Key Takeaways

  • The small business proces begins with evaluating your readiness for entrepreneurship, researching your idea, and assessing the market.
  • A business plan serves as a roadmap, outlining products, services, pricing, and funding strategies.
  • Startup funding options include personal savings, loans, investors, and crowdfunding; understanding startup costs is critical.
  • Choosing the right business structure (LLC, corporation, sole proprietorship, partnership) impacts taxes, liability, and credibility.
  • Pricing strategies, compliance requirements, and marketing are additional steps that shape long-term business success.

The process of starting a small business, according to the United States Small Business Administration, begins with considering whether entrepreneurship will be a good fit for you. Some qualities that are needed for starting a small business are:

  • Being a self-starter
  • Being comfortable with financial risk
  • Having good decision-making abilities
  • Being willing to put in long hours

When you have that preliminary personal assessment out of the way, you can forge ahead and define the business you want to start and research the market demand for the enterprise.

Business Pre-Launch

Before you launch your business, check if the market exists to support your idea. There are some questions you can ask, such as if there's a problem that your business idea will solve, who the ideal customer for your business would be, who your main competitors would be, and if your idea is different from what your competitors offer.

Research is the best way to answer this set of questions and to determine how your business will compare in the marketplace. The answers to the questions you ask yourself can be used to develop a plan and improve your ideas. This will help you get your business off to a good start.

Estimate Startup Costs

Understanding your startup costs is one of the most important early steps. These costs can include:

  • One-time expenses such as licenses, permits, equipment, and initial inventory.
  • Ongoing expenses like rent, utilities, payroll, marketing, and insurance.

According to the U.S. Small Business Administration, accurately projecting these expenses will help you determine how much funding you’ll need. Bank rate estimates that many small businesses spend an average of $40,000 in the first year of operation, though costs vary widely depending on industry. Creating a detailed budget prevents financial shortfalls and ensures you don’t underestimate working capital requirements.

Prepare a Business Plan

A business plan doesn't have to be prepared by an MBA. It can be a short, simple, one-page document. Set it up with the idea that it's going to be a three- to five-year roadmap to guide you through the process of starting and successfully running your company in its first few years.

Some things that should be included in your business plan are what services or products your company is going to offer, who your target customer is, how much you expect to charge customers for your product or service, and how you're going to fund your business and sell your product.

The research you do before launching your business helps confirm that the customer base exists for the product or service you want to offer. Examine the audience you're targeting and make a decision about whether you want to operate in the local or national market or if you're after a niche market. You should also consider if you want to operate an e-commerce business or if you want to have a business with a physical location where customers go to visit you.

Develop a Pricing Strategy

Your pricing strategy determines not only profitability but also how your business is positioned in the market. Common small business pricing strategies include:

  • Cost-plus pricing – adding a markup to production costs.
  • Value-based pricing – setting prices based on customer perceived value.
  • Competitive pricing – aligning with or undercutting market competitors.
  • Penetration pricing – starting low to attract customers and gain market share.
  • Premium pricing – charging higher rates to signal exclusivity or quality.

Choosing the right approach depends on your target audience, business goals, and competitive landscape. A well-planned pricing model should balance customer appeal with long-term sustainability.

Set Up Funding for Your Business

Every business needs funding to get started. You may have to look beyond what you own if you don't have enough cash to start your business. The first step in that is figuring out how much you need to start your business and then figuring out where you can get that much money.

If your plan involves bringing on investors, you need to make sure your elevator pitch and business plan are perfect. Another option would be government-backed loans, research grants, and venture capital. Crowdfunding sites are another fairly new option. With crowdfunding, you share your goals with your family and friends in the hope that they will all contribute to startup costs for your business.

If you happen to be a veteran, you would then have the opportunity to apply for a special loan through the U.S. Small Business Administration. The loan is called the Patriot Express.

Understand Compliance and Legal Requirements

Beyond funding, compliance is a vital part of the small business process. New business owners should ensure they:

  • Register with the state and obtain an Employer Identification Number (EIN).
  • Secure the necessary licenses and permits for their industry.
  • Understand tax obligations at the federal, state, and local levels.
  • Put contracts, employee policies, and other legal documents in place.

Failing to meet compliance requirements can result in fines or delays. Working with legal professionals or accountants early on can help you avoid costly mistakes.

Choose the Right Business Structure

Next, you need to choose the form of business ownership that fits your goals. These business structures are sole proprietorships, limited liability companies, partnerships, S corporations, nonprofit corporations, and cooperatives.

The business structure you choose determines the form of income tax you file for your business. Each of the different business structures has their own pros and cons. The best approach is to talk to an accountant or lawyer when you're figuring out this part.

To protect your personal assets from the debts and liabilities that can come from your business, incorporating the business or forming an LLC with the state where you start the business is an important step. Forming an LLC or corporation offers tax advantages, and they both give you better more credibility with your customers, vendors, and business partners.

Build Your Marketing and Growth Plan

Once your legal and structural foundations are in place, focus on reaching customers. A marketing and growth plan might include:

  • Branding and online presence – creating a website, social media profiles, and consistent brand identity.
  • Advertising and outreach – using digital ads, local networking, or referral programs.
  • Customer retention strategies – offering loyalty rewards, personalized service, or subscription models.
  • Scaling plans – considering when and how to expand locations, hire employees, or introduce new products.

This stage helps you shift from planning to execution, ensuring your business has the visibility and scalability to thrive.

Frequently Asked Questions

  1. What is the first step in the small business process?
    The first step is evaluating your readiness and researching the market demand for your business idea.
  2. How much money do I need to start a small business?
    Startup costs vary, but many businesses spend around $40,000 in the first year. Careful budgeting will help determine your specific needs.
  3. Do I need a business plan to start a small business?
    Yes. A business plan provides direction, outlines funding needs, and helps attract investors or lenders.
  4. Which business structure is best for a small business?
    It depends on your goals. Many small businesses form LLCs for liability protection, while others choose sole proprietorships or corporations.
  5. Why is pricing strategy important for new businesses?
    Pricing affects profitability, market positioning, and customer perception. The right strategy balances competitive appeal with financial sustainability.

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