How to start a business: An entrepreneur's step-by-step guide
Every entrepreneur has a different story. Maybe you grew up in the restaurant industry and always knew you’d be an owner one day. Or perhaps you’re passionate about the freedom entrepreneurship provides and are in search of the right idea to hit the ground running.
No matter your background or the type of business you plan to build, it’s worth the time and effort to lay a solid foundation. That doesn’t mean it’s easy, though — veterans will tell you there can be thousands of decisions to make just to get things off the ground.
Fortunately, the fundamentals of starting a new business are the same whether you're opening an ecommerce business from home or a brick-and-mortar in town. And we’ve got tips and tricks that make every stage of the small business journey a bit easier.
Already on your way and looking for advice in a specific area? No problem. Click on the linked topics below to skip to a specific section of interest.
Looking for a deeper dive into how to launch and grow a thriving business with comprehensive information, worksheets and real planning tools? Download the Start-Up Path for Entrepreneurs now!
Read on to learn how to:
1. Start with your business idea
It all begins with ideas: the good, the bad and if you’re lucky, the brilliant.
If you’re already committed to a business idea, you can skip this section. But if you’re still in the brainstorming phase, don’t forget how important it is to be intentional here.
No one can plan for every possible situation, but you can set yourself up to make good decisions by taking the time up front to consider your skills and situation thoroughly.
Something to consider — the sum of these decisions creates your business’ reputation and future company culture.
Done is better than perfect in many scenarios. But small businesses feeling the crunch to get going rush through the strategic phase and as a result, often never gain traction. Don’t let your business be one of them.
Coming up with the right idea
If you’re not quite sure what you’d like to sell or offer as a service, no worries. There are a lot of ways to narrow down what you bring to the table as an entrepreneur and how you can best target gaps in the market.
The Harvard Business School Online puts it plainly, “Your idea doesn’t need to be a new invention — it simply needs to fill an unmet need.” They recommend brainstorming around the following prompts:
Why does it take so long to ____?
Why does ____ cost so much?
Can I deliver ____ with a new business model?
What can I change about ____ to improve it?
Once you’ve spent some time considering your answers, take things a step further and compare them with the practical realities of your resources and abilities.
To do that, read the following questions and answer as honestly as possible to get a better grip on what type of business might be right for you.
Questions to consider:
What skills, insights or expertise do you have?
How much funding will you have for start-up costs?
What would make you different from your competitors?
Who is your target audience? Why do they need your product?
Big ideas have to start somewhere. It’s possible, even likely, that you’ll consider several options before landing on the business idea that’s right for your unique abilities.
Vetting your idea and target market
Now that you’ve considered needs, resources and abilities, it’s time to identify your target market — the particular group of consumers you’re selling to — and what they really want.
As author and entrepreneur Seth Godin said, “A product for everyone is a product for no one.”
Chef Kevin Lee, Food Network Champion and successful restaurateur has some great advice about thinking through your concept and target market’s needs practically. Restaurants are his specialty, but the way he thinks through location is a valuable example for any aspiring business owner.
A fancy steakhouse
“You want to be in an area where there's other bars around and there's other things to do because they're going to go do something after dinner.”
A family restaurant
“You don't want to be downtown. Because no parent's going to go pick up their kids from school and go back down to downtown and eat.”
A quick lunch spot
“You want to be next to hospitals, big corporate offices and that kind of area.”
Now that you’ve seen a few examples, answer this series of questions to identify your business’ target market:
Who is your ideal customer? Do you know this person?
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Describe their demographics:
Gender
Age or age range
Locale, i.e., country, state, city, neighborhood
Family status, e.g., marital status, domestic partnership and parental status
What value do they get from your business and in exchange for what?
What product or service do they want that you could provide?
What would make them switch to you?
What are the drivers (emotional and rational) in a buying decision?
2. Conduct market research
Now that you have a business idea and a vision of your target audience, market research helps you determine whether or not your business could be profitable in your market.
We won’t lie to you — a lot of businesses skip this step. But don’t forget that only half of the 600,000 small businesses started each year survive their first five years. Sometimes it doesn’t pay to follow the crowd.
If you're considering running a landscaping company in your local area and there are already 10 other companies offering the same service, your odds of being successful go down significantly.
The best way to protect yourself from market swings and economic volatility is to take market research seriously.
When conducting market research for your new business, you should gather information that helps you understand opportunities and challenges for acquiring customers. Things like:
Market demand
Are you offering a service or product that people want or need?
Market potential
How many potential customers are in your area?
Market geography
Where do your customers live, and how will you get your product or service to them?
Market economics
Do the income demographics of your market align with the cost of your product or service?
Market pricing
What do similar products or services cost your target market?
Market competition
How saturated is the market with competitors offering the same product or service as you?They say knowledge is power for a reason. Being aware of your local market, customers and competition can only give you a leg up as you grow. If you’d like to learn more, the US Small Business Administration has some great resources on market research and competitive analysis.
3. Write a business plan
Once you know your business idea and market, it’s time to go all in with a business plan. Creating a business plan does help you document your new business venture, but its primary goal is to give investors and lenders what they need to see a clear picture of your business.
