Steps to Starting a Small Business

Mary Gormandy White
Starting a Small Business

As an entrepreneur with a great business idea it's easy to get ahead of yourself and want to rush to open your doors for business. Instead, take the time to follow the proper steps to starting a small business to increase your chances of long-term success.

Create a Written Business Plan

A written business plan not only helps you organize your thoughts, but also provides direction. It is also a valuable tool to have in hand if you plan to seek financial backing for your new enterprise. Creating your business plan will require you to think through the process of getting your business up and running, including determining costs, establishing a budget, making financial projections and creating a marketing plan.

To get started, putting your plan together, review sample business plans and consider seeking help from a SCORE small business mentor. You may find it helpful to use business plan software when you are ready to start drafting your document.

Select a Name

While you don't have to make a decision on what to call your business before you start writing your business plan, it's a good idea to start considering name options very early in the planning process, and you should choose a name before you start moving on to the next stages of the process since you'll need to list the entity's name on a variety of documents - from loan applications to business formation and licensure paperwork - as you move forward with your plans.

See Free Ideas for Naming a Business to learn how to brainstorm for appropriate names for your enterprise, as well as find out how to ensure that the name that you want is available to use.

Arrange Business Financing

Once you've completed your business plan and decided what to name your business, it is time to find the capital to back your business. It's important to realize that securing funding for a startup venture is not easy, as lenders and investors are often hesitant to take risks on new businesses.

Having a solid business plan can help you secure funding for a small business, but you'll likely need to be prepared to invest your own money as well as sign personal guarantees for loan funding that you may be eligible to receive.

Choose a Legal Structure

Once you have your business plan and financing in place you may think you're ready to open your doors, but before you do, it's important to choose a legal structure for your business. You will need to decide whether or not to incorporate as an S corporation or C corporation or to form a limited liability company (LLC), partnership or sole proprietorship.

Before choosing the structure for your business, it is advisable to consult with a small business attorney and/or certified public accountant (CPA) so that you can be fully informed of any legal and tax implications of the decision you make.

Register Your Business

Once you've established what legal structure you will use, you will need to register your business with all applicable state and municipal entities, as well as to apply for your federal employer identification number (FEIN), often referred to as a federal tax ID number. While establishing an FEIN is something that every business needs to do, the specifics of getting registered to do business varies from one geographic area to another. You'll need to determine and comply with state and municipality requirements.

  • State: The office of your state's Secretary of State is the best place to begin the process of getting information about what you need to do to establish your business. Depending on your state's requirements, you may be required to register the name of your business, file business formation documents, pay registration fees and more.
  • Local: You'll need to contact the offices of the license commissioner in the city and/or county where you plan to set up your business to find out what you are required to do. You'll likely need to purchase a business license, as well as open a sales tax account and comply with any additional licensure and permitting requirements specific to your business.

You may want to hire a local attorney to handle registering your business for you, or at least to review your work as a way of making sure that you completed all of the necessary steps.

Learn the Legalities

It's important that you are fully aware of the legal implications associated with the type of business you are setting up. This includes legalities associated with owning and operating a small business in general and risks and responsibilities specific to your industry. Also pay close attention to taxation requirements, including filing requirements, payroll tax reporting and franchise taxes.

The Small Business Administration provides a variety of training resources designed to teach entrepreneurs about business law that you may find to be helpful. It's also advisable to set up consultations with a small business attorney and a CPA to expand on your knowledge and clarify any questions that you may have.

Set Up an Accounting System

It's critical to set up an accounting system very early in the process of starting your business so that you have accurate records of all financial transactions associate with the business. It doesn't matter if you invest in a small business accounting software package and keep up with your own finances or if you outsource this part of your business to a professional bookkeeper. What matters is that you have good, clean records that allow you to clearly see the flow of expenses and income and to ensure that you are tracking everything so that you have accurate records come tax time.

Select a Location

If your business will not be home-based, you'll need to select a location. Use a checklist such as the one at FindLaw.com to help determine the best location for your business.

