’ve identified and learned about potential customers, conduct some competitive analysis to learn about the businesses you’ll be competing against. This can help you identify opportunities, understand the strengths and weaknesses of competitors, determine what makes your business different from others, and discover more about your market.

3. Write Your Business Plan

A business plan isn’t a legal requirement for registering and running a business, but I strongly suggest you take the time to write one. I think of a business plan as a company’s roadmap – directions for how it will move from one point to another. It provides a big-picture view of your goals and resources, and how you plan to grow from a start-up to an established, thriving company. A business plan is especially important it you’re planning to seek funding for your company.

No two business plans will be exactly alike, but most plans contain some basic elements such as a executive summary, description of the company, products and/or services offered, market analysis, business structure and management plan, marketing strategy, funding plan, and financial projections.

You can start from scratch and write your own business plan or use a template such as one available on the SBA’s website. The plan doesn’t have to be perfect, and it probably will change as your business evolves. It should, however, give readers an idea of what is unique and special about your business, and clearly lay out your goals for growth.

4. Figure Out Your Finances

Once you’ve completed your business plan, you should have a good idea of how much money you’ll need to get started. If you don’t have the money you need, your next step is to figure out how to get it. Many small businesses are funded by loans from family members or friends.

If those sources of income aren’t available, you can look for one or more outside investors, sometimes called angel investors. Locating investors is beyond the scope of this article, but you can research to learn more about how to proceed. Crowdfunding is another option for generating some cash, or you can try to secure a small business loan to help you get started.

5. Choose a Business Entity

Not all businesses are structured in the same way, so you’ll have to decide which type of entity is best for you. Small businesses generally are set up as either a Sole Proprietorship or General Partnership, an LLC, or a Corporation. There are advantages and disadvantages to each of these types of business entities.

A Sole Proprietorship, which is a company owned and operated by one person or a married couple, and a General Partnership, which is a company owned and operated by two or more partners, are business entities that are not registered with the state. They are easy to get started because there’s no paperwork to submit, and you don’t have to pay fees to register them. Business profits, losses, and tax responsibilities are passed through to the owner’s personal tax returns, which simplifies paying taxes.

A big disadvantage with these business entities, however, is that owners are not considered separate entities from the business, meaning they can be held personally liable if the company is sued or can’t repay its debt. If the lettuce you used for a big catering event was contaminated by E. coli or Salmonella and people got sick, some to the point of requiring hospitalization, your bank accounts, house, cars, and other personal property could be at risk if they decide to file lawsuits. While getting a business started as a Sole Proprietorship or General Partnership is easy, the risks of operating as one can be steep.

A Limited Liability Company (LLC) is a great choice for many small businesses, as it’s not overly difficult to get started and it provides liability protection for its owners. LLCs must be registered with the state and operate in compliance with state laws and regulations. As long as a business remains in compliance and operates properly, the personal assets of its owners are likely to be protected. Not staying in compliance, however, can result in business interruptions and in some cases result in a court taking an action known as piercing the corporate veil, which is an act that removes personal liability protection for members.

The owner or owners of an LLC can choose to have profits and losses passed through to their personal income and filed on their personal tax returns. If it’s a multi-member LLC, meaning there’s more than one owner, each member pays income tax based on their percentage of ownership.

Or an LLC can choose to be taxed as an Corporation. That’s a decision you’d want to discuss with an accountant or tax advisor, understanding there are pluses and minuses to each tax method. Members of an LLC that’s taxed like a Sole Proprietorship, meaning you pay taxes to the IRS based on your personal income rate, must pay self-employment taxes, while having the LLC taxed as a Corporation relieves that burden because the members are considered shareholders of the Corporation rather than self-employed.

An LLC can have an unlimited number of members, which provides opportunities for growth. And, LLC members can decide if they want the business to be member managed or hire a professional manager to run the business. If members run the business, it’s called a member-managed LLC. If a professional is hired, it’s called a manager-managed LLC.

