How To Start A Small Business In 2022 (2022)

Editorial Note: We earn a commission from partner links on Forbes Advisor. Commissions do not affect our editors' opinions or evaluations.

Starting a business is one of the most exciting and rewarding experiences you can have, but where do you begin? There are many different ways to approach starting your own business, but it’s essential to consider your business idea, how much time you have, the time it will need and the amount of money you want to put into it before making any decisions. To help take the guesswork out of the process, follow along to learn how to start a small business.

Featured Partners

1

ZenBusiness

4.9

How To Start A Small Business In 2022 (1)

Our ratings take into account a product's cost, features, ease of use, customer service and other category-specific attributes. All ratings are determined solely by our editorial team.

Pricing

$49 + State Fees

Service Time

Varies By State & Package

1

ZenBusiness

4.9

How To Start A Small Business In 2022 (2)

Our ratings take into account a product's cost, features, ease of use, customer service and other category-specific attributes. All ratings are determined solely by our editorial team.

Learn More

On ZenBusiness' Website

2

Northwest

Pricing

$39 + State Fees

Service Time

Varies By State & Package

2

Northwest

Learn More

On Northwest's Website

3

Inc Authority

Pricing

$0 + State Fees

Service Time

Varies By State & Package

3

Inc Authority

Learn More

On IncAuthority.com's Website

Before You Begin: Get in the Right Mindset

The public often hears about overnight successes because they make for a great headline. However, it’s rarely that simple—they don’t see the years of dreaming, building and positioning before a big public launch. For this reason, remember to focus on your business journey and don’t measure your success against someone else’s.

Consistency Is Key

New business owners tend to feed off their motivation initially but get frustrated when that motivation wanes. This is why it’s essential to create habits and follow routines that power you through when motivation goes away.

Take the Next Step

Some business owners dive in headfirst without looking and make things up as they go along. Then, there are business owners that stay stuck in analysis paralysis and never start. Perhaps you’re a mixture of the two—and that’s right where you need to be. The best way to accomplish any business or personal goal is to write out every possible step it takes to achieve the goal. Then, order those steps by what needs to happen first. Some steps may take minutes while others take a long time. The point is to always take the next step.

1. Refine Your Business Idea

Most business advice tells you to monetize what you love, but it misses two other very important elements: it needs to be profitable and something you’re good at. For example, you may love music, but how viable is your business idea if you’re not a great singer or songwriter? Maybe you love making soap and want to open a soap shop in your small town that already has three close by—it won’t be easy to corner the market when you’re creating the same product as other nearby stores.

If you don’t have a firm idea of what your business will entail, ask yourself the following questions:

  • What do you love to do?
  • What do you hate to do?
  • Can you think of something that would make those things easier?

These questions can lead you to an idea for your business. If you already have an idea, they might help you expand it. Once you have your idea, measure it against whether you’re good at it and if it’s profitable.

Your business idea doesn’t have to be the next Scrub Daddy or Squatty Potty. Instead, you can take an existing product and improve upon it.

Consider Your Why

Are you struggling to come up with a business idea that sticks? Consider your “why.” To be successful, you’ll need to have a clear purpose for starting your business. This “why” should be much deeper than simply making money—it should be something you’re passionate about so that you’ll stick with it through the highs and lows of entrepreneurship.

Some examples of a business “why” could be:

  • To make a difference in your community
  • To help people achieve their dreams
  • To make a positive impact on the environment
  • To fill a need that’s not currently being met

For example, perhaps you’re a parent to a child with autism. Your child loves travel, but it’s difficult to identify locations, tours and cities equipped to accommodate the needs of differently abled families. You could start a travel agency or some other initiative specializing in autism-friendly travel—even going so far as creating a certification of some sort labeling a destination as autism-friendly.

Some business coaches argue your “why” should make you cry. While not necessary, having a strong emotional connection to your why can help you persevere when the going gets tough.

