8 steps to starting your own small business

Starting a small business is a bold endeavor with the potential for financial rewards and greater personal satisfaction. While the prospect of being your own boss is exciting, you might be unsure about the first steps on your small-business journey. Where can you turn for advice when opening a business? How do you uncover what you don’t know? These eight steps should help take you from developing your business idea to hiring your first employee.

1. Come up with a business idea and test it

To build a successful business, start with a well-thought-out concept and business plan. Your business should deliver either a unique offering or extra value for customers in your industry. In addition, consider why you want to open a business in the first place. Your business should offer a product or service you—and your intended customers—believe in. Understanding the wants and needs of your target customers is essential to developing a solid business plan. To set up your business for success, test several variations of your idea before you decide which to move forward with.

Conduct market research

Conducting market research can help you test your business idea. This phase is an opportunity to better understand your industry, your potential customers and your competitors. Your research can help you modify your idea to reach an underserved niche in the market or guide your efforts to differentiate your business from the competition, which could possibly give you a marketing edge. Conducting market research includes holding focus groups, researching public data, conducting interviews with target audiences and reviewing the competitive landscape.

Choose a business name

Once you’ve conducted market research and have a better understanding of your audience and what sets your venture apart from others in the industry, it’s time to decide on a name. Choose a business name that reflects the personality of your brand and resonates with potential customers in your market segment. Be sure your business name is unique so customers won’t confuse your business with any others. Once you’ve narrowed down your list of names, check your state’s business name database and the United States Patent and Trademark Office website to be sure your name isn’t taken or too similar to an existing name.

Additionally, it should be considered that the branding and marketing aspects of the name you choose can help create additional brand awareness for your business. An important step is to ensure that your desired website domain name and social media handles are available to support any marketing efforts.

2. Write a business plan

A well-crafted business plan is the foundation of your new venture. Your plan should include items like:

  • A description of your business idea and values.
  • A competitive analysis.
  • A strategy to market and grow your business.

By writing your business plan—and rewriting it if necessary—you can set a steady foundation for success and demonstrate an understanding of your industry and customers as well as short- and long-term goals. Capital One's workbook on how to write a business plan will help you get started and guide you through the process step by step.

3. Get financing to fund your business

After you write your business plan, it’s time to obtain funding for your business.

If you don’t have the necessary cash to get started, there are various types of business financing options available, including:

  • Venture capital.
  • Crowdfunding.
  • Small business loan.
  • Business grant.

Your business plan will help you apply for some of these funding options or attract potential investors. Even if you plan to self-fund your new business, consider applying for a business credit card in order to expand your financial resources, get enhanced control over your expenses and begin building your credit.

4. Set up the legal aspects for your business

Legal requirements for your business will depend on your business and the industry itself. Some businesses will require permits or licenses. Depending on how you choose to structure your business, you may need to engage corporate officers or a board of directors.

Determine your legal business structure

The legal structure you choose for your business will determine how it is run and by whom, how it is taxed and how much of your personal assets are at risk. You’ll need to choose a business structure to get your team in place to move forward with operations. Options for structuring your business include:

  • Franchise.
  • Limited liability company (LLC).
  • Corporation.
  • Sole proprietorship.
  • Partnership.
  • Cooperative.

Register your business and get a federal tax ID

Registering your business will help secure your business name and keep others from choosing the same name for their business. Your business will also need a federal tax ID, which is sometimes referred to as an Employer Identification Number (EIN). Your EIN acts like a Social Security number for your business. You’ll need your EIN to file business taxes and establish credit for your business if you’re not a sole proprietorship.

Apply for licenses and permits

Not all types of businesses will require licenses and permits. If your business operates in a regulated industry or performs professional services, you may need to apply for the appropriate licensure. Check local, state and federal regulations concerning operating your type of business to find out what permits are required. You may also want to consult a business attorney in your area to be sure you obtain the proper permissions to operate your business legally.

Get insurance for your business

Every type of business needs to purchase business insurance to protect its assets from liabilities. Depending on your business structure, you can be held personally liable for any claims against your business. Property damage, employee injuries and customer lawsuits can all be financially devastating to a business. Having the right insurance coverage in place can mitigate these and other risks to help you weather any crisis that comes up. 

5. Set up your financials

It’s important to keep your small business’s financial health in good shape. Establish accounts for your business and devise an accounting strategy to run your daily operations. You’ll need a solid accounting structure to help you prepare for the future and keep track of how your money is spent.