There are different types of LLCs, such as a Professional LLC, which is a business entity designed for licensed professionals such as attorneys, architects, or doctors. Another type of LLC is a Series LLC, which consists of a parent LLC and one or more sub-LLCs. Series LLCs, which are not permitted in every state, are popular with companies that operate multiple lines of business, such as real estate investors.

A Corporation also must file Articles of Incorporation with the state and operate in compliance with state laws. This type of business entity offers liability protection for its owners, as it’s considered a separate entity. Like an LLC, if your business is sued or can’t repay debt, as long as it is in compliance with the state and operating properly, your personal assets will most likely be safe. If not, you could be subject to a court-enacted piercing of the corporate veil, an action you certainly want to avoid.

Unlike the business entities previously mentioned, a Corporation must pay income tax on its profits, after which shareholders must pay on the dividends they receive from the Corporation. This system often is known as double taxation. A Corporation is known as a C Corporation unless it meets certain requirements that enable it to have special tax status with the IRS. A Corporation that meets those requirements, known as an S Corporation, is able to pass its profits through to owners’ personal income and avoid the corporate income tax. While a C Corporation can have an unlimited number of owners, an S-Corporation is limited to 100 shareholders.

In addition to being a separate legal entity that exists apart from its owners, a Corporation has perpetual life. If one owner leaves or dies, the business continues until its officially dissolved, unlike a Sole Proprietorship or Partnership, which end with the death of an owner. Also, ownership of a Corporation can be transferred through the exchange of assets for stock.

Obviously, that’s a very brief overview of business entities and does not include every type, so be sure to get more information before deciding on which to choose. Many entrepreneurs favor LLCs, as they’re easier to set up and operate than a Corporation and provide the personal liability protection that a Sole Proprietorship or General Partnership cannot.

6. Choose Your Location

Many entrepreneurs operate their small businesses out of their homes, but depending on various factors you may be looking for a brick-and-mortar location for your company. If you form an LLC or Corporation, you’ll need to decide in what state or states to register the business. In most cases it makes sense to register in your home state, but there are some exceptions.

If you’re looking for a physical location for your company, find out about local zoning ordinances to make sure your business conforms to them. Learn what taxes you’d be responsible for, considering state, county, and city taxes as well as income tax, sales tax, property tax, corporate tax, and any others that apply. Also check to see if there might be any tax credits available for your small business, as some state and local governments offer them.

7. Pick a Name

There are legal considerations when choosing a name for your business, so be sure you take the proper steps. If you’ll operate as a Sole Proprietorship or General Partnership, you can use your full, legal name as the name of the business without having to register it with the state. If you want a name for your business that’s other than your legal name, you’ll have to file for a DBA, or “doing business as.” You might have to register the name with the state, county, or city where your business is located.

If you’re forming your company as an LLC or Corporation, you’ll have to choose a name before you register it with the state, as the name must be included in the filing documents. Different states have different naming requirements, so be sure to learn what’s expected. The name of your business can’t be the same as that of another business registered within your state. You’ll need to conduct a name search through your state’s Secretary of State’s office, and you also should do a trademark search through the United States Patent and Trademark Office to be sure the name you choose is not already in use or trademarked.

8. Register Your Business

As you’ve read, Sole Proprietorships and General Partnerships do not have to be registered with the state. If you’re forming an LLC or Corporation, however, you’ll have to take steps to make sure your company is formed in compliance with state laws.

An LLC must complete and file Articles of Organization with the state, while a Corporation files Articles of Incorporation. These are important documents that contain information relevant to the business, including the name of your registered agent, which is a person or company designated to receive legal correspondence on behalf of your company and make sure it’s forwarded in a proper manner. You can select a non-commercial registered agent, which could be someone from your company, an accountant, tax preparer, family member, or friend. Or you can hire a commercial registered agent to receive all business and legal correspondence and forward it electronically. Generally, having a commercial registered agent is safer than relying on an employee or family member to receive and process important mail, as the agent is required to be available at all times during business hours.