2. Know Your Competitors and Market

Most entrepreneurs spend more time on their products than they do getting to know the competition. If you ever apply for outside funding, the potential lender or partner wants to know: what sets you (or your business idea) apart? If market analysis indicates your product or service is saturated in your area, see if you can think of a different approach. Take housekeeping, for example—rather than general cleaning services, you might specialize in homes with pets or focus on garage cleanups.

Primary Research

The first stage of any competition study is primary research, which entails obtaining data directly from potential customers rather than basing your conclusions on past data. You can use questionnaires, surveys and interviews to learn what consumers want.

Surveying friends and family isn’t recommended unless they’re your target market. People who say they’d buy something and people who do are very different. The last thing you want is to take so much stock in what they say, create the product and flop when you try to sell it because all of the people who said they’d buy it don’t because the product isn’t something they’d actually buy.

Secondary Research

Utilize existing sources of information, such as census data, to gather information when you do secondary research. The current data may be studied, compiled and analyzed in various ways that are appropriate for your needs but it may not be as detailed as primary research.

Conduct a SWOT Analysis

SWOT stands for strengths, weaknesses, opportunities and threats. Conducting a SWOT analysis allows you to look at the facts about how your product or idea might perform if taken to market, and it can also help you make decisions about the direction of your idea. Your business idea might have some weaknesses that you hadn’t considered or there may be some opportunities to improve on a competitor’s product.

3. Create Your Business Plan

A business plan is a dynamic document that serves as a roadmap for establishing a new business. This document makes it simple for potential investors, financial institutions and company management to understand and absorb. Even if you intend to self-finance, a business plan can help you flesh out your idea and spot potential problems. A well-rounded business plan should contain the following sections:

  • Executive summary: The executive summary should be the first item in the business plan, but it should be written last. It describes the proposed new business and highlights the goals of the company and the methods to achieve them.
  • Company description: The company description covers what problems your product or service solves and why your business or idea is best. For example, maybe your background is in molecular engineering, and you’ve used that background to create a new type of athletic wear—you have the proper credentials to make the best material.
  • Market analysis: This section of the business plan analyzes how well a company is positioned against its competitors. The market analysis should include target market, segmentation analysis, market size, growth rate, trends and a competitive environment assessment.
  • Organization and structure: Write about the type of business organization you expect, what risk management strategies you propose and who will staff the management team. What are their qualifications? Will your business be a single-member limited liability company (LLC) or a corporation?
  • Mission and goals: This section should contain a brief mission statement and detail what the business wishes to accomplish and the steps to get there. These goals should be SMART (specific, measurable, action-orientated, realistic and time-bound).
  • Products or services: This section describes how your business will operate. It includes what products you’ll offer to consumers at the beginning of the business, how they compare to existing competitors, how much your product costs, who will be responsible for creating the product, how you’ll source materials and how much they cost to make.
  • Background summary: This portion of the business plan is the most time-consuming to write. Compile and summarize any data, articles and research studies on trends that could positively and negatively affect your business or industry.
  • Marketing plan: The marketing plan identifies the characteristics of your product or service, summarizes the SWOT analysis and analyzes competitors. It also discusses how you’ll promote your business, how much money will be spent on marketing and how long the campaign is expected to last.
  • Financial plan: The financial plan is perhaps the core of the business plan because, without money, the business will not move forward. Include a proposed budget in your financial plan along with projected financial statements, such as an income statement, a balance sheet and a statement of cash flows. Usually, five years of projected financial statements are acceptable. This section is also where you should include your funding request if you’re looking for outside funding.

Come Up With an Exit Strategy

An exit strategy is important for any business that are seeking funding because it outlines how you’ll sell the company or transfer ownership if you decide to retire or move on to other projects. An exit strategy also allows you to get the most value out of your business when it’s time to sell. There are a few different options for exiting a business, and the best option for you depends on your goals and circumstances.

