How to start a business step-by-step

Starting a business is exciting yet inherently stressful. Numerous skills and planning are required to be a successful entrepreneur — not to mention the specific considerations every entrepreneur has to consider when beginning a startup company. Here is a step-by-step guide to help you, including a free downloadable business plan template.

In the U.S., upward of 5 million business applications are submitted each year  — and that number has risen steadily since 2012. How do businesses succeed? There are mandatory and optional steps you can take to be prepared to face competitors.

Every path to startup success will look slightly different, but there is plenty of overlap. Depending on your background goals and prior experience, there are two foundational actions you can take. The first is to earn a degree in business, perhaps with a specialization such as accounting, management, project management, communication and human resources.

If you don’t have firsthand experience in the industry you want to enter, try searching for a mentor. To locate a business professional who has accomplished something similar to what you are initiating, you can look to social media, your college’s network of alumni, or networking groups.

This first mandatory step to start a business seems obvious, but there are some caveats. Your business idea should not only satisfy demand, but it should be able to stick out among competitors in the same sector. If it’s not a completely new idea, it should at least put a unique spin on existing offerings. This special twist is known as a unique selling point .

Further, ensure that your idea isn’t just jumping on trends. It’s one thing to develop an idea that spreads from person to person; it’s another to try to piggyback on fads that will fade. Make sure that your offering will stand the test of time by looking at historical data in the same sector.

In addition to vetting your initial idea, some more research is necessary. A deeper look will include research into: 

• Market — Saturation and demand
• Competitors — Number, location, growth and opportunities/gaps
• Target audience — Demographics, pain points and ways to reach them
• Finances — Loans, average startup costs

Of course, the preliminary data you gather may change during your business journey, but it will give you a good baseline for determining the feasibility of your business idea. It’s also a good idea to run your business idea by trusted friends or family. This process may unearth obstacles or opportunities you hadn’t considered while immersed in the planning stages.

During research, you identified all possible target audiences for your business. It’s crucial to narrow these possibilities down to a clear target market as quickly as possible. This will inform your marketing budget, campaign, logo design and so much more.

For instance, a vegan bakery may want to target everyone, but focusing on a younger, local vegan crowd may be the best path based on research. A vegan bakery could target a variety of audiences — from wealthy, upper-class event hosts to gluten-free, trendy, middle-class soccer parents.

Picking a single focus doesn’t mean your business can’t sell to all demographics, but your target audience should make up the majority of whom you expect to sell to. This way, your resources will be allocated to target customers who will help you realize the highest return on investment (ROI). 

Once you’ve determined there’s a market for your idea to start a business, you can use the pain points to narrow down which services or products to offer to customers. This step transforms your business idea into a reality. Investing in quality products — or tailoring impeccable services — shows customers that your business is worth supporting.

When picking services or products to invest in, it’s important to calculate your projected ROI. This can be found by subtracting the price of goods — including labor, shipping, tax and other extraneous costs — from the projected sale price. You can accurately predict this after researching historical data from similar products or services in a similar service area. 

Even if your reason for starting this business is clear in your head at the beginning, you’ll most likely need a reminder when the going gets tough. For this reason, it’s best to create a clear mission  and have it in writing. The mission will change, of course, as you go along — it’s normal and healthy for a business’s purpose to evolve.

A tangible mission statement allows you and your employees to come back to your company’s roots. It also shows potential and current customers what you’re all about. Remember to: 

• Keep it short and sweet — Aim for no more than three sentences and use clear, concise wording.
• Stay away from limiting language — Choose inclusive terms like “we” and “our.”
• Include the three main components — Purpose, values and goals.

Getting serious about your startup means picking a business model . Opinions vary about the definition of “business model” — but in this case, the model is the basic strategy and functions by which your business will run. That’s why this is so important to determine ahead of time.

When choosing which model is best for your new business, you must be mindful of several factors, such as: 

• Competitor models
• Potential streams of revenue
• Longevity
• Target consumer preferences
• Historical data

Each business model will have different considerations, but it’s crucial to keep the context of your business and its idiosyncrasies top of mind. Determining how you want to bring in money will also guide you in choosing between the types of startup revenue models. These are just a few of the business model types you can choose when you start a business:

• The brokerage model — Individuals or organizations serve as third-party brokers who bring together consumers and retailers but take a chunk of the revenue in the process.
• The distribution model — Distributing goods to consumers from manufacturers, including middleman retailers.
• The franchise model — A contractual agreement in which an established brand, the franchisor, works with independent business owners, the franchisees, to use official licensing and other means to open a storefront, the franchise.
• The manufacturer model — Creating goods from raw materials and distributing them directly to the consumer.
• The product/service model — Producing or offering quality goods or services with the expectation that consumers will buy at an acceptable price.
• The retail model — Basic strategizing that includes the main elements of retail businesses, from sourcing to profit.

