How to Start a Business: A Comprehensive Guide and Essential Steps

Building an effective business launch plan

Fact checked by Vikki Velasquez
Reviewed by Samantha Silberstein

Starting a business in the United States involves a number of different steps spanning legal considerations, market research, creating a business plan, securing funding, and developing a marketing strategy. It also requires decisions about a business’ location, structure, name, taxation, and registration.

Here are the key steps involved in starting a business, as well as important aspects of the process for entrepreneurs to consider.

Key Takeaways

• Entrepreneurs should start by conducting market research to understand their industry space, competition, and target customers.
• The next step is to write a comprehensive business plan, outlining the company’s structure, vision, and strategy.
• Securing funding in the form of grants, loans, venture capital, and/or crowdfunded money is crucial if you’re not self-funding.
• When choosing a venue, be aware of local regulations and requirements.
• Design your business structure with an eye to legal aspects, such as taxation and registration.
• Make a strategic marketing plan that addresses the specifics of the business, industry, and target market.

Conducting Market Research

Before starting a business, entrepreneurs should conduct market research to determine their target audience, competition, and market trends. The U.S. Small Business Administration (SBA) breaks down common market considerations as follows:

• Demand: Is there a need for this product or service?
• Market size: How many people might be interested?
• Economic indicators: What are the income, employment rate, and spending habits of potential customers?
• Location: Are the target market and business well situated for each other?
• Competition: What is the market saturation? Who and how many are you going up against?
• Pricing: What might a customer be willing to pay?

Market research should also include an analysis of market opportunities, barriers to market entry, and industry trends, as well as the competition’s strengths, weaknesses, and market share.

There are various methods for conducting market research, and these will vary depending on the nature of the industry and potential business. Data can come from a variety of places, including statistical agencies, economic and financial institutions, and industry sources, as well as direct consumer research through focus groups, interviews, surveys, and questionnaires.

Crafting a Business Plan

A comprehensive business plan is like a blueprint. It lays the foundation for business development and affects decision making, day-to-day operations, and growth. Potential investors or partners may want to review and assess it in advance of agreeing to work together. Financial institutions often request business plans as part of an application for a loan or other forms of capital.

Business plans will differ according to the needs and nature of the company and should only include what makes sense for the business in question. As such, they can vary in length and structure. They can generally be divided into two formats: traditional and lean startup. The latter is less common and more useful for simple businesses or those that expect to rework their traditional business plan frequently. It provides a vivid snapshot of the company through a small number of elements.

Reviewing Funding Options

The process of funding a business depends on its needs and the vision and financial situation of its owner.  The first step is to calculate the startup costs. Identify a list of expenses and put a dollar amount to each of them through research and requesting quotes. The SBA has a startup costs calculator for small businesses that includes common types of business expenses.

The next step is to determine how to get the money. Common methods include:

• Self-funding, also known as bootstrapping
• Finding investors willing to contribute to your venture capital
• Raising money online by crowdfunding
• Securing a business loan from a bank, an online lender, or a credit union
• Winning a business grant from a donor, usually a government, foundation, charity, or corporation

Different methods suit different businesses, and it’s important to consider the obligations associated with any avenue of funding. For example, investors generally want a degree of control for their money, while self-funding puts business owners fully in charge. Of course, investors also mitigate risk; self-funding does not.

Availability is another consideration. Loans are easier to get than grants, which don’t have to be paid back. Additionally, the federal government doesn’t provide grants for the purposes of starting or growing a business, although private organizations may. However, the SBA does guarantee several categories of loans, accessing capital that may not be available through traditional lenders. No matter the funding method(s), it’s essential to detail how the money will be used and lay out a future financial plan for the business, including sales projections and loan repayments.

Understanding Legal Requirements

Businesses operating in the U.S. are legally subject to regulations at the local, county, state, and federal levels involving taxation, business IDs, registrations, and permits.

Choosing a Business Location

Where a business operates will dictate such things as taxes, zoning laws (for brick-and-mortar locations), licenses, and permits. Other considerations when choosing a location might include:

• Human factors: These include target audience and the preferences of business owners and partners regarding convenience, knowledge of the area, and commuting distance.
• Regulations: Government at every level will assert its authority.
• Regionally specific expenses: Examples are average salaries (including required minimum wages), property or rental prices, insurance rates, utilities, and government fees and licensing.
• The tax and financial environment: Tax types include income, sales, corporate, and property, as well as tax credits; available investment incentives and loan programs may also be geographically determined.

Picking a Business Structure

The structure of a business should reflect the desired number of owners, liability characteristics, and tax status. Because these have legal and tax compliance implications, it’s important to understand them fully. If necessary, consult a business counselor, a lawyer, and/or an accountant.

Common business structures include:

• Sole proprietorship: A sole proprietorship is an unincorporated business that has just one owner, who pays personal income tax on its profits.
• Partnership: Partnership options include a limited partnership (LP) and a limited liability partnership (LLP).
• Limited liability company (LLC): An LLC protects its owners from personal responsibility for the company’s debts and liabilities.
• Corporation: The different types of corporations include B corp, C corp, S corp, closed corporation, and nonprofit.