The most common exit strategies are:

  • Selling the business to another party
  • Passing the business down to family members
  • Liquidating the business assets
  • Closing the doors and walking away

Develop a Scalable Business Model

As your small business grows, it’s important to have a scalable business model so that you can accommodate additional customers without incurring additional costs. A scalable business model is one that can be replicated easily to serve more customers without a significant increase in expenses.

Some common scalable business models are:

  • Subscription-based businesses
  • Businesses that sell digital products
  • Franchise businesses
  • Network marketing businesses

Start Planning for Taxes

One of the most important things to do when starting a small business is to start planning for taxes. Taxes can be complex, and there are several different types of taxes you may be liable for, including income tax, self-employment tax, sales tax and property tax. Depending on the type of business you’re operating, you may also be required to pay other taxes, such as payroll tax or unemployment tax.

4. Choose Your Business Structure

When structuring your business, it’s essential to consider how each structure impacts the amount of taxes you owe, daily operations and whether your personal assets are at risk.

  • LLC: An LLC limits your personal liability for business debts. LLCs can be owned by one or more people or companies and must include a registered agent. These owners are referred to as members.
  • Limited liability partnership (LLP): An LLP is similar to an LLC but is typically used for licensed business professionals like an attorney or accountant. These arrangements require a partnership agreement.
  • Sole proprietorship: If you start a solo business, you might consider a sole proprietorship. The company and the owner, for legal and tax purposes, are considered the same. The business owner assumes liability for the business. So, if the business fails, the owner is personally and financially responsible for all business debts.
  • Corporation: A corporation limits your personal liability for business debts just like an LLC does. A corporation can be taxed as a C corporation (C-corp) or an S corporation (S-corp). S-corp status offers pass-through taxation to small corporations that meet certain IRS requirements. Larger companies and startups hoping to attract venture capital are usually taxed as C-corps.

Before you decide on a business structure, discuss your situation with a small business accountant and possibly an attorney, as each business type has different tax treatments that could affect your bottom line.

5. Register Your Business and Take Care of Paperwork

There are several legal issues to address when starting a business after choosing the business structure. The following is a good checklist of items to consider when establishing your business:

  • Choose your business name: Make it memorable but not too difficult. Choose the same domain name, if available, to establish your internet presence. A business name cannot be the same as another registered company in your state nor can it infringe on another trademark or service mark that is already registered with the United States Patent and Trademark Office (USPTO).
  • File business formation paperwork with your state: You’ll officially create a corporation, LLC or other business entity by filing forms with your state’s business agency―usually the secretary of state. As part of this process, you’ll need to choose a registered agent to accept legal documents on behalf of your business. You’ll also pay a filing fee. The state will send you a certificate that you can use to apply for licenses, a tax identification number (TIN) and business bank accounts.
  • Apply for an employer identification number (EIN): All businesses other than sole proprietorships with no employees must have a federal employer identification number. Make your application to the IRS. You’ll typically receive your number in minutes.
  • Apply for the licenses and permits you need: Legal requirements are determined by your industry and jurisdiction. Most businesses need a mixture of local, state and federal licenses to operate. Check with your local government office (and even an attorney) for licensing information tailored to your area.
  • Open a business bank account. Keep your business and personal finances separate. Here’s how to choose a business checking account—and why separate business accounts are essential.
  • Choose a bookkeeper or get accounting software: If you sell a product, you need an inventory function in your accounting software to manage and track inventory. The software should have ledger and journal entries and the ability to generate financial statements. Check out the best accounting software for small business.

Start A Limited Liability Company Online Today with ZenBusiness

Click on the state below to get started.

Start Now

6. Get Your Finances In Order

Before you fund your business, you must get an idea of your startup costs. To determine these, make a list of all the physical supplies you need, estimate the cost of any professional services you will require, determine the price of any licenses or permits required to operate and calculate the cost of office space or other real estate. Add in the costs of payroll and benefits, if applicable.

Businesses can take years to turn a profit, so it’s better to overestimate the startup costs and have too much money than too little. Many experts recommend having enough cash on hand to cover six months of operating expenses.