Open a business bank account

Opening a small business bank account is an exciting step toward being a business owner and will help keep your business finances organized. You’ll need your official business name and either your EIN or personal Social Security number. Look for an account that offers low fees, wire transfer services and secure payment options for your customers as well as convenient online and mobile banking options.

Apply for a business credit card

Small business credit cards offer benefits specifically designed for business needs and help keep your personal and business finances separate. Applying for a business credit card is similar to getting a personal credit card. Because your new business likely doesn’t have credit or assets yet, the credit issuer will typically check your personal credit when determining eligibility.

You’ll need personal identification information like your Social Security number plus your business identification information, such as your EIN or tax identification number. Additionally, you’ll need to know the legal name, address, birthdate and Social Security number of any beneficial owners or business controllers with a 25% or greater stake.

Start paying taxes on the business

Business taxes differ slightly from personal taxes. You may need to pay quarterly estimated taxes and payroll taxes for your business throughout the year. There are also special deductions you may want to take advantage of when it’s time to file. Consider consulting a small business tax adviser and purchasing tax software to make business taxes a little easier to manage.

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6. Consider what software and tools you need

Tax software is just one type of software that may make running your business easier. Some online business tools can be expensive, so be sure to shop around and compare reviews before making a purchase.

Please note that all software options listed in the sections below are not necessarily recommended by Capital One and are provided for general informational purposes only.

Accounting and tax software

As a business owner, accounting software can help you keep track of expenses like payroll and inventory. Look for a software package that is easy to use and can produce up-to-the-minute reports on every aspect of your business finances. Popular options for accounting software include:

  • QuickBooks.
  • FreshBooks.
  • Xero.
  • Zoho Books.
  • Wave.

Communication and project management software

Whether you’re managing a remote team or are a solo practitioner working on multiple client projects simultaneously, project management software may help you stay organized and on top of deadlines. Small business owners in the market for project management software have a number of options to choose from at a range of prices, including:

  • Trello.
  • Asana.
  • Zapier.
  • Zoho Projects.
  • Liquid Planner.

Many of these tools offer a free version so you can try it out before purchasing. When shopping around, look to see whether there is project management software that is specifically designed for your industry before making your decision.

Website and marketing software

Building a business website and launching effective marketing campaigns can contribute to the overall success of your business. Choosing an effective software system can make these tasks easier and more streamlined. If you conduct business online or if your customers will purchase your goods and services through your website, it’s important to have a website that makes it easy to conduct transactions and provides a user-friendly interface and experience. Example website creation and management tools include WordPress, Adobe Dreamweaver and Webflow. Each of these options can be an excellent choice for creating an online storefront and integrating with many e-commerce solutions. 

Once your website is set up, marketing campaigns can help drive customers to your digital storefront. Marketing software can help you coordinate digital ads, social media and email campaigns. Some options include Hootsuite, Mailchimp and Sprout Social.

HR and hiring software

Managing the hiring process and providing HR support to employees can also be made easier with the right tools. HR software can help you post job openings, screen resumes and onboard new employees more efficiently. Freshteam, Workable and BambooHR are just a few options to consider.

7. Hire employees

You may start out as a one-person operation, but eventually you may need to hire additional employees. Hiring can represent business growth and is a delicate balance of spending money to make money. Before recruiting a new member to your team, be sure you have a steady revenue stream that can support the overall cost that comes with having an employee. To make the onboarding process more efficient for new hires, be sure your procedures are established and well documented. Need some inspiration? Get tips to build a successful team from people who have done it before!

8. Advertise your business

One of the challenges of starting a new business is attracting your first customers. It is unlikely that people will know your business exists or what services and goods you provide until you begin to advertise. With your website, logo, branding and social media accounts already in place, advertising your small business should be a coordinated effort that tells your brand story and reaches your target audience. Look to your marketing plan to create consistency in your advertising and marketing campaigns. 

Let Capital One help with the financials

Capital One is here to help your small business succeed. Learn more about how Capital One small business loans and lines of credit can help get your ideas off the ground. Want to reap rewards for business travel miles and expenses? Capital One Spark business cards can keep your daily operations going with built-in benefits for small businesses. Capital One has also assembled business resources to help you learn how to build business credit and succeed in your new business venture. Capital One is here to support you as you grow your business.

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