Getting a Tax ID Number

A tax ID number is the equivalent of a Social Security number for a business. Whether or not a state and/or federal tax ID number is required will depend on the nature of the business and the location in which it’s registered.

A federal tax ID, also known as an employer identification number (EIN), is required if a business:

• Operates as a corporation or partnership
• Pays federal taxes
• Has employees
• Files employment, excise, alcohol, tobacco, or firearms tax returns
• Has a Keogh plan
• Withholds taxes on nonwage income to nonresident aliens
• Is involved with certain types of organizations, including trusts, estates, real estate mortgage investment conduits, nonprofits, farmers’ cooperatives, and plan administrators

An EIN can also be useful if you want to open a business bank account, offer an employer-sponsored retirement plan, or apply for federal business licenses and permits. You can get one online from the Internal Revenue Service (IRS). State websites will do the same for a state tax ID.

Registering a Business

How you register a business will depend on its location, nature, size, and business structure.  For example, a small business may not require any steps beyond registering its business name with local and state governments, and business owners whose business name is their own legal name might not need to register at all.

That said, registration can provide personal liability protection, tax-exempt status, and trademark protection, so it can be beneficial even if it’s not strictly required. Overall registration requirements, costs, and documentation will vary depending on the governing jurisdictions and business structure.

Most LLCs, corporations, partnerships, and nonprofits are required to register at the state level and will need a registered agent to file on their behalf. Determining which state to register with can depend on factors such as:

• Whether the business has a physical presence in the state
• If the business often conducts in-person client meetings in the state
• If a large portion of business revenue comes from the state
• Whether the business has employees working in the state

If a business operates in more than one state, it may need to file for foreign qualification in other states in which it conducts business. In this case, the business would register in the state in which it was formed (this would be considered the domestic state) and file for foreign qualification in any additional states.

Obtaining Permits

Filing for the applicable government licenses and permits will depend on the industry and nature of the business and might include submitting an application to a federal agency, state, county, and/or city. The SBA lists federally regulated business activities alongside the corresponding license-issuing agency, while state, county, and city regulations can be found on the official government websites for each region.

Implementing Marketing Strategies

Every business should have a marketing plan that outlines an overall strategy and the day-to-day tactics used to execute it. A successful marketing plan will lay out tactics for how to connect with customers and convince them to buy what the company is selling.

Marketing plans will vary according to the specifics of the industry, target market, and business, but they should aim to include descriptions of and strategies for the following:

• A target customer: Including market size, demographics, traits, and relevant trends
• Value propositions or business differentiators: An overview of the company’s competitive advantage with regard to employees, certifications, and offerings
• A sales and marketing plan: Including methods, channels, and a customer’s journey through interacting with the business
• Goals: Should cover different aspects of the marketing and sales strategy, such as social media follower growth, public relations opportunities, and sales targets
• An execution plan: Should detail tactics and break down higher-level goals into specific actions
• A budget: Detailing how much different marketing projects and activities will cost

How Much Does It Cost to Start a Business?

Business startup costs will vary depending on the industry, business activity, and product or service offered. Home-based online businesses will usually cost less than those that require an office setting to meet with customers. The estimated cost can be calculated by first identifying a list of expenses and then researching and requesting quotes for each one. Use the SBA’s startup costs calculator for common types of expenses associated with starting a small business.

What Should I Do Before Starting a Business?

Entrepreneurs seeking to start their own business should fully research and understand all the legal and funding considerations involved, conduct market research, and create marketing and business plans. They will also need to secure any necessary permits, licenses, funding, and business bank accounts.

What Types of Funding Are Available to Start a Business?

Startup capital can come in the form of loans, grants, crowdfunding, venture capital, or self-funding. Note that the federal government does not provide grant funding for starting a business, although some private sources do.

Do You Need to Write a Business Plan?

Business plans are comprehensive documents that lay out the most important information about a business. They reference its growth, development, and decision-making processes, and financial institutions and potential investors and partners generally request to review them in advance of agreeing to provide funding or to collaborate.

Is 2025 a Good Time to Start a Business?

Yes, according to the SBA. “According to research, the majority of small business owners are optimistic about America’s economy,” the SBA states. “That optimism, paired with a well-informed small business strategy, could mean plenty of success.”

The SBA identifies five trends to consider in business planning for 2025:

• Ecommerce: Online sales are expected to continue growing as a percentage of all retail sales.
• Online marketing: Almost three out of four small businesses have a website, and many employ social media.
• Artificial intelligence: More than half of small businesses use chatbots and virtual assistants powered by AI, which can help streamline processes, limit human error, and improve employee productivity and focus.
• Cybersecurity: Data security and privacy remain a top concern for consumers, so business owners should consider best practices, network security, up-to-date software, and multifactor authentication in preventing cybercrime.
• Customer experience: An interpersonal touch should be prioritized, from research to point of sale, to create happy customers.

The Bottom Line

Starting a business is no easy feat, but research and preparation can help smooth the way. Having a firm understanding of your target market, competition, industry, goals, company structure, funding requirements, legal regulations, and marketing strategy, as well as conducting research and consulting experts where necessary, are all things that entrepreneurs can do to set themselves up for success.