When you know how much you need to get started with your business, you need to know the point at which your business makes money. This figure is your break-even point.

Break-even point = Fixed cost ÷ Contribution margin

Whereas the contribution margin = total sales revenue – cost to make product

For example, let’s say you’re starting a small business that sells miniature birdhouses for fairy gardens. You have determined that it will cost you $500 in startup costs. Your variable costs are 40 cents per birdhouse produced, and you sell them for $1.50 each.

Let’s write these out so it’s easy to follow:

Fixed costs: $500 the first month
Variable costs: 40 cents per birdhouse
Price per birdhouse: $1.50
The formula: $500/($1.50 – 40 cents) or $500/$1.10 = 456 units

This means that you need to sell at least 456 units just to cover your costs. If you can sell more than 456 units your first month, you will make a profit.

7. Fund Your Business

There are many different ways to fund your business—some require considerable effort, while others are easier to obtain. Two categories of funding exist: internal and external.

Internal funding includes:

  • Personal savings
  • Credit cards
  • Funds from friends and family

If you finance the business with your own funds or with credit cards, you have to pay the debt on the credit cards and you’ve lost a chunk of your wealth if the business fails. By allowing your family members or friends to invest in your business, you are risking hard feelings and strained relationships if the company goes under. Business owners who want to minimize these risks may consider external funding.

External funding includes:

  • Small business loans
  • Small business grants
  • Angel investors
  • Venture capital
  • Crowdfunding

Featured Partner Offers

1

OnDeck

Loan amounts

$5,000 to $250,000

Time in business

1 year

Minimum credit score

625

1

OnDeck

Learn More

Via Ondeck's Website

2

Kabbage

Loan amounts

$2,000 to $250,000

Time in business

1 year

Minimum credit score

640

2

Kabbage

Learn More

Via Kabbage's Website

Small businesses may have to use a combination of several sources of capital. Consider how much money is needed, how long it will take before the company can repay it and how risk-tolerant you are. No matter which source you use, plan for profit. It’s far better to take home six figures than make seven figures and only keep $80,000 of it.

Funding ideas include:

  • Invoice factoring: With invoice factoring, you can sell your unpaid invoices to a third party at a discount.
  • Business lines of credit: Apply for a business line of credit, which is similar to a personal line of credit. The credit limit and interest rate will be based on your business’s revenue, credit score and financial history.
  • Equipment financing: If you need to purchase expensive equipment for your business, you can finance it with a loan or lease.
  • Small Business Administration (SBA) microloans: Microloans are up to $50,000 loans that can be used for working capital, inventory or supplies and machinery or equipment.
  • Grants: The federal government offers grants for businesses that promote innovation, export growth or are located in historically disadvantaged areas. You can also find grants through local and regional organizations.
  • Crowdfunding: With crowdfunding, you can raise money from a large group of people by soliciting donations or selling equity in your company.

Choose the right funding source for your business by considering the amount of money you need, the time frame for repayment and your tolerance for risk.

8. Apply for Business Insurance

You need to have insurance for your business, even if it’s a home-based business or you don’t have any employees. The type of insurance you need depends on your business model and what risks you face. You might need more than one type of policy, and you might need additional coverage as your business grows. In most states, workers’ compensation insurance is required by law if you have employees.

Work With an Agent to Get Insured

An insurance agent can help determine what coverages are appropriate for your business and find policies from insurers that offer the best rates. An independent insurance agent represents several different insurers, so they can shop around for the best rates and coverage options.

Basic Types of Business Insurance Coverage

  • Liability insurance protects your business against third-party claims of bodily injury, property damage and personal injury like defamation or false advertising.
  • Property insurance covers the physical assets of your business like your office space, equipment and inventory.
  • Business interruption insurance pays for the loss of income if your business is forced to close temporarily due to a covered event like a natural disaster.
  • Product liability insurance protects against claims that your products caused bodily injury or property damage.
  • Employee practices liability insurance covers claims from employees alleging discrimination, sexual harassment or other wrongful termination.
  • Workers’ compensation insurance covers medical expenses and income replacement for employees who are injured on the job.