Your Articles of Organization or Articles of Incorporation also may include information such as the full name of the business, its mailing address, an explanation of management structure, and the purpose of the business. Nearly every state has a downloadable form for these documents. Once you’ve completed the document, you’ll file it with the state in which your business will operate. Most states allow you to file online and you’ll have to pay a filing fee, typically ranging between $50 and $200.

Once your business is registered with the state, it’s important to remain in compliance with all regulations. That could include filing annual reports, paying fees and taking other necessary actions.

9. Get Your Tax IDs

While it may not be a legal requirement for a business with no employees, it’s normally a good idea to get an Employer Identification Number (EIN), which is a federal tax ID number issued by the IRS. A company that operates as a Corporation is required to have an EIN, as are other business entities that have employees. Even if an EIN is not required for tax purposes, it’s useful when trying to open a business bank account and may be necessary when completing certain paperwork. The IRS issues EINs at no cost and you can apply online. You also may need a state tax ID number if your business is required to pay state taxes. Tax obligations vary at the state and local levels, so you’ll need to research regulations pertaining to your company.

10. Understand Payroll Taxes and Staffing

While many small businesses start out with no employees, if you’re planning on hiring help, you’ll need to take certain steps to meet requirements and remain in payroll compliance. As you just read, you’ll need an EIN and perhaps state and local tax IDs, as well, before hiring employees. Check with your state’s Secretary of State and local tax bureau to determine what you need.

You’ll also need to register for payroll taxes, which are taxes withheld from employees’ paychecks and paid to the government by the employer. Payroll taxes that employees must pay include Social Security and Medicare taxes, as well as federal, state, and local income taxes. Employers must pay their share of Social Security and Medicare taxes, which are known as FICA (Federal Insurance Contributions Act) taxes, along with federal and state unemployment taxes. You’ll need to use a variety of tax returns when filing employment taxes, and all employees must be provided with Form W-2, which reports how much was withheld from their paychecks, and Form W-3, a transmittal form that summarizes W-2 forms to the Social Security Administration.

Payroll taxes can seem complicated, but if you plan to hire employees, it’s very important to understand what they entail and how to withhold the correct amount of tax from each one’s check. You can use W-4 forms to help you figure out how much to withhold from each paycheck. Not acting in compliance with payroll tax laws could result in penalties that could adversely affect your bottom line.

You’ll want to have each employee fill out a direct deposit form, which provides their banking information and allows for their checks to be deposited directly into their account. You’ll also need an I-9 form to verify a new employee’s employment eligibility.

Hiring employees also requires an understanding of staffing practices, which include locating, recruiting, and hiring employees, as well as training and providing incentives to retain them. You should think carefully about how many employees you’ll need, what jobs they will undertake, and the qualifications they should have.

Look at job postings by businesses similar to yours to see who they’re looking to hire and how much they’re paying for a similar position. You’ll need to have a plan for posting your job opening, considering sites such as Indeed, Monster, LinkedIn, or ZipRecruiter. Have a system in place for screening applicants and scheduling and conducting interviews, written practices for hiring, a written job description, and a process for extending a job offer.

Decide if you’ll pay your employees on a weekly, biweekly, or other basis, and select a payroll system to help you manage payroll entries, file necessary tax forms, and perform other steps to assure you remain in compliance. You can use payroll software to achieve those tasks, although many companies outsource them.

Depending on your business and its needs, you may decide to hire independent contractors instead of employees. Employers do not generally withhold or pay taxes for an independent contractor, who is responsible for paying both the employee and employer’s shares of Social Security and Medicare taxes.

11. Consider Sales Tax and Use Tax

Sales tax and use tax are forms of indirect taxes, meaning they are taxes that can be passed along to others. They both are taxes that must be paid to the government, but the way in which they’re collected and paid varies.

Sales tax is a tax on the sale of goods or services. It’s not a federal tax, but assessed by states and local municipalities. Sales tax normally is a percentage of the purchase price of an item or service, and the tax rate varies among states and municipalities. Many states impose a state sales tax and also allow for local sales taxes. So, consumers may have to pay more for the same item in one part of a state than in another.

