How to Start a Business: A Guide From Ideation to Legal Structure
Wondering how to start a business? Learn everything you need to know - from ideation, to business planning, to marketing, to legal structure, and everything in between.
Introduction: How to Start a Business
If you’re dreaming of being your own boss and starting your own small business, your entrepreneurial dreams are within your reach with the knowledge contained in this guide about how to start a business.
You’re not alone in your entrepreneurial goals. According to the “Small Business Association (SBA), there are more than 28 million small businesses in the US. These small businesses comprise up to 99.7% of all US businesses.” Each of these thriving small businesses started with an idea, hard work, dedication, and planning.
If you have a million (or billion!) dollar business idea that you want to act on, but you’re not sure where to start, then this guide was written just for you. As with any aspirational goal, if you break down your ultimate goal of starting a business into multiple smaller manageable steps, you’ll be able to meet your overarching pie-in-the-sky goal.
Now let’s walk you through the steps you need to start a small business—from ideation, to business planning, to marketing, to legal structure, and everything in between.
I. Starting a Small Business: From Idea to Reality
Creating a business from the ground-up is an exciting endeavor. The door is wide-open for any and all possibilities, the only limits at the brainstorming stage are your own imagination. When you’re dreaming of your future business prospects, the sky is truly the limit!
Here are the steps to take your business from idea to reality.
Ask Yourself “Why?”
Before you venture down the entrepreneurial path, it’s important for you to lock on your underlying motivation for creating a start-up. Starting your own business can be exhilarating, but it also has its ups-and-downs. You’re most likely going to leave your comfort zone quite often, especially in the beginning.
“The great personal fortunes in this country weren’t built on a portfolio of fifty companies. They were built by someone who identified one wonderful business.”— The Tao of Warren Buffett, Simon & Schuster, 2006
How do you keep pushing on, how do you stay hungry and motivated? The bottom line answer is: Your “Why”—your purpose and the big reason for going into business is what will keep you excited and engaged during the rocky path of the start-up road, and then for years down the line. That “Why” will differ from person to person.
Whether your “Why” is to build a lasting legacy, control your own destiny, build a lucrative financial future, or help others, your “Why” will inform the type of business you start and the work you plan to do. Identify your “Why” early on, and do your best to focus on that motivation as you start this entrepreneurial adventure.
Need inspiration for why you should start your own business? Visit our resource Top 10 Reasons to Start Your Own Business.
Articulate Your Passion
Many entrepreneurs start their own business so they can live a fulfilled life and do something more interesting and exciting than punching the clock every day and working for someone else. One of the best reasons to start your own business is to follow your dreams and live your passion. Following your dreams will fulfill you in a way that working for someone else may not.
By creating your own company, you’ll be creating your own job, so it’s important to make sure your day-to-day work is interesting and engaging. You are in charge of creating your business from the ground up, so you can shape your workday to include doing what you love.
“Your work is going to fill a large part of your life, and the only way to be truly satisfied is to do what you believe is great work. And the only way to do great work is to love what you do.” –Steve Jobs, Co-Founder, Chairman and CEO, Apple
Ask yourself what you’re passionate about and what you love to do. Your passion can be the foundation to a fulfilling entrepreneurial venture. What makes you happy, what do you love to do, what would you do if money were no object? Creating a start-up business around these touch points can be incredibility rewarding and motivating.
Overcome Mental Blocks
There’s no way to sugarcoat it: Starting your own business is a leap of faith. No matter how experienced, talented, or driven you are, you’re going to have moments of uncertainty during the start-up process. That’s simply part of becoming a newly-minted entrepreneur.
Unfortunately, a lot of us stop and give up in the face of fear without even realizing it. We make excuses not to act, citing excuses like not enough time or money to fulfill our dreams.
There will always be reasons to delay your dreams and always excuses for why you should table your start-up company for a “better time.” Whether that’s age, inexperience, family, or your own internal monologue. The longer you wait, the longer you’ll spend wondering “What if?”
Waiting for the “perfect” time may mean that you miss out on your dreams. What if Mark Zuckerberg waited until he finished college? Then Facebook may not exist. If Vera Wang hadn’t refocused after her ice skating career failed, then her bridal fashion empire would never have come to fruition. Also, if thousands of women had not taken the leap into the challenging world of small business, then they might continue to deal with the pay gap and inflexibility of the traditional workforce.