9. Get the Right Business Tools

Business tools can help make your life easier and make your business run more smoothly. The right tools can help you save time, automate tasks and make better decisions.

Consider the following tools in your arsenal:

  • Accounting software: Track your business income and expenses, prepare financial statements and file taxes. Examples include QuickBooks and FreshBooks.
  • Customer relationship management (CRM) software: This will help you manage your customer relationships, track sales and marketing data and automate tasks like customer service and follow-ups. Examples include Zoho CRM and monday.com.
  • Project management software: Plan, execute and track projects. It can also be used to manage employee tasks and allocate resources. Examples include Airtable and ClickUp.
  • Credit card processor: This will allow you to accept credit card payments from customers. Examples include Stripe and PayPal.
  • Point of sale (POS): A system that allows you to process customer payments. Some accounting software and CRM software have POS features built-in. Examples include Clover and Lightspeed.
  • Virtual private network (VPN): Provides a secure, private connection between your computer and the internet. This is important for businesses that handle sensitive data. Examples include NordVPN and ExpressVPN.
  • Merchant services: When customers make a purchase, the money is deposited into your business account. You can also use merchant services to set up recurring billing or subscription payments. Examples include Square and Stripe.
  • Email hosting: This allows you to create a professional email address with your own domain name. Examples include G Suite and Microsoft Office 365.

10. Market Your Business

Many business owners spend so much money creating their products that there isn’t a marketing budget by the time they’ve launched. Alternatively, they’ve spent so much time developing the product that marketing is an afterthought.

Create a Website

Even if you’re a brick-and-mortar business, a web presence is essential. Creating a website doesn’t take long, either—you can have one done in as little as a weekend. You can make a standard informational website or an e-commerce site where you sell products online. If you sell products or services offline, include a page on your site where customers can find your locations and hours. Other pages to add include an “About Us” page, product or service pages, frequently asked questions (FAQs), a blog and contact information.

Optimize Your Site for SEO

After getting a website or e-commerce store, focus on optimizing it for search engines (SEO). This way, when a potential customer searches for specific keywords for your products, the search engine can point them to your site. SEO is a long-term strategy, so don’t expect a ton of traffic from search engines initially—even if you’re using all the right keywords.

Create Relevant Content

Provide quality digital content on your site that makes it easy for customers to find the correct answers to their questions. Content marketing ideas include videos, customer testimonials, blog posts and demos. Consider content marketing one of the most critical tasks on your daily to-do list. This is used in conjunction with posting on social media.

Get Listed in Online Directories

Customers use online directories like Yelp, Google My Business and Facebook to find local businesses. Some city halls and chambers of commerce have business directories too. Include your business in as many relevant directories as possible. You can also create listings for your business on specific directories that focus on your industry.

Develop a Social Media Strategy

Your potential customers are using social media every day—you need to be there too. Post content that’s interesting and relevant to your audience. Use social media to drive traffic back to your website where customers can learn more about what you do and buy your products or services.

You don’t necessarily need to be on every social media platform available. However, you should have a presence on Facebook and Instagram because they offer e-commerce features that allow you to sell directly from your social media accounts. Both of these platforms have free ad training to help you market your business.

11. Scale Your Business

To scale your business, you need to grow your customer base and revenue. This can be done by expanding your marketing efforts, improving your product or service, collaborating with other creators or adding new products or services that complement what you already offer.

Think about ways you can automate or outsource certain tasks so you can focus on scaling the business. For example, if social media marketing is taking up too much of your time, consider using a platform like Hootsuite to help you manage your accounts more efficiently. You can also consider outsourcing the time-consumer completely.

You can also use technology to automate certain business processes, like accounting, email marketing and lead generation. Doing this will give you more time to focus on other aspects of your business.

When scaling your business, it’s important to keep an eye on your finances and make sure you’re still profitable. If you’re not making enough money to cover your costs, you need to either reduce your expenses or find ways to increase your revenue.

