woman smiling over paperwork
A great idea is the first step in starting a business, but there are many more steps that come after. — Getty Images/shapecharge

You have a fantastic idea for a startup and want to make it a reality. But starting and growing a business is no easy feat; there is a lot of preparation work to do before you can officially open your doors, including important legal and financial tasks.

You'll need to research, plan and execute these pre-launch activities if you want to set yourself up for success. In this guide, we'll walk you through every step to getting your business off the ground, from the initial planning phases to your grand opening and beyond.

Planning your business

1. Conduct market research

Before you can start a business, you need to know who your customers will be. Conduct some market research to understand typical consumer behavior, pain points and economic trends in your chosen industry, so you can see where your potential startup might fit in.

Your research should answer each of these questions:

  • Demand. What, if any, are some desired products or services in your given market?
  • Market size. How many clients or consumers would make up your target audience?
  • Location. Where do most of your customers reside, and where will your business reach?
  • Market saturation. How many competitors are in your market with a similar concept?
  • Pricing. What is the typical amount customers are willing to pay for products and services in your market?

While there are plenty of online articles and resources you can use as a starting point, you’ll gain the best insights by speaking with consumers themselves. You can do this in the form of surveys, questionnaires, focus groups and interviews.

[For more information, refer to our Guide to Conducting Market Research.]

2. Write a business plan

Your business plan is essentially a roadmap for your startup, keeping you on track and guiding you throughout your journey. This document can be as simple or in-depth as you'd like, but most include the following elements:

  • Executive summary. A brief background on your company – what it is, what it does and why.
  • Mission statement. A short statement describing your business’s purpose.
  • Market analysis. An extensive analysis derived from your market research.
  • Company description. A section addressing what problem your company solves and why it is unique.
  • Organization and management. A list of the owners and executives, as well as key staff members.
  • Marketing and sales. An overview of your strategy for targeting consumers based on customer data.
  • Service or product line. Descriptions of your products and services.
  • Funding request. How much funding you need and why, and how you plan to pay back any borrowed money.
  • Financial information. Projections including cash flow statements, income statements, balance sheets, collateral and current costs.

[For more information, check out our guide on writing a business plan.]

3. Run a trademark and business name search

You don't want to face legal issues simply because you failed to do your homework. By visiting the United States Patent and Trademark Office, you can conduct a trademark search to ensure your potential business or product name isn't already registered as someone else's intellectual property. You should also search your home state's database of registered businesses. Be sure to search for similar names (not just your exact name) to avoid confusion in your market.

Registering your business

4. Choose and register your business name

Once you choose a name that represents your business (and isn't in use by someone else), you can protect it by registering it. There are a few way to do this:

  • Entity name.This is how your home state identifies your business. It protects your business name at the state level: Once you register, no one else in your state can use that exact business name. We'll explain more on registering your entity name below.
  • Trademark.Registering a trademark prevents others in similar industries from using the same name. This can protect your name and goods or services on a federal level.
  • Doing Business As (DBA). If you want to conduct business under any other name besides your own personal name or your formal business entity name, you may be required to register a DBA with the state, county or city where you do business. Check your local laws to understand what your home state requires.
  • Domain name.Securing an appropriate URL for your business's website will ensure brand recognition for your future customers. You may also want to create social media accounts at this point – even if you don't actively use them yet – to ensure you get the username or handle you want. [Read: How to Register Your business Your Business With the Federal Government.]

You don't want to face legal issues simply because you failed to do your homework.

5. Choose your legal structure

When you officially register your business, you’ll also need to choose a legal structure. There are various types to consider, and the option you choose will impact how you operate, how you are taxed and even how business decisions are made.

The most common structures include:

  • Sole proprietorship. One owner runs the business without a strict structure. Owners are held personally liable for the business and their assets may be at risk if the business goes into debt.
  • Partnership. Two or more owners operate the business together. Each partner is personally liable for business debts.
  • C corporation. A C corp is considered its own entity and is taxed separately from the shareholders who own it. This structure provides "limited liability," meaning your personal assets are protected from business debts.
  • S corporation. S corps enjoy many of the benefits of C corps, but business income is taxed through owners’ personal taxes, not as a separate entity.
  • Limited liability company (LLC). LLCs are also taxed as a "pass-through" entity. They are managed by their members, who each own a percentage of the business.

[For more information and details on each of these options, check out our article on choosing the right business structure.]

6. Register your business with the proper local authorities

To register your business, you’ll have to first consider your structure and location. Sole proprietors who do business under their own names are not required to register. Additionally, most small businesses only have to register their business names with state and local authorities, but be sure to understand your home state's requirements before proceeding with your business operations.