Looking for business inspiration from others who took the leap despite obstacles? Check out Becoming an Entrepreneur: It’s Never Too Late. Worried you aren’t old enough or don’t have enough experience? Read these inspiring tales of Youth Entrepreneurship, about some brave young souls who went into business without gaining corporate world experience first
Don’t let roadblocks quash your entrepreneurial dreams. Your start-up business is within your grasp, but it will take drive, commitment, and planning to get there.
Consider Social Justice and Charity
One of the most rewarding parts of becoming an entrepreneur is the freedom to shape your own company’s vision. Many entrepreneurs find that pursuing social justice or supporting non-profits lends vital importance to their work.
Ways your start-up company can boost social causes and give back are virtually limitless. Some companies are created to help solve social justice issues or to alleviate plights of our society. Other companies give a portion of their profits to better the community or toward charitable contributions.
“Chase the vision, not the money; the money will end up following you.” –Tony Hsieh, Zappos CEO
As a budding entrepreneur, you are in a unique position to give back, however you choose to do so. Brainstorm ways in which your new business can help make the world better from the outset and your start-up will be infused with a bigger, broader purpose.
Think About Your Legacy From the Start
For many small business owners, the ultimate dream is to build a successful business which they can pass down to their children. A successful business is a lasting legacy. Some business experts advise that you start your business with the end in mind.
When you’re starting up your business, you should consider the following:
- Do you plan to pass the business down to your family?
- Do you want to hire family members?
- Does your business structure allow for succession?
- Are there estate or tax issues to consider?
If you’re interested in learning more about creating a business legacy for your family, visit our resource Building a Business Legacy.
II. Starting a Small Business: Business Planning
Dreaming about your business is a lot of fun, but at some point, it’s time to take action and begin turning your dreams into reality. The first step for all prospective small business owners is drafting a written business plan.
“The way to get started is to quit talking and start doing.” –Walt Disney, Co-Founder, Disney
A written business plan should be considered a virtual roadmap for your business’s success. Your business plan should outline your immediate start-up business goals, as well as the business goals over the next several years.
Business Plans 101
One of the most important documents that you’ll draft for your new business is your business plan. Don’t be deterred if you’ve never drafted a business plan, we cover detailed tips to assist you.
Written formal business plans are crucial to the success of your small business. Your business plan is a structural roadmap for getting your business off the ground and managing growth. It’s a way to anticipate potential obstacles and plan ahead for major milestones and big purchases.
Not only is a business plan important for internal management, it’s also a major factor in your ability to get funding for your small business. Most lenders expect to see a comprehensive, professional business plan before they’ll give you a loan.
Business plans serve multiple purposes. Your business plan can help you procure financing for your new business. Investors, banks, traditional lenders, government lenders, venture capitalists, and alternative lenders will want to see a formal, written business plan before providing funds for your start-up.
Your business plan also serves an internal corporate purpose; it will help you formulate both a short-term and long-term strategy for your business. Also, it outlines your goals and serves as a guide for starting your business, running the day-to-day, and a strategy for achieving your long-term business goals.
What are the other benefits of writing a business plan?
As you can see, your business plan is an important document for your business, even if you’re not using your plan to pitch lenders for funding.
What Should a Business Plan Include?
A formal, written business plan for a start-up company should include several key elements.
This first page contains a broad overview of what you hope your start-up business will accomplish.Read more about what to include in the Executive Summary section here.
This section includes a detailed description of your start-up, plus projections for the future. In addition, your business description should include details about the industry your business is in. Read more about what to include in the Business Description section here.
Organization and Management
This section should describe the organizational structure and management hierarchy of your start-up. You should strive to answer the following questions:
- How will the start-up be structured?
- How many staff do you plan to hire?
- Will you have a management team?
- Will you run everything yourself?
- Which tasks will be allocated to which employees?
- What are the operating and staffing costs?
Read more about what to include in the Organization and Management section here.
Products and Services
This section should describe, in detail, what products your company plans to sell or which services it plans to provide. You should strive to answer the following questions:
- What products will you sell?
- What services will you offer?
- How do your products or services differ from what’s already on the market?
- What is your overall business concept?
- Will you need external suppliers?
- If so, what will the operating costs be?
Read more about what to include in the Products and Services section here.
Market Analysis and Strategies
This section will explore the existing market for your start-up. You should answer:
- Who are your competitors?