Maybe you plan on getting outside investment, like a Small Business Administration loan or a small business loan from your local bank. In that case, a well-written business plan is a requirement for the application process.
Your business plan should give a detailed overview of what your business will do, who it will serve, how it will make money and evidence that your business can succeed.
Your business plan should include things like:
Business summary
An overview of your business model, goals and how you'll accomplish them.
Company overview
What your company will sell, the problems it will solve for your customers and why you believe you can offer it.
Market overview
What does your competitive landscape look like? What about your market size? How do both align with your business idea?
Business structure
Your business name, its legal structure (Limited Liability Company, S Corp, C Corp, partnership) and who the principals will be.
Products and services
What products and services will your small business sell? How will you get inventory and what will your costs be to acquire and deliver those products and services?
Marketing and advertising
How will you market your new business to target customers? How much will it cost, and how long will it take you to get up and running?
Finances
This section is key even if you're planning on starting a business with no money. You'll cover how you plan to fund the company, pay for start-up costs, your financial plan and forecast revenue and expenses.
4. Determine funding and finances
Cars and buses need fuel to power their way to destinations near and far. In the same way, every business is a vehicle and also needs fuel. That fuel is funding.
You may have money saved or an investor lined up. Or you may need to work with a financial institution to raise funds.
We won’t cover every option, but here are a few common funding strategies to consider for your small business.
Self-funding
If you’re blessed with available cash to start your business, that’s awesome! It’s a surefire way to guarantee enough money to get things off the ground. However, it’s important to know it comes with risks and potential problems if not handled correctly.
If you are self-funding with two or more owners, keep these things in mind:
If investments from each owner are not equal, setting up your entity correctly will help protect your relative investments.
Shared ownership between family members has inherent risks and is typically not advisable.
If you alone are floating the start of your business, you want to protect your money as best as you can.
Venture capital
A venture capitalist is an individual or group that invests in a business in exchange for an equity stake. They’re risk-takers but will only invest once they see your business is generating revenue. They will want up to 80% of your company while diluting angel investors to a smaller share. They often fund up to two or three years of your business needs, based on revenue expectations. And they can invest multiple times for each stage of your business objectives, which are called series A, B, C, etc. rounds.
Small business loans from banks
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Capital loans: A capital loan is when you receive the full amount of the loan upfront. This type of loan can be useful to set up your business and build the infrastructure to get started.
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Revolving lines of credit: This type of loan is set up so you can borrow a maximum amount and draw from the loan as needed. You’ll only make payments on what you actually borrow and it can be used to help with day-to-day cash flow (e.g., to cover inventory purchases or salaries until you sell the inventory to cover the costs).
You should also plan out your expenses as much as possible during this step. Will you need to hire employees immediately? How much will it cost to buy your products or deliver your service? Will you need to buy equipment, vehicles or business insurance?
Download now
How to get a small business loan: The entrepreneur's handbook
5. Determine your business structure
Determining your business structure isn't always straightforward, and each business entity has pros and cons.
A sole proprietorship is an unincorporated business owned by a single person who pays personal income tax on the profits they earn.
A Limited Liability Company (LLC) is a business structure that classifies business owners as “members” and shields them from personal responsibility for debts or liabilities.
A C corporation is a business structure in which owners and shareholders are taxed separately from the C corp (often called “the entity).
You can get additional details on any of these business structures on the Internal Revenue Service’s website.
You should also consider whether or not you'll want to operate under a "DBA" or "doing business as," meaning you operate under a business name different from the name of your legal business entity. The actual legal business structure of your company can have significant implications on your treatment by the IRS, banks and even local ordinances.
6. Apply for your federal tax ID
An Employer Identification Number (EIN) from the federal government is required for most business financing, paying business taxes and even opening a business bank account. All businesses, except for sole proprietorships with no employees, must have an Employer Identification Number.
Applying for an EIN is fast and simple and can be done on the IRS website, by mail or by fax. Even if you're not required to have an Employer Identification Number, there can be benefits to having an EIN.
7. Register with your state
Each state has its own requirements for registering a new small business. In most states, you’ll register your business with the Secretary of State’s office. Different states require different documentation for registering. In some states, you’ll need an Employer Identification Number, business name and chosen structure. In others, you may also need your North American Industry Classification System (NAICS) code or certain licenses.
8. Open a business bank account
A common mistake new small business owners make is letting their personal and business finances mix, which is a recipe for disaster.
You'll need a business checking account from a local, national or online bank. Having a business credit card is a great way to keep personal and business finances separate, build your business credit and generate rewards with certain cards. Most accounting software will be able to sync with your business credit card and bank account to help you keep track of expenses and revenue.
Your business bank account will connect to your merchant services account, which is where deposits go when you take payments with a payment processor.
Consider how your customers might pay you and decide if you will accept credit cards, online payments, ACH, wire transfers, checks or even digital wallets like Apple Pay®.
At this stage, you should also find a merchant account provider that can support your business, taking payments however you'd like.
