With so many factors to consider, the leap to starting your own business can feel huge, and the commitment of time and money especially daunting. Moving from ideation to operation takes mental and logistical fortitude, and the journey is often laced with uncertainty.
For this reason, understanding exactly what’s expected before you begin can help prepare you for any surprises or challenges along the way. This guide to starting a business in the U.S. is a comprehensive playbook for launching your business and moving toward profitability.
How to start a business
According to recent research, around 10 percent of the U.S. working population is self-employed, and the workers they hire account for another 20 percent of the national workforce. This shows not only the importance of entrepreneurship in the American economy, but also the potential for success in starting something of your own.
With this in mind, here are nine steps you must take to start your small business. We’ve covered everything from sorting your finances to registering a name, giving you the best possible chance of success.
Market research helps you determine if your business idea is feasible, and it can be either primary research (information gathered firsthand) or secondary research (research from data, public records, trend reports, or industry information).
1. Research the market
The first step in market research is identifying your target demographic. To do this, it’s beneficial to create fictional buyer personas of the customers your product or service will benefit. These personas should be rough estimations of age, gender, income, location, and the challenges your product or service will address. In many cases, there will be multiple personas that fit your product or service, and identifying these “people” will help you tailor your product and marketing strategy to the right audience.
The aim is to complete these personas using a combination of both primary and secondary research. It’s a good idea to interview or survey people who fit your rough personas, asking questions about their careers, incomes, family life, everyday experiences, obstacles, buying behaviors, and more. Most importantly, make sure you understand their decision-making process when it comes to your product or service, and their perception of your main competitors.
Secondary research should also help with this, with government sites providing data on population, income, age, and social trends according to location. In full, this research should show you the markets in which your business will be successful, and the people to whom you should tailor your marketing and roll-out plan.
Regardless of what resources you tap for your research, make sure you’re honest about how the data informs your product. It can be easy to fall into the trap of ignoring inconvenient data that doesn’t align with your original goals, but you can alternatively use this as an opportunity to strengthen your business strategy.
“You have to have a really solid idea that you believe in, but you can’t be unwilling to pivot in whatever direction you need to,” says Jordan Scott, founder and CEO of idk tonight and a Labs member at WeWork 175 Varick St in New York. “I have a current product that I think is great and I’m about to test in beta—but I would never follow it to the grave if it’s not working. I’ll find another way to solve the problem.”
2. Write a business plan
There are two common reasons for writing a business plan. The first is to provide a road map for your internal team: creating a document that describes the nature of your business, your finances, initial strategy, and future planning. The other is targeting investors: writing a polished description of your vision that includes exact numbers and realistic projections with the aim of securing investment.
No matter its purpose, a business plan should include the following information.
An executive summary explaining the “why”—why are you starting this business? What problems are you looking to solve? Why are you passionate about this project?
A company profile including the history of your business, your product or service, target market, and future vision.
Documentation of expenses, cash flow, and industry financials.
A strategic marketing plan, outlining who you’re speaking to and the ways you’ll reach that audience.
The organization of your company, including the legal structure and team hierarchy. This should be specific—include the CVs of employees, if needed—and show how your business is built to scale.
If you are requesting finances, you should include a funding request specifying what funding you need and where that funding will go.
3. Figure out finances
One of the most pertinent obstacles to starting a new business is securing financing and enough capital to get your vision off the ground. There are several ways to do this, including using your own savings, applying for a small business loan, or dipping into credit lines. According to Mike Moceri, CEO of WeWork member company MakerOS at WeWork 205 Hudson St in New York, pitching investors can be a surprising and invaluable confidence booster.
“There’s a perception among younger founders that investors are otherworldly beings or somehow different from normal people. But they’re people. They have emotions and thought processes, and the relationship isn’t one-sided,” Moceri says. “You’re not going to them asking for money—they’re getting something out of it, too. If they’re considering you, it means they see something in you.”
Here’s a brief rundown of your options as an entrepreneur looking for financing.
Use your savings
Probably the safest way to start a business, using your savings comes without risk to your credit rating or the accrual of interest fees. The time it takes to save enough money, however, might restrict your momentum and slow your strategy.
Apply for a business loan
Several big banks have funds solely dedicated to small business lending, and these loans can help you address the initial overhead costs and pave the way to profitability. In applying for a business loan, be prepared to share meticulous detail around your finances (both personal and business-related), your business plan, and any business partners. Typically, applying for a loan takes around three months. Defaulting on a loan might affect your ability to borrow in the future, so it’s best to borrow within your means.
Use a credit card
Using a credit card carries relatively high risk compared to other modes of lending, because if you fall behind on credit card payments, you’re creating a hole that’s difficult to escape. Additionally, failing to make payments each month will negatively affect your credit score and potentially restrict future access to other lines of credit. There are positives, however, in using a credit card, including racking up points that can be used for travel and expenses, and being able to react quickly to unexpected expenses.
As a startup seeking investment, it’s best to pitch angel investors—individuals with funds and an interest in your project—as opposed to larger venture capital investment firms. Angel investors provide capital in exchange for equity or future returns, and there are lists of individuals or ‘angel groups’ in most U.S. cities. When it comes time to pitch, read up on publicly available information around each investor’s background and interests, keep things concise and numbers driven, and let your passion for the business shine through.
Apply for a microloan
If you don’t want to go through the stringent application process associated with bank loans, consider microloans by nonprofit groups or individuals. There are hundreds of these lenders across the U.S., and they provide access to smaller loans that come with fewer restrictions and greater flexibility. The catch? They often come with higher interest rates than traditional bank loans.
4. Decide on a business structure
Choosing the correct legal structure for your company is key to starting a business, and will ultimately determine how much you pay in taxes and the personal liability you face as an owner.
