How to Start a Small Business in the US
From "I have an idea" to "I'm open for business." Six short lessons walk you through testing the idea, counting the costs, picking a structure, making it official, and staying on top of money and taxes.
Test your idea before you spend
Most new businesses don't fail because the paperwork was wrong. They fail because not enough people wanted to pay. So the first job is cheap proof that customers exist.
- Name your customer. Not "everyone." For example: "busy parents within 5 miles who want healthy dinners delivered."
- Name the problem you solve, in one sentence they'd agree with.
- Look at the competition. Who do those customers buy from now? What do they charge? What do reviews complain about?
- Get a real signal. Pre-sell, take deposits, run a weekend pop-up, or offer the service to a few paying customers. A "yes, I'd buy that" in conversation is weaker than money changing hands.
- Customer: people in nearby apartments who work long office days
- Competition: two apps and one local walker charging $25 per 30-minute walk
- Test: flyers in three buildings and a neighborhood group post offering a first-week discount
- Six paying clients in two weeks is a green light; zero means rethink the offer or price
Free help: SCORE offers free mentoring from experienced business owners, and Small Business Development Centers (SBDCs) offer free or low-cost advising. Both are partners of the US Small Business Administration (SBA).
Write a simple plan and count the costs
A business plan doesn't need to be 40 pages. Unless you're asking a bank or investors for money, a one-page lean plan is enough to think clearly:
- What you sell, and to whom
- How customers will find you (word of mouth, social media, a storefront)
- Startup costs: the one-time spending to open (equipment, first inventory, registration, website)
- Monthly costs: rent, software, insurance, phone, and your own pay if you need it
- Pricing, and how many sales you need to cover your costs
That last one is the break-even point: the number of sales where money in equals money out.
- Fixed costs: $900 a month (booth rent, website, insurance)
- Each candle sells for $28 and costs $10 to make, so each sale leaves $18
- $900 ÷ $18 = 50
- You need to sell 50 candles a month just to break even
Leave a cushion. Sales often start slower than planned. Many owners keep enough cash to cover several months of fixed costs while the business finds its feet.
Choose a business structure
Your structure decides who's legally responsible for the business's debts, how you're taxed, and how much paperwork you'll have. You can change it later as you grow.
| Structure | Personal liability | Taxes | Good for |
|---|---|---|---|
| Sole proprietorship | You're personally responsible for business debts | On your personal return, plus self-employment tax | One owner, low risk, testing an idea |
| Partnership | General partners are personally responsible | Profits pass through to partners' returns | Two or more owners; get a written agreement |
| LLC | Usually protects your personal assets | Pass-through by default; can choose corporate tax treatment | Most small businesses with some risk |
| C corporation | Strongest protection | Corporation pays tax; dividends taxed again | Raising money from investors |
| S corporation | Owners not personally liable | Pass-through; a special tax election with the IRS | Up to 100 shareholders, with strict rules |
A sole proprietorship is automatic: if you start selling on your own, you are one. An LLC or corporation only exists once you file paperwork with your state.
- Who will own the business?
- What's its main purpose?
- Could the business be sued or run up debts? (customers on site, food, physical work, employees, leases, loans)
- Do you plan to raise money by selling shares to investors?
Answer the questions to see a starting point.
Make it official
- Pick a name. Check it isn't already used in your state (search your Secretary of State's business database) and that the web address and social handles are free. A federal trademark from the USPTO is optional extra protection.
- Register with your state. LLCs and corporations file with the state, usually the Secretary of State, and need a registered agent in that state to receive legal papers. The SBA says fees are usually under $300, depending on the state. A sole proprietor using a different name from their own registers a DBA ("doing business as").
- Get an EIN. An Employer Identification Number is the business's federal tax ID. You need one to hire employees or run a partnership or corporation, and banks often ask for it. It's free from the IRS and you get it immediately online.
- Get state tax IDs if your state requires them, for example to collect sales tax or pay state payroll taxes.
- Get licenses and permits. Depending on what you do and where, you may need a local business license, a home-occupation permit, a health permit, a professional license, or a federal license (for example for alcohol or aviation). Check with your city or county and your state.
Never pay for an EIN. Some websites charge a fee to "get" your EIN. The IRS says you never have to pay. Apply at IRS.gov in minutes; the online application is open Monday to Friday, 6 a.m. to 1 a.m. Eastern, with shorter weekend hours.
Bank account and bookkeeping
Keep business money separate from day one. Open a business checking account (bring your EIN or SSN, ID, and your state formation papers or DBA). Pay every business expense from it and deposit every sale into it.
For an LLC or corporation, mixing personal and business money can weaken the liability protection you set up. For everyone, it makes taxes far easier.
Record every sale and expense, keep receipts (photos are fine), and reconcile against your bank statement each month. A spreadsheet works at first; accounting software helps as you grow.
- Pay yourself on purpose. Move a set amount to your personal account on a schedule, rather than dipping in when you need cash.
- Set money aside for taxes from every payment you receive (see lesson 6).
- Get insurance. General liability insurance is common; you may also need property, professional liability or workers' compensation insurance (often required by states once you have employees).
Taxes for small business owners
- Income tax. Sole proprietors and single-member LLCs usually report business profit on Schedule C with their personal return. Partnerships and corporations file their own business returns.
- Self-employment tax. If your net earnings from self-employment are $400 or more, you owe self-employment tax of 15.3% (12.4% Social Security plus 2.9% Medicare) on top of income tax. You can deduct the employer-equivalent portion when figuring your income.
- Estimated taxes. No employer is withholding tax for you, so you generally pay four times a year if you expect to owe $1,000 or more. Use IRS Form 1040-ES.
- Sales tax. Most states tax sales of goods and some services. You register with the state, collect it from customers, and send it in.
- Employment taxes. Once you hire, you withhold and pay payroll taxes and file payroll returns.
- Net profit for the year: $30,000
- Self-employment tax is figured on 92.35% of that: $27,705
- $27,705 × 15.3% ≈ $4,239
- Set aside money for this plus income tax. Many owners save 25–30% of profit as a rule of thumb
Keep records. Keep receipts, invoices and bank statements. The IRS generally asks you to keep records that support your return for at least three years, and longer in some cases.
FAQCommon questions
Do I need an LLC to start a business?
No. You can start as a sole proprietor with no state filing. An LLC adds personal liability protection, which matters more as your risk grows (customers, employees, leases, loans).
Does a sole proprietor need an EIN?
Not always. A sole proprietor with no employees can often use their Social Security number. You'll need an EIN if you hire employees, and many owners get one anyway (it's free) so they don't have to hand out their SSN.
How much does it cost to start a business?
It ranges from almost nothing (a service you sell from home) to tens of thousands of dollars (a shop with inventory and a lease). State registration is usually under $300. Use the calculator in lesson 2 to add up your own costs.
Can I run a business from home?
Usually yes, but check local zoning rules, any home-occupation permit, and your lease or HOA rules. Your homeowner's or renter's insurance may not cover business equipment or customers.
What is an S corp, really?
It's a tax choice, not a separate kind of company you form. An eligible LLC or corporation files with the IRS to be taxed as an S corporation. It can make sense once profits are steady; ask a tax professional.
Where can I get free help?
SCORE mentors, Small Business Development Centers, Women's Business Centers and Veterans Business Outreach Centers all offer free or low-cost help. Find them through SBA.gov.
MOREOfficial help
Not legal or tax advice. This lesson is general information. Rules and fees vary by state and city, so check with your state, the IRS, or a qualified attorney or tax professional for your situation.