Not every business model will work with your business idea, and each model has its pros and cons.

You may even choose to combine different business models when you first start a business and in the future. This will create opportunities for more streams of income and experiments to figure out what brings in the best profit for your brand. This could change from year to year or stay relatively stable. For instance, your main model could be the reseller model, but then you could incorporate bundling during holidays.

Your business plan will largely depend on the business model or models you choose to follow. You may opt for either a traditional or lean plan and adapt the format to suit your needs. It’s best to have a written copy of the business plan  to refer to, even if you’re certain of how you want things to pan out. There will always be caveats, and it will help to have a tangible reminder of your business strategy as you go along.

Much like the mission statement, your business plan probably will change with time. In the beginning, you might opt for a lean, concise plan. However, the core elements of a traditional business plan usually remain the same. You can use a free template for your business plan to make sure you include everything. The parts of a business plan include: 

• Executive summary
• Company description
• Market analysis
• Legal structure 
• Service or product
• Marketing and sales
• Funding sources
• Financial projections
• Appendix

To write a solid business plan, you have to be acutely aware of how much funding you’ll need to start a business, and how you plan to raise those funds. Some alternatives for funding a new business include:

• Bank lenders 
• Crowdfunding
• Investors
• Self-funding
• Small business loans and grants

Most banks offer the option to open a business account, and you’ll need to set one up to receive funds. You may want to do so with a bank you trust and at which you are possibly already an account holder. This way, you can easily transfer any funds that are for business purposes.

You may be inclined to put all the funds in your own account, but there are many benefits to maintaining a separate business account instead. Business banking allows you to: 

• Keep transactions separate for reporting purposes
• Identify tax deductions
• Separate your personal and business credit scores
• Safeguard your personal funds if your business goes into debt
• Keep things professional when conducting transactions

Setting up a business bank account before you start a business is simple. You typically only need an Employee Identification Number (EIN) from the IRS. Then, you can start accepting funds into your official business bank account. 

A business model identifies how you plan to bring in revenue, but a business structure is a little different. When registering with the IRS, you have to choose a structure for your business  to operate under. This is more than a label — it has an impact on:

Every structure has clear-cut distinctions that will help determine where you and your business fall.  Be sure to consult with an accountant or tax lawyer to provide guidance.

At this point, you probably have a business name in mind. If not, that’s also OK — especially because you must consider factors when naming your business. Best practices for choosing an eye-catching, appealing name for your business include: 

• Keeping it short and sweet
• Making it easy to spell
• Using a play on words that resonates with your business
• Creating an entirely new word (while still following the “easy to spell” rule)

These aren’t hard-and-fast rules, but they can help you narrow down name choices from your brainstorming sessions. There are also points to consider in using the name for legal purposes, social media, a website and more. Before you start your business plan, you’ll want to do a Google search, social-media search, business-entity search and domain-name search to make sure no one has already snagged your perfect name. This will help avoid legality issues as your business grows.

The best way to establish your business and lay claim to its name  is to register it. You can do this several ways, including: 

• Entity name registration (state by state)
• Trademark protection
• Fictitious name registration (or “doing business as” or trade name)
• Domain name registration

Doing any (or all) of the above will protect your business name from being used by other people and organizations. You’ll also need to register your business name in your state — and sometimes with a fictitious name — to do certain things, such as open a business bank account. The requirements vary by location, so check with your state to see the laws and limitations of registering your business name. 

If you do plan to have a fairly stable storefront or office, it’s imperative to choose the location wisely. Of course, you’ll want to determine the commute from your own residence, as well as the market stability for similar businesses in your area. However, there are other, less-obvious boxes to check.

EINs are essentially tax IDs for business entities — and yes, you need one to start a business even if you don’t have (and don’t plan on having) employees. Your EIN will allow you to open a business bank account, hire employees, file federal taxes, apply for federal grants and more. If you are planning to run a nonprofit organization, this is also your pathway for applying for tax-exempt status.

An EIN is necessary for any business formation, except sole proprietorships. But while sole proprietorships don’t technically require an EIN, they may benefit from one to perform the aforementioned business practices. The IRS issues free EINs  via its website. You just have to: 

• Apply for only one EIN per day
• Have a valid Social Security number or taxpayer ID
• Be in the United States 

After an EIN is assigned to you, keep it where you can access it. This will allow you to easily enter it during other applications for grants and business banking accounts.