9. Get business insurance
Business-specific insurance keeps your business and personal assets protected. Additionally, business insurance is required for most permits and licenses needed to operate a business. Each business type will have unique insurance needs, but almost all companies need personal and professional liability insurance and errors and omissions insurance.
10. Apply for necessary permits or business licenses
Depending on what type of business you're starting, you may require local, state or even federal licenses.
Some quick examples:
If you're starting a restaurant, coffee shop or food truck, you'll likely need a health inspection and liquor license.
If you're starting a local small business with a storefront, you might need a sales tax license.
11. Set up your business technology
Building a machine
One of the biggest mistakes you can make when starting a small business is failing to build a machine. When we say “build a machine,” we’re talking about designing something that works without you (the entrepreneur) in the middle of the operation.
Let’s be real: of course, the business can’t run without you in the beginning. Maybe not even after 60 days or six months. But build with the end in mind. The biggest winners focus on making money first by orchestrating people, processes and technology.
You should design, implement and make continuous improvements to your processes. Then document them to build training materials so others can take the reins.
When you build a machine, you become the optimizer of the business instead of the hands-on operator.
Finding the right technology to integrate into your machine can be overwhelming, especially if you don’t have any experience with hardware or software. But it’s vital to level up your tech so you can use your time more wisely.
The heart of your technology solutions is your point of sale (or POS) solution. A POS solution is made up of hardware, software, payment processing and paid services. If you get a good one, it’s the hub that unites your operations and helps you run your business.
Your systems need to be able to talk to each other. Specifically, you want to be sure the solution you pick integrates these six technology systems:
Order processing
Accounting system
Inventory management
Payment processing
Employee management
Marketing
The best way to achieve this goal? Pretty simple, actually. An all-in-one technology provider is the fast, efficient and cost-effective way for business owners to keep every part of their operation connected, from payments and payroll to point of sale and beyond.
Personnel and partners
It is very rare for a single individual to find success in their new business without smart people surrounding them. After all, tech is nothing without the right team.
This doesn’t mean the business has to have more than one W-2 employee to succeed — teams come in all shapes and sizes. But with the right help and expertise from qualified teammates, you will avoid mistakes and fast-track your business growth.
Another reason you need a team is the complexity that comes with being competitive in the market. No one is an expert in everything, and there can come a time when winging it is detrimental to your success. There are myriad considerations, such as:
Technology must be a part of your new business
Legal requirements are now more stringent
Robust accounting is needed to obtain funding
Marketing is no longer just running promotions or hanging up signs
Who you choose to work with affects almost every element of your day-to-day operation.
Consider the following positions you may need to build out your business:
Accountant
Technology expert
Lawyer
Managers
Contractors
Employees
The Start-Up Path for Entrepreneurs has even more great content about building a winning team for your small business.
12. Start marketing to your customer base
Congratulations! You’ve come so far, and now it’s time to start telling customers about your amazing new business.
You've already done a market analysis, so you know what your customers are looking for, the pricing they expect and why you're a better option to solve their needs.
Whether you're an online business, a storefront or a service-based business, the first step will be building your online presence.
Start building up your social media, consider investing in SEO or paid search, and get your website up and running. The marketing section of your business plan should have everything already laid out, but there is always time to build an enhanced and more detailed marketing plan.
You may think effective marketing carries a hefty price tag. But there’s no need to spend lots of money anymore. All you have to do is think about the ways your customers use their mobile devices and reach them there.
Embracing the entrepreneurial spirit
Starting a new business isn’t for the faint of heart. It takes courage, creativity and a willingness to learn and grow through all kinds of setbacks and surprises. It probably feels overwhelming … maybe even a bit more so after reading this blog. It’s a lot to take on, but you don’t have to go it alone!
We’ve created The Entrepreneur’s Studio — full of resources, interesting content and a community of entrepreneurs walking in your shoes. For a deeper dive into how to launch and grow a thriving business with comprehensive information, worksheets and real planning tools, there’s the Start-Up Path for Entrepreneurs course.
Your guide along the path is Chris Allen, Senior VP of Marketing at Heartland and an experienced entrepreneur. After learning some painful lessons and suffering unexpected setbacks with his first business, a real estate brokerage, he went on to:
Run three successful companies
Grow an ecommerce technology company from $1M in revenue to $5M in revenue with nothing but a $15,000 limit on an AmEx card
Take a SaaS company from being worth nothing to $1.5M in less than 12 months
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Create the Start-Up Path for Entrepreneurs
You’ll get practical advice for your business, insider advice from an expert who’s been in your shoes and seven lessons full of BONUS downloadable resources like …
Business plan guide, outline and sample
3-year financial plan modeling tool and guide
Ideal customer profile worksheet
Exit plan worksheet
Don’t delay. Launch and grow your remarkable business with this comprehensive course delivered to your inbox today.
Heartland is the point of sale, payments and payroll solution of choice for entrepreneurs that need human-centered technology to sell more, keep customers coming back and spend less time in the back office. Nearly 1,000,000 businesses trust us to guide them through market changes and technology challenges, so they can stay competitive and focus on building remarkable businesses instead of managing the daily grind. Learn more at heartland.us
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