How to Start a Business: Step-by-Step Guide

Step 1: Validate Your Business Idea

Before spending money on formation, confirm there is demand for what you plan to sell. The SBA's market research guidance recommends identifying your target customer, studying competitors, and estimating demand before committing resources. This step costs nothing but time, and it is the step most often skipped by new owners who later discover the market is smaller, or more crowded, than they assumed.

Step 2: Write a Business Plan

A business plan forces you to work out your product, customers, competition, and finances on paper before you commit money to any of them. The SBA describes two common formats: a traditional plan with sections like an executive summary, market analysis, and financial projections, used when applying for a loan or outside investment, and a shorter lean plan built around a single page, useful for a straightforward business that does not need outside financing. See our guide on how to write a business plan for the section-by-section breakdown.

Step 3: Choose a Legal Structure

Your legal structure determines your personal liability and how the business is taxed. A sole proprietorship or general partnership is simplest but offers no liability protection; an LLC or corporation separates your personal assets from the business's debts in most instances, as long as you keep business and personal finances separate. See how to choose a business structure for a full comparison, and the step-by-step how to start an LLC guide if you decide an LLC fits.

Step 4: Register the Business With Your State

A sole proprietorship operating under the owner's own legal name typically needs no state formation filing, though a different business name usually needs a DBA ("doing business as") filing. An LLC files Articles of Organization and a corporation files Articles of Incorporation with the state's Secretary of State. Filing fees vary significantly: Montana charges $35, while Massachusetts charges $500. Every state also requires an LLC or corporation to name a registered agent with a physical, in-state address to receive legal and state mail.

Step 5: Get an EIN From the IRS

Once your business is registered, apply for an Employer Identification Number from the IRS using Form SS-4, most easily through the IRS's free online application, which typically issues the number immediately. An EIN identifies your business for federal tax filings, and most banks require one to open a business account even for a sole proprietorship that is not otherwise required to have one. The IRS states plainly that an EIN is free; be cautious of third-party sites that charge for this service.

Step 6: Open a Business Bank Account and Set Up Accounting

Open a dedicated bank account once you have your EIN and formation documents, and set up a basic bookkeeping system before your first sale, not after your first tax season. Keeping business funds separate from personal funds is one of the practical factors courts weigh when deciding whether an LLC's or corporation's liability protection should apply. See how to set up business accounting for the specifics.

Step 7: Get Licenses, Permits, and Insurance

Depending on your industry and location, you may need a general business license from your city or county, a seller's permit for sales tax, a professional or health license tied to your field, and business insurance. The SBA treats these as separate requirements from choosing a legal structure, so confirm what applies with your local city or county clerk and your state's licensing boards before you open.

Step 8: Register for State Taxes

Most businesses register with their state's revenue agency for sales tax if they sell taxable goods or services, and separately register as an employer if they plan to hire staff. See how to register for state taxes for how this differs by state.

Step 9: Launch and Plan for Ongoing Compliance

After you open, most states require a recurring annual or biennial report, with fees from $0 to $500 a year, to keep your business in good standing. Mark this deadline as soon as you register, since missing it is one of the most common ways a new business runs into state compliance problems.

The Steps Build on Each Other

Applying for an EIN before your state approves your formation filing, or trying to open a bank account before you have an EIN, are common sequencing mistakes that cost time rather than money. Following the order above avoids most of them.

Not Every Business Needs Every Step

A solo freelancer operating as a sole proprietor under their own name may only need steps 1, 2, 5, 6, and 8. An LLC or corporation with employees needs nearly all of them. Match the checklist to your actual business rather than treating every step as mandatory regardless of structure.

Budget for Recurring Costs, Not Just Formation

The one-time state filing fee, where one applies, is often the smallest cost over the life of the business. A registered agent, annual report fees, and any licenses that renew every year add up, so factor those into your plan rather than focusing only on the upfront cost. LLC Register's $99-a-year registered agent service includes LLC formation in year one and annual report filing, with state fees passed through at cost, which is one way to combine two of these recurring steps.

Get the Order of Licenses Right for Regulated Industries

Some industries, such as food service, childcare, or financial services, require a license before you can legally operate at all, not just before you can advertise. Confirm licensing timelines with your local and state agencies early, since waiting on a license can delay your entire launch date.

This Is General Information, Not Legal or Tax Advice

Exact requirements, forms, and fees differ by state and change periodically. Confirm current requirements with your state's filing agency, and talk to a tax professional about how your business should be taxed before you file.