- How does your business differ from the competition?
- What is your businesses’ projected market share?
- What are your businesses’ strengths?
- What are your businesses’ weaknesses?
- What steps will you take to position yourself in the relevant market(s)?
Read more about what to include in the Market Analysis and Strategies section here.
Sales and Marketing
This section will explore how your business will get its’ products into customers hands or how your business will find and retain customers or clients. You should answer the following:
- How do you plan to market your products or services?
- How will you sell your products or services?
- Will your business employ sales reps?
- How will you grow the company?
- How will you recruit staff?
- What costs will be associated with these efforts?
Read more about what to include in the Sales and Marketing section here.
In this section, you’ll address how your business will seek, obtain, and use funding from lenders or investors. You’ll need to ask:
- Do you plan to ask investors for start-up money?
- Do you plan to ask for a loan?
- Where will you ask for loans (traditional lenders, microlenders, family, etc)?
- How much capital do you need for your start-up?
- How much capital will you need to fund the business over a 5-year period?
- How will you use that capital?
Read more about what to include in the Funding Request section here.
This section will spell out sales projections for the future, plus how you’re planning to allocate the funds you receive from any investors or loans. Read more about what to include in the Financial Plan section here.
An appendix section is optional. If you include an appendix, you should include resumes of your team, letters of reference, any relevant legal documents, and product photographs. Read more about what to include in the Appendix here.
How Should I Use My Business Plan
Your business plan is not a static document that’s meant to sit in a drawer gathering dust. As a start-up entrepreneur, your business is going to be changing, growing, and evolving at warp speed—especially in the first few months and years.
The best way to use your business plan to benefit your business is by reviewing your business plan regularly. That way, you can amend your business practices accordingly. Your business plan is meant to change to keep pace with your business, so update as needed. For example, if a seasonal sales item has been especially hot and you ran out of inventory, make note of that in your plans.
That way, next year, you’ll be able to make the most of the sales projections. By amending and updating your plan as your start-up business grows, your initial business plan will become a living document which reflects your business needs, projections, and goals through the years.
For more tips on how to use and revise your business plan to better your start-up visit 5 Tips for Sticking to Your Business Plan.
III. Starting a Small Business: Marketing Overview
You can have the most incredible product idea, but a great product won’t help your business without a marketing plan. The best business idea in the world isn’t going to be successful if your prospective customers don’t know that you exist. A top-notch marketing plan ensures that you’re spread the word about your business, so you can earn customers and make money.
“What do you need to start a business? Three simple things: know your product better than anyone, know your customer, and have a burning desire to succeed.” –Dave Thomas, Founder, Wendy’s
If you’re new to the business world, you might wonder what the word “marketing” actually means. The simplest definition of marketing is “anything which features your [company] logo or brand on it.” That could be print media, online forums, TV ads, magazines, even billboards.
Marketing is not one simple message, but an aggregate of touchpoints across various mediums. Regardless of the mode or medium, the goal of marketing remains the same: Anything which allows prospective customers or clients to connect with your brand.
The four basic components are small business marketing are:
One of the most important things you can do as a new business is to identify your audience. Figuring out how to reach your audience will help you find and develop your customer base. To learn how to identify and attract customers to your new business, visit 5 Tips for Attracting Customers.
The next step of marketing your business is getting messages to your audience. Creating messages which resonate with your intended audience can take trial-and-error at the beginning, but can be informed by data over time.
The final step of new business marketing is your marketing channels or platforms. Where do your intended clients or customers aggregate? Can you find them online, over email, on social media, or in your storefront? Identifying where your clients spent their time will help you communicate your marketing messages with them.
To learn more small business marketing tips, visit Secrets of Amazing Marketing.
4. Social Media Marketing
Modern businesses need a social media presence as part of their marketing plan. It provides a real-time, affordable, and interactive way for small business owners to connect and communicate with their audience and prospective customers.
Social media is user-friendly, so business owners who aren’t tech savvy can use business social media to their advantage. Also, social media is a rich field, with lots of ever-changing information. Don’t let yourself get bogged down, just remember: The bottom line of social media marketing is about interacting with others. Don’t overthink it—just get started and make those valuable connections.
Want to get started? Visit Social Media Marketing: Guide to Setting up Social Media Pages for Business.
For detailed information on which social media platforms will work best for your small business visit Choosing the Right Social Media Platform for Your Business.