  • Registering with the federal government. You can register your business with the federal government to protect your trademarkor achieve tax-exempt status. However, if you have an S corp, you must file a 2553 form with the IRS.
  • Registering with the state. Some states allow you to register your business online, while others require you to fill out and mail or physically hand in paperwork. You should register through the Secretary of State’s office, a business bureau or a business agency.

7. Get an employer identification number from the IRS

If you plan to hire employees, you’ll need to apply for an employer identification number (EIN), which is essentially a Social Security number for your business. This can be done for free through the IRS. Even if you are not going to hire employees, you may want an EIN anyway – unless you're a sole proprietor, you will need one to open a business bank account or credit card.

8. Research and apply for any applicable licenses and permits

Small businesses in certain industries need licenses and/or permits from federal and/or state agencies.

  • Federal licenses or permits.Some operations that might require federal licenses or permits include selling alcoholic beverages, engaging in wildlife-related activity, or broadcasting information radio, TV, cable, etc.
  • State licenses or permits.State licenses or permits exist for businesses doing construction, dry cleaning, food service and similar activities.

Unsure of whether your business needs a license or permit? The U.S. Small Business Administrationprovides a wealth of information about the legal requirements for specific types of businesses.

Funding your business

9. Determine how you will fund your business

Many business owners apply for a loan to fund their startup. Before doing so, you’ll want to decide which loan, if any, is right for you and your business. Here are some popular types you might consider:

  • Line of credit loans. Short-term loans provided as a specific amount of cash to draw from when needed for inventory, operating costs, etc.
  • Term loans. Short- or long-term loans with monthly repayments, usually with low interest rates.
  • Specialty financing. Loans for specific purchases, like equipment loans and real estate loans, repaid over a longer period of time.
  • Invoice financing. Using unpaid invoices as collateral for a cash advance, repaid once invoice is paid, plus fee.
  • Merchant cash advances. Using future credit card sales as collateral for cash advances, generally repaid daily.
  • Personal loans. Assuming you have a good credit score, taking out your own loan for business expenses.

Some alternative funding methods include:

  • Venture capital. High-risk, high-return private equity for startups projected to have strong growth. Venture capitalists typically want to see a return on their investment within a certain time frame.
  • Angel investor. An individual who provides capital in exchange for debt or ownership equity.
  • Crowdfunding campaign. A campaign created to raise money for business from multiple individuals or supporters. Peer-to-peer platforms like Kickstarter allow you to offer "rewards" of your choosing to your backers for their support. Equity crowdfunding platforms allow investors to own an equity share of your business.

10. Open a business bank account

You’ll want to have a separate bank account for your business to ensure compliance and protection. While looking for the right account for your business, choose one with low fees and good benefits.Consider incentives like introductory offers, as well as interest rates for checking, savings and lines of credit. You'll also want to look at transaction, early termination and minimum account balance fees.

According to the SBA, the documentation you'll need to open your bank account are your EIN (SSN for sole proprietors), your business's formation or registration documents, and any ownership agreements and business licenses you have.

11. Choose and set up your accounting software

Managing your business's finances and books is essential, especially when it comes time to file taxes. Using the proper accounting software for your business can save you both time and money. There are various options to consider before making a decision, and they all depend on your business’s needs. Our guide for choosing accounting software can help you determine the best one for you.

Building your team

12. Choose your advisers and vendors

At minimum, your business should have a trusted attorney and financial professional to consult with on legal and tax matters. You may also consider partnering with third-party vendors or suppliers that offer the goods and services you need to run your business. Finally, formal and informal mentorscan provide emotional support, guidance and accountability.

13. Decide if you want to hire employees

If you decide to hire, make sure you understand your obligations as an employer, both from a legal and a tax standpoint. If you just want to hire freelancers or independent contractors, keep excellent financial records and be sure to issue a 1099-MISC form at the end of the tax year. Also, it's important to understand the difference between a W2 employee and a contractor so you don't get in trouble with the IRS for worker misclassification.

Marketing and launching your business

14. Create a marketing strategy

Gain attention for your soon-to-launch business by advertising your goods and services through word of mouth, formal marketing campaigns or both. To perfect your marketing strategy without breaking the bank, check out our low-cost marketing ideas.

15. Launch and grow your business

Your work doesn't end on launch day – you need to continue to market your business, assess finances and adjust your strategy along the way. Stay connected to the entrepreneurial community and learn from others to help you refine your approach.

CO— aims to bring you inspiration from leading respected experts. However, before making any business decision, you should consult a professional who can advise you based on your individual situation.

Published April 17, 2019