The most obvious criteria will include things like cost, zoning appropriateness and parking availability. Whether you plan to lease or buy a facility, you will need to find a reputable commercial real estate agent in your local area to identify properties that may meet your needs. If you decide to purchase a building, you'll also need to find a commercial mortgage broker.

Secure Insurance

Making sure that you have proper insurance coverage is an important part of starting your business. You may be required to show proof of insurance very early in the start-up process, even before being able to sign your lease or to complete state or municipality-based licensure requirements. For example, your landlord will likely want to make sure that you have a general liability policy, while licensing agencies may want to see proof of professional liability coverage.

There are several other types of business insurance that you'll want to make sure you have in place before you start doing business, including property insurance, life insurance for business owners, group benefits that you plan to offer to employees (such as health insurance and dental insurance), and more. Work with a reputable insurance agent or broker to identify your coverage needs to make sure that your investment is properly protected.

Furnish Your Facility

Before you can open your business, you'll need to purchase office furniture for your workspace, including desks, office chairs, file cabinets and any other pieces necessary for the operation of your business. If you have a retail location, you'll also need to invest in fixtures necessary to display your wares. If your company will engage in manufacturing activities, you'll need to purchase the machines and other equipment needed to produce and store products.

Set Up Computer System

Make sure you have all of the computer and networking equipment that you need in place before opening for business. This includes not only purchasing the computer equipment and peripheral devices that you will use on a daily basis, but also making decisions about networking set-up and equipment, off-site storage, and more.

Make sure that all of the computer and networking equipment you purchase is designed to work together smoothly, and consider contracting with an expert to set up your system.

Select Computer Software

Make sure that you have all of the computer software you'll need to ensure smooth operation of your business. Examples of the types of software applications you may need include:

  • Productivity suite: You'll need productivity software like Microsoft Office or Open Office so that you can complete tasks that require word processing, spreadsheets, presentation sides and more.
  • Security software: Make sure that you have the anti-virus and malware protection applications needed to protect your computers and data against online threats.
  • Customer Relationship Management (CRM): A CRM program can be a powerful tool for streamlining internal and customer communication, as well as for maintaining accurate records.
  • Inventory Control: If your company is product-based, you'll need an application designed to allow you to manage your inventory, such as a point of sale software system.
  • Financial Software: In addition to the accounting software you have already purchased, you may need a separate application for invoicing and tax preparation purposes.

Choose Telecommunications Services

Having quality business telephone service, Internet access and website hosting is critical to every small business. Review options from telecommunications providers closely, including both land-line and Internet-based services, being sure to look just as closely at quality as you do cost. This is one area where it's worth paying a premium fee to get the best service. After all, if you can't get in touch with customers, process their orders, or rely on your website to stay up, your business will suffer.

Establish Policies and Procedures

It's important to establish operating policies and procedures before your business opens so that there is a system in place for making decisions and dealing with customer, employee and other situations that may arise. You'll need an employee handbook that clearly conveys company policies to employees, as well as guidelines for safety rules and procedures, purchase approval processes, hiring guidelines, payroll procedures and more. Have your attorney review your policies and procedures prior to implementation so you can be sure that they are in compliance with all applicable legislation.

Promote Your Business

Before you can expect customers to find your business, you must start promoting it. Review the marketing plan that you developed as part of your written business plan and make decisions about how to best allocate the funds you have set aside for promotional purposes. At a minimum, you'll need to develop a website and to establish a social media presence.

Depending on the type of business you are establishing, you may also want to promote your business via traditional media advertising and business networking activities. See Advertising and Marketing Ideas for more information on various types of promotion so that you can make wise decisions about getting the word out about your business.

Steps to Starting a Small Business Follow a Natural Path

These steps to starting a small business are not complicated, and actually follow a natural path to reaching your goal. However, it's helpful to keep a list of things to be accomplished because it is easy to get caught up in the excitement or bogged down in the process. Creating your business plan as a first step will offer further direction to help you stay focused on what really needs to be done before you open the doors to your new business.

Steps to Starting a Small Business