Or, check out tips on what to share on social media for the best results visit Small Business Marketing: Social Media Content & Strategy.
IV. How to Choose Your Business Structure
One of the most important decisions you’ll make as a new business owner is what type of legal structure to opt for. You have several different legal entities to consider for your new business. Each type of legal entity has pros and cons.
Every type of legal entity has various implications pertaining to business owner liability, capital, stocks, and taxes. Your business circumstances, size, and needs will influence which business structure is best for your new company. Different business entities have certain legal and tax consequences.
The most common forms of business entities are as follows:
- Sole proprietorship
- “S” corporation
- Limited Liability Company (LLC)
Let’s take a look at the options, and the benefits and drawbacks of each. Of course, your individual circumstances will dictate which structure makes the most sense for you, so be sure to get professional legal advice before making a decision.
As the name suggests, a sole proprietorship is a business owned by one person. This is “default” business entity, which requires no formal legal documents or filings to be set up as a business. Note that this doesn’t mean regulations don’t apply; sole proprietors are subject to the same licensing mandates, regulatory oversight, and tax standards as all businesses.
A partnership business entity exists when two or more people create a business together. Partners share in the income and losses of the business jointly (though not always 50 / 50). Partnership income is reported as personal income on tax forms. While a formal partnership agreement is not legally required, it is generally considered a good business practice to avoid disputes down the road.
There are two types of partnership: general and limited partnership. In a general partnership, the partners each own equal shares of the business. In a limited partnership, the roles of the partners vary. One partner may be the partner who runs the company, while the other partner is the one who invested funds into the company. The specific details of the roles and responsibility of each partner should be spelled out in the partnership agreement.
A “C” corporation is considered a traditional cooperation. A corporation is considered a complex business structure.
In the eyes of the law, corporations are deemed independent entities for both taxes and legal liability. Basically, this means that the corporation is considered a separate entity from the business owners. Corporation owners cannot be held legally liable for the business debts or lawsuit judgments attached to the corporation.
The tax structure of a corporation differs from that of a sole proprietor or simple partnership. A corporation pays taxes, which raises the problem of double taxation. Business owners of a corporation must pay taxes on their salary or business draw, while the business corporation must pay taxes on any profits earned.
Corporations have specific rules and regulations governing their formation and requirements vary state by state. In addition to meeting state-specific rules, corporations require filing articles of incorporation plus bylaws. Due to the complex nature of the corporation rules and requirements, it is advisable to consult with a business attorney to ensure compliance.
An “S” Corporation (“S Corp”) is a special class of corporation. The IRS has mandated specific rules for business to qualify for “S Corp” status.
An “S Corp” is considered a separate entity, as with a traditional “C” Corporation. Since the business profits are not taxed, an “S Corp” avoids double taxation. An “S Corp” can issue common stock. Also, “S Corp” ownership is limited to individuals, estates, and trusts, which may reduce the number of investors and amount of investment capital.
Limited Liability Company (LLC)
A limited liability company (LLC) shares many of the benefits of a partnership and a corporation. As with a corporation, the business owners are shielded from legal and financial liability due to the debts or wrongdoings of the business.
Setting up a business as an LLC requires filing appropriate documents with the state. Many states also require that LLCs file operating agreements. Unlike corporations, LLCs do not raise funds by selling stocks. Instead, LLCs can distribute ownership to investors in exchange for capital.
LLC owners are known as members. Profits and losses pass through to members, and these profits and losses are reported on individual tax returns. LLC members are considered self-employed. Filing an LLC requires less paperwork and fewer costs to get started than setting up a corporation.
It’s important to know that the legal structure of your business can be changed as the situation warrants. Your business may grow, add partners, or branch off into a new industry.
The legal structure of your business is not a one-and-done proposition. As your business grows and evolves, it may make sense to change the legal structure of your business. The good news is that in most cases changing your business structure is simpler than you might imagine.
To learn more about how legal business structures can change visit Small Business Growth: Choosing Your Business Structure.
Learning how to transform that unique idea, product, or service into a successful small business isn’t nearly as complex as you think. Getting from “brilliant business idea” to “start-up” can be broken down into several smaller, practical steps. Now you’ve learned how to start a business on the path to success by building a strong foundation from day one. As with any lofty goals, you’ll just need to plan, prepare, and then execute on those plans.