States also choose which goods are taxed and which are not. In Pennsylvania, for instance, groceries and clothing are exempt from sales tax, but other consumer products, like prepared food, sports equipment, and paper goods, are subject to 6% sales tax.

If your business sells taxable goods and services, it’s your responsibility to collect the sales tax and remit it to the government.

A use tax is a tax levied on the use, storage, or consumption of goods and services purchased without paying sales tax. The state or local government where the goods or services are used – not where they were purchased – charges the use tax, typically at the same rate as the state or local sales tax. Purchasers of those goods or services are responsible for paying the use tax.

The use tax often comes into play when a customer orders goods online from a seller in a different state and the seller isn’t required to charge sales tax on the purchase. It’s also common when a professional purchases goods for their trade in a location that doesn’t have sales tax but uses the goods in a jurisdiction that does impose the tax.

The onus for the tax in those cases is transferred from the seller to the customer who purchased the product or service. It’s up to the customer to calculate and pay use taxes on any purchases where it is required. If, for example, the owner of a house cleaning business buys equipment and cleaning products from a company in New Hampshire, which has no sales tax, but uses those products for cleaning work in Pennsylvania, they are responsible for reporting the sale of the items and paying the use tax as required in Pennsylvania.

Use tax can be hard to enforce, as many consumers don’t report and pay the taxes on purchases they make. As a result, the Supreme Court has made some updates to sales tax and use tax regulations, making online retailers more responsible for collecting tax. It’s important to understand the difference between sales tax and use tax and how they must be collected and paid, because failure to comply can result in fines and penalties. Be sure to consult with your state’s Department of Revenue or Taxation to see what might apply to your business.

12. Pay Attention to Licenses and Permits

Even if your business is not registered with the state, it may be required to obtain federal, state, or local business licenses or permits. Businesses within certain industries, such as agriculture, radio and TV broadcasting, and aviation, are regulated by a federal agency and require special licensing at the federal level.

Other businesses are likely to need licenses or permits from the city, county, or state in which they operate. The types of licenses and permits you’ll need depend on what your business does and where it’s located. Business activities that are often regulated at the state level and require licenses include restaurants, plumbing, farming, construction, retail sales, dry cleaning, or auctions.

Be sure to know what’s required for your business, as you could face fines and other penalties for non-compliance.

13. Make Sure You’re Insured

Regardless of what type of business you have or how large it is, you’ll want to be sure you have the insurance you need to protect it. Different states have different requirements regarding business insurance, so you’ll need to find out what applies to your business. You probably will be required to have worker’s compensation coverage for employees and commercial vehicle insurance, and other types of insurance may be needed when applying for licenses or permits. You’ll also want to be sure you have the proper amount of coverages for general liability and property insurance, and are up to date on payments for life and health insurance and any other important policies.

14. Open a Business Bank Account

Not every business is required to have separate personal and business bank accounts, but it’s a good idea to do so. Keeping your business and personal funds separate is a key factor in preserving the personal liability protection afforded by LLCs and Corporations. Also, maintaining separate accounts makes filing your taxes easier and will be beneficial if you are audited.

Having a business bank account could enable you to have a line of credit for your company to use for an emergency expenditure. Having a business credit card and a merchant services account that enables you to accept credit and debit card transactions signals professionalism and builds trust among your customers. Do some research into different types of accounts, looking carefully at benefits offered to account holders.

Putting It All Together

It’s not surprising if you’re feeling a little overwhelmed after reading about all that’s required to get a business started. Making sure all the necessary steps are completed correctly and in a timely manner can seem daunting, but if you’re willing to put in the time and do your research, you can succeed.

Starting your own business requires a dream and the drive and determination to achieve it, but you don’t have to go it alone. If you’re unsure about how to proceed, reach out to a professional to help you successfully start your business and make sure it remains in compliance as you move it forward.