Build a Team

As your business grows, you’ll need to delegate tasks and put together a team of people who can help you run the day-to-day operations. This might include hiring additional staff, contractors or freelancers.

Resources for building a team include:

  • Hiring platforms: To find the right candidates, hiring platforms, such as Indeed and Glassdoor, can help you post job descriptions, screen resumes and conduct video interviews.
  • Job boards: Job boards like Craigslist and Indeed allow you to post open positions for free.
  • Social media: You can also use social media platforms like LinkedIn and Facebook to find potential employees.
  • Freelance platforms: Using Upwork, Freelancer and Fiverr can help you find talented freelancers for one-time or short-term projects. You can also outsource certain tasks, like customer service, social media marketing or bookkeeping.

You might also consider partnering with other businesses in your industry. For example, if you’re a wedding planner, you could partner with a florist, photographer, catering company or venue. This way, you can offer your customers a one-stop shop for all their wedding needs.

Another example is an e-commerce store that partners with a fulfillment center. This type of partnership can help you save money on shipping and storage costs, and it can also help you get your products to your customers faster.

To find potential partnerships, search for businesses in your industry that complement what you do. For example, if you’re a web designer, you could partner with a digital marketing agency.

You can also search for businesses that serve the same target market as you but offer different products or services. For example, if you sell women’s clothing, you could partner with a jewelry store or a hair salon.

Bottom Line

Starting a small business takes time, effort and perseverance. But if you’re willing to put in the work, it can be a great way to achieve your dreams and goals. Be sure to do your research, create a solid business plan and pivot along the way. Once you’re operational, don’t forget to stay focused and organized so you can continue to grow your business.

Find Legal Answers For Your Small Business

Nolo offers hundreds of consumer-friendly do-it-yourself legal products written in plain English.

Frequently Asked Questions (FAQs)

How do I start a small business with no money?

There are several funding sources for brand new businesses and most require a business plan to secure it. These include the SBA, private grants, angel investors, crowdfunding and venture capital.

What is the best business structure?

The best business structure for your business will depend entirely on what kind of company you form, your industry and what you want to accomplish. But any successful business structure will be one that will help your company set realistic goals and follow through on set tasks.

Do I need a business plan to start a business?

While you don’t exactly need a business plan to start a business, it’s a good idea to create one. The reason being is having a strong business plan will help you stay true to your original vision. Planning out your suppliers, goals and general growth plan will set you up for success in the future.

Can I run a business from my home?

Yes, you can run a business from your home. Many small businesses start out this way. But keep in mind that you may need to comply with local zoning laws and regulations, so be sure to check with your city or county about any restrictions before you get started.

What are some of the biggest challenges to starting a business?

When starting a business from the ground up, some of the challenges you may encounter include creating a good business plan, producing a great product or service, working more than you planned to, dealing with capital and cash flow shortages, hiring and replacing employees, managing your time and trying to maintain a work/life balance.

Do I need a special license or permit to start a small business?

The answer to this question will depend on the type of business you want to start and where you’re located. Some businesses, such as restaurants, will require a special permit or license to operate. Others, like home daycare providers, may need to register with the state.

Top Articles

You might also like

Latest Posts

Article information

Author: Horacio Brakus JD

Last Updated: 11/26/2022

Views: 5801

Rating: 4 / 5 (71 voted)

Reviews: 94% of readers found this page helpful

Author information

Name: Horacio Brakus JD

Birthday: 1999-08-21

Address: Apt. 524 43384 Minnie Prairie, South Edda, MA 62804

Phone: +5931039998219

Job: Sales Strategist

Hobby: Sculling, Kitesurfing, Orienteering, Painting, Computer programming, Creative writing, Scuba diving

Introduction: My name is Horacio Brakus JD, I am a lively, splendid, jolly, vivacious, vast, cheerful, agreeable person who loves writing and wants to share my knowledge and understanding with you.