This step largely depends on the type of business you are starting. Numerous certifications, licenses and permits are necessary for different types of companies and activities. Some of the most common are: 

• General business licenses
• Building and zoning permits
• Sales tax licenses or exemption certificates
• Professional licenses — such as food service, massage or auto dealing

When looking into the licensure for your particular business, it’s best to check your state’s website for its department of business. This will dictate what you need to operate legally in your location. 

Although your startup might not require a team when you first start a business, it’s something to keep in the back of your mind. If you want to grow, you’ll likely need to be prepared to hire employees in the future. When you are ready, hire a basic team:

• Chief executive officer (CEO) and/or chief operations officer (COO)
• Human resources professional
• Product manager
• Chief technology officer (CTO)
• Chief marketing officer (CMO)
• Sales manager
• Accountant
• Customer service representative (CSR)

Of course, when you are first starting, you’ll most likely fill these roles yourself as the business owner. As your business grows, you may need to expand so that everything continues to run smoothly.

This step is purposely intermixed with all the other steps. Of course, you are going to have the most passion for your new business when it’s just a glimmer of an idea in your brain. However, this passion should stay aflame after you start a business and throughout the business’s life cycle. This is possible through:

• Continually learning
• Attending industry events
• Joining groups of like-minded individuals
• Pushing boundaries
• Recognizing burnout

A lack of passion will not only lead to burnout and stress, but it will also affect sales. If you aren’t kept abreast of trends and innovations in your field, you can’t grow. Your customers will take note of your passion for the business, and your income will reflect this. Increasing your satisfaction in the business will undoubtedly increase employee and customer satisfaction along the way — boosting productivity and sales.

In your business plan, you delineated space for the marketing strategy. To delve a little deeper, you must consider different types of marketing before you start a business to use when presenting your new business to potential customers, investors and even employees. It doesn’t matter if you don’t have a marketing team just yet. It’s important to be aware of marketing tactics such as: 

• Digital marketing
• Content marketing
• Email marketing
• Pay-per-click (PPC) marketing
• Social media marketing
• Traditional marketing
• Event marketing
• Referral/word-of-mouth marketing

You’ve already checked to see if your company’s name is used as a domain name, and hopefully you’ve snapped it up by this step. Typically, you’ll want to choose a .com domain extension, but depending on your structure, you can use .org or .net. Then, start building your site so people have somewhere to land after viewing your marketing efforts.

Regardless of your business structure and current accounting department, you’ll want to keep a record of your business activities. Bookkeeping includes taking note of any and every financial transaction. It’s typically done by a financial professional with an accounting degree  and high levels of expertise.

If you don’t have an accounting degree and can’t afford to hire an accountant just yet, you can maintain business records on your own. Research bookkeeping software to find an affordable option that offers the necessary features for logging activities you need to report to the IRS.

Additionally, these logs are important for tracking your business’s losses and gains. Bookkeeping programs usually have features that allow you to generate reports. These will let you see where you are financially and make future projections.

If you haven’t come across insurance during the licensure step, now is the time to look into the kinds of insurance your business needs. Again, this will vary greatly depending on your type of business — but here are common insurances that you’ll most likely need going forward:

• General liability insurance
• Professional liability insurance
• Business interruption insurance
• Commercial property insurance
• Commercial auto insurance
• Data breach insurance
• Workers’ compensation insurance

Sometimes, you can work with your insurance provider to bundle several into a small-business package. This is typically called a business owner’s policy, or BOP. It packages together general liability, property and income insurance. Depending on the nature and location of your business, you may need extra coverage in certain areas — such as workers’ compensation for a riskier workplace.

The first functional day of your business may feel less than functional — or it could go off without a hitch. Either way, it’s an important first impression that you can easily make into a positive one. Customers of small businesses typically care more about excellent customer service than they do a perfect appearance.

Cleanliness and aesthetics are great, for making a good impression. Mishaps happen during events like a grand opening. If you can, offer free snacks or drinks to patrons. This gives them an incentive to attend — and something to keep them occupied if things go awry. Prep yourself and any helpers for the day by focusing on keeping a smile on and remembering why you started this venture in the first place. This will leave a lasting impression and create lifelong customers.

University of Phoenix offers several business degrees and programs teaching skills to help you start a business including a https://www.phoenix.edu/online-business-certificates/small-business-management.html Small Business Management and Entrepreneurship Certificate