Learn how to start a new business
Read this guide to creating a small business, including choosing your business structure, writing a business plan, and getting business licenses.
Steps to take when starting a new business
Follow these steps to open a small business, including how to come up with a great idea, do market research, register your business, choose the right legal structure, and get a tax ID.
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Brainstorm about your business
Start by determining what your business will do and how you’ll make money. Once you’ve figured that out, go deeper by asking yourself a few questions:
- What specific products or services will you offer?
- What are 10 possible company names, and are they already registered?
- Is your desired website URL available?
- Who will be on your leadership team, and what relevant experience do they have?
- What goals and values made you say, “I want to start my own business”?
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Research the market
Some market data is publicly available, like general population and industry revenue, and you can purchase more detailed data in market research reports. If you're starting a brick-and-mortar company, you'll want geographic information system (GIS) data to find out how many people in your target demographic live within a few miles of your intended location. If you're starting an online business, buy a market research report for your industry that specifies market size, average profit margin, projected industry growth, and key industry trends.
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Figure out legal structure
Most small businesses are limited liability companies (LLCs), because the risk and taxes are both relatively low, and your personal assets aren’t at risk if the business goes into debt. If you might sell stock eventually, register as a corporation.
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Register your business and get a tax ID
Get business licenses and permits from your city, county, state, and/or federal government before you open a small business. Apply for an employer ID number (EIN) through the IRS, read federal business tax guidelines, and get a state tax ID number.
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Evaluate your competitors
A common mistake is thinking you have no competition. Even if no company does exactly what yours will, you’ll compete with anyone who meets the same need, like transportation or food. For example, a bike rental company will compete indirectly with buses and cars, as well as competing directly with any other bike rental companies.
Research competitors' history, online presence, media coverage, and industry reputation. Read online reviews to learn their strengths and weaknesses. Note any complaints such as limited parking, strict return policy, or poor customer service and figure out how to avoid those pitfalls so you have a competitive advantage.
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Get business insurance
Look into getting business insurance with several kinds of coverage, such as:
- General liability insurance to cover things like property damage or injury.
- Professional liability insurance if you offer a service.
- Product liability insurance if you sell a product.
- Commercial car insurance for any delivery vehicles.
- Workers’ compensation to cover on-the-job injuries.
How to write a business plan
Any good starting a business guide will mention business plans, which can help you clarify your vision and get funding. Here’s what to include in your business plan:
Executive summary: Write this last. It’s a short summary of the rest of your business plan. Pull your main points into one or two paragraphs. If someone doesn’t read the rest of your business plan, make sure they’ll learn everything they need to know in the executive summary.
Details about your products or services: After the executive summary, spend at least a page on your main offerings. For example, include your menu if you’ll open a restaurant.
Market analysis: This is where the research you did into local population demographics or industry statistics will come in handy. Lenders and investors want to know there’s a big enough customer base before giving you any money—and that you’ve done your research and understand the business climate.
Marketing strategy: Toward the end of your business plan, include the marketing channels you chose, plus specifics. If you’ll be advertising online, what keywords will you buy ads for? If you’ll buy print ads, what publications will they be in, and how many times?
Leadership team: List the names and future titles of any company leaders, such as your CEO, finance leader, marketing leader, and customer service leader. Condense their resumes into a paragraph or two with only the most relevant details, and specify how their past experience equips them to lead your company to success.
Financial projections: Most business plans have financials in an appendix at the end. Make sure your projections are realistic so lenders or investors take you seriously.
Small business finances
First, open a business bank account. Then it will be easier to do taxes and separate business and personal spending.
Create financial projections
Estimate your company’s financial performance for the first three years, and note when you expect to break even. Financial projections should include:
- Fixed expenses
- Rent
- Equipment
- Full-time payroll
- Office supplies
- Insurance
- Marketing and advertising
- Taxes
- Subscriptions and memberships
- Variable expenses
- Part-time payroll
- Product materials
- Sales commissions
- Projected revenue
- Cost of goods sold
- Pricing
- Estimated customers
- Estimated units sold
Small business funding options
After you've mapped out your finances, decide how you'll get the money you need. Some options include:
- Your savings. Using your own money could hurt your credit score, but you don’t have to answer to anyone else.
- A microloan, if you’re seeking less than $50,000.
- A small business loan. The Small Business Administration guarantees SBA loans, which are easier to get and lower risk than other loans. They’re capped at $5.5 million.
- Investment funding from angel investors or venture capitalists. While you might get more money this way, you trade some of your freedom, because investors often want decision-making power.
- Crowdfunding. This is risky but can work if you have already built up demand.
- Grants. They’re hard to get, but you don't have to repay them. If you can register as a woman-, BIPOC-, or veteran-owned business, special funding may be available.
Hire a solid team
Follow these best practices when you’re ready to hire:
- Recruit in a variety of places, such as several job listing sites and asking for referrals.
- Be careful before hiring your friends or relatives—you don’t want to ruin your relationship.
- Familiarize yourself with your state’s employment discrimination laws.
- Learn about equity, bias, and privilege to ensure your business is welcoming and inclusive for employees and customers alike.
- Treat your employees well, because it often costs more to recruit and train new people than it does to keep great employees.
Create a marketing strategy
Pick several marketing channels to pursue, and then calculate your return on investment to determine which ones are the most effective. Here are some options:
- A website, social media profiles, and profiles on all the major business review sites.
- Online and social media ads.
- Print mail, radio or podcast ads, and billboards.
- A grand opening celebration.
- Coupons on your website or in mailers.
- Affiliate links.
- Press releases and PR interviews.
- Celebrity or influencer endorsements.
- An opt-in email newsletter (don’t email anyone without permission).
- Sponsoring a local event or team.
How Microsoft 365 can help
Microsoft 365 for business
Create impressive documents, pitch deck presentations, and financial projections with Microsoft Word, PowerPoint, and Excel.
Microsoft Teams Essentials
Stay connected with your team no matter where you are. Use Teams Essentials for group video calls, meetings, and chatting.
Microsoft OneDrive
Use cloud storage to help protect your business information, share files and documents with employees, and work together in real time.
Resources to help run your business
Support hybrid work
Learn how to host hybrid meetings and give dynamic presentations using the latest product updates.
SEO for small businesses
Make your website easier for potential customers to find with search engine optimization (SEO).
Why project management matters
Learn how to meet your small business goals and stay within your budget through project management.
The cost of starting a company
It costs about $30,000 to start a new business, but it varies based on your location and industry.
Small business SWOT analysis
Learn how to figure out your company’s strengths, weaknesses, opportunities, and threats.
Tips for productive meetings
Discover five ways to make small business meetings as efficient as possible.
Make a small business website
Create a website, social media presence, and online ads for your new company.
Frequently asked questions
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Yes, you can start a business with no money, but it’s wiser to save money beforehand, get a small business loan, or get investment funding.
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Start a new business from home by doing research on the internet. Research successful businesses, brainstorm ideas, and check your city or county’s requirements for getting a business license and permits.
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The first thing to start a business is coming up with a great idea and doing research to make sure there’s a big enough target market to support it.
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The key to starting a successful new business is building a big enough customer base and enough traction in the market so you break even—and eventually earn a profit. A successful new business is about more than just a great product, excellent services, or employees. It comes down to attracting and keeping customers.
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The most crucial step in starting a new business is making sure you don’t run out of money. You’ll always have unexpected expenses, so make sure you have more money than you think you need. Then you’ll be prepared in case of emergencies.
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