A sole proprietorship gives the owner complete control of the company. This is the easiest type of business to start, however it also brings with it maximum risk and liability for the owner—the buck stops with you. This business structure can also be a turn-off for banks and investors, as sole proprietorships can’t trade publicly and you can’t sell stock to drive investment. It’s typically used as a stepping stone for entrepreneurs looking to test their business idea, before launching a formal organization.
A partnership, alternatively, involves two or more people who are in agreement to share the profits or losses of a business. This agreement is advantageous for tax reasons, yet each partner is personally liable for the success or failure of the business.
Unlike a sole proprietorship or a partnership, a corporation is a legal entity separate from the person created for the purpose of business. The primary benefit of this structure is avoiding personal liability, however corporations must pay income tax on their profits. Plus, the expenses, criterion, and reporting involved in owning a corporation are more stringent than other business structures. There are different types of corporations, and the difference between them involves “double taxing” (if the company is taxed as well as its shareholders) and the number of and type of shareholders permitted.
The key benefit in Limited Liability Company (LLC) is that profits are passed through the company to its shareholders without being taxed, yet the personal liability of the owners is null. A “hybrid” of a partnership and a corporation, these structures have an expiry date in some states, and members of an LLC must pay self-employment tax contributions toward Medicare and Social Security.
Specifically designed for charities, educational and health facilities, religious programs, and research establishments, the nonprofit structure gives companies a tax-exempt status, and owners do not pay state or federal income on any profits they make. There are extensive processes and regulations in place for registered nonprofits, and there are heavy restrictions around what they can do with the money they earn.
5. Register a name
Your business name is the embodiment of your brand and vision, and an important step in protecting this identity is registering the name officially. This registration makes you compliant with the laws around registration, and it means no one else can register a business of the same name.
Registering your business name happens automatically when creating an LLC or a corporation. If you’re operating under another business structure, there are two other ways to protect your name: You can either register the name as a trademark, or file a Doing Business As (DBA) with your state or county clerk’s office.
Note: If you’re operating a business under your legal personal name, you won’t need to file for a DBA or trademark.
6. Secure proper licenses
Not only is registering your business name essential in starting your own venture, it’s also necessary to secure licenses to operate your business legally. The number and types of licenses you need is dependent on your business structure and industry.
For companies in the goods and services industry, you will potentially need a sales tax permit, zoning permit, health permit, fire department permit, signage permit, and a building or construction permit. Restaurateurs will need special state licenses around the service of alcohol and the handling of food. And, if you work from home, you’ll likely need to register for a home occupation permit.
Most companies with an income stream in the U.S. will need a General Business License to operate in their state. This license is required to register for federal and state identification numbers, which are used for tax purposes.
7. Decide where to work
Depending on your business type and the licenses you hold, deciding on where to work is an important step in starting your business. Licensing is required for those opening a storefront or working from home, and—while this is necessary in some instances—alternatives like shared workspaces and shared marketplaces allow you to bypass the extra paperwork.
The rising popularity of coworking spaces like WeWork is due to the flexibility, convenience, and community they offer. Professionals of every stripe—from entrepreneurs and creatives to established businesses and enterprise companies—coalesce in these shared workspaces, enjoying beautifully designed spaces and a range of private offices and bookable conference rooms.
Networking is a key advantage of these workspace solutions, and the opportunities that arise in talking with other WeWork members or attending monthly community events can help grow your reach both locally and in global markets.
8. Build a team
Finding quality talent is integral to the success of your business, yet the hiring process can be fraught with uncertainty. There are negotiations around salary and benefits, and no guarantee that the ultimate hire will integrate with your team. In some cases, the best talent isn’t local, and hiring remotely brings with it a wealth of different considerations—time zones, connectivity, productivity, and feeling part of the team.
Shared workspaces like WeWork solve for this, allowing companies to hire staff around the world without investing in real estate. These coworking solutions also give each team member a feeling of community and connection, no matter where they’re located.
Sourcing talent can happen through job posting sites, your network, graduate programs, industry events, and community events within coworking spaces. It’s important to comply with legalized employment practices when bringing new people onto the team, and it’s illegal to recruit in a way that discriminates against candidates for their race, color, religion, sex, national origins, age, or disability.
9. Promote and grow your business
Finally, after all these steps are complete, it’s time for the real work. The reason you decided to launch your business in the first place: to grow your idea into something tangible.
Depending on your industry, you will choose to promote your company via digital or traditional methods, or both. Growth will happen as you begin gaining traction and your target audience starts purchasing, utilizing, and talking about your product or service the way you intended.
Starting a business is exciting—but it can be a lot of work
Certainly, there’s an extreme amount of work involved in building your own business, and the steps needed to register and launch your operation are only the beginning in a long journey of wins and challenges. Yet that initial leap to starting a venture is one of the most intimidating and uncertain times in a business’s life cycle—and this is just one of the stages where WeWork can help.
From allowing you to scale with flexible agreements across multiple locations to attracting talent with premium amenities and creative workspaces, WeWork is designed for your success. You can bypass licensing restrictions and lodge tax deductions by renting office space through WeWork, and our agile workspaces help drive innovation and increase productivity in teams of all sizes—whether your hot-desking or renting a full space.
From the inception of your company through every stage in its future, you will be constantly evaluating and adjusting your strategy to give your business every chance of success. Yet taking these nine steps to ensure the appropriate structure, financing, and legal framework of your business is essential for future growth. These considerations will help turn your startup into a success, proving that moving from an idea to a registered business is just the beginning.
For more information on starting a business and building teams, check out all our articles on Ideas by We.
Caitlin Bishop is a writer for WeWork’s Ideas by We, based in New York City. Previously, she was a journalist and editor at Mamamia.com.au in Sydney, Australia, and a contributing reporter at Gotham Gazette.