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Business

How to Set Up a Business in 8 Simple Steps

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If you want to start a business but don’t know where to begin, don’t worry—this tutorial is for you.

Not knowing where to start is a common problem. In a survey by RBC in Canada, for example, 84% of those who had not started a business said they would rather work for themselves than for someone else. The top barriers to starting a business were:

  • No capital/start-up money: 44%
  • Need steady/reliable income: 38%
  • Fear of failure: 29%
  • Did not know how to start: 28%

We’ve published tutorials in the past to help overcome some of those barriers, such as securing funding, budgeting for a startup, and planning carefully to avoid failure.

In this tutorial, we’ll deal with the final item on that list: not knowing where to start. We’ll look at some of the basic administrative steps you need to take when setting up a business.

The specific steps, of course, vary a lot depending on which country you’re in and the details of the business you’re starting. And often there’ll be regional differences even within countries—in the U.S., for example, the rules vary slightly in each state.

So consider this a general guide to the main steps involved, but please keep in mind that I can’t cover the specific situation in each country of the world, so you’ll need to do some additional research to find out exactly what the rules are in your jurisdiction.

If your situation is complex or you’re unsure how to proceed, it may be worth consulting a lawyer or other professional who’s familiar with the details of starting a business in your location. You can also get some great information from local trade and professional organizations. 

As a writer based in the UK, for example, I’m a member of the Society of Authors, which provides guidance and advice on all sorts of tax issues and other practical problems in exchange for a £102 annual subscription. So look for a similar organisation in your country and industry, and find the specific details you need.

Also, note that this tutorial focuses on the administrative steps involved in setting up a company. For a fuller picture of the process of starting a business, from coming up with an idea and writing a business plan through to running a pre-launch marketing campaign, see this comprehensive tutorial:

With that said, let’s run through how to set up a business!

1. Choose Your Structure

There are various different ways in which you can set up your business. Which one you choose can make a big difference to things like how much tax you pay, how much liability you have if things go wrong, and how much administrative burden you have.

For example, in many countries you can run a business as a “sole proprietor” or “sole trader”, which means you can skip many of the administrative hurdles of starting a business and just operate it under your own name. But this can be dangerous, because you have personal liability for your company—if the firm gets sued by an angry client, for example, you may have to pay out of your own pocket.

With a limited-liability company, on the other hand, your personal assets are shielded from the company’s debts and liabilities. There may also be tax advantages to this structure. But on the other hand, they’re more complex and expensive to set up, and you’ll need to make sure you comply with more rules to be considered a valid LLC.

There are several other options, too, like partnerships, cooperatives, and various types of corporations, all with their own distinctive characteristics. For a summary of these different types of legal structure and the pros and cons of each, see this tutorial:

2. Register Your Company Name

Choosing a name for your business can be tough. You need something unique and memorable, but also something that will appeal to your target customer and that, ideally, communicates something about your company or the way you do business. 

You also want something that will work well online (i.e. you can find a good domain name for it, and it won’t get confused with something else in search results). And you want a word or phrase with a catchy sound and good associations.

It’s a lot to consider—and if you’re also targeting customers who speak different languages, your problems are only just beginning.

Fortunately, we’ve got a tutorial to help you:

But once you’ve chosen the perfect name, what do you do then? Generally, if the business name is anything other than your own personal name, you’ll have to register it with your national or local government. Often it’s possible to do this online.

In Australia, for example, you can go to the Australian Security & Investments Commission website. In the UK, you’ll want to visit Companies House. And in the U.S., you’ll generally need to register your business at the state level; here’s a useful list of the websites to visit for each state.

You may also want to trademark your business name. It’s not always worth doing this, especially when you’re just starting out, but brands can end up being extremely valuable, so it’s worth considering. For more about the pros and cons of trademarking your business name and the practicalities of doing it, see:

3. Get a Tax ID

Unless you’re lucky enough to operate in some offshore tax haven, it’s almost certain that your government will want to know all about your new business, so that it can start taxing you from the moment you start making money.

Generally, that means applying for a new ID number that will identify your business for tax purposes. Or if you’re running the business as a sole proprietor, you may be able to use your individual tax ID for your business instead.

In the U.S., for example, you can use your Social Security Number for your business if you’re a sole proprietor. But for any other legal structure, you’ll need to apply for an Employer Identification Number (EIN), which you can do through the IRS website.

Even sole proprietors will need an EIN if they do things like hiring employees or buying other businesses. And as attorney Stephen Fishman points out, you may want to get an EIN even if you don’t need one, in order to avoid identity theft, establish independent contractor status, and make things easier when dealing with banks.

If you live in a different country, the name of the ID will differ, but it’s likely that you’ll need one, so check with your tax authorities to see what the rules are.

4. Register Your Website Domain Name

Even if you don’t plan to do business online, you need at least a basic website to provide information about your company. Customers expect it these days, and it gives you a level of credibility and professionalism that a Facebook page or a listing on another website simply can’t.

Getting set up is pretty easy, too—with a WordPress site and a professional-looking theme from somewhere like Envato Market, you can be up and running in no time. It’s an easy way to increase your reach and attract more customers.

But before you can do that, of course, you’ll need a domain name for your business.

Recent years have seen a proliferation of top-level domains, or extensions (in other words, not every business has to be a “dot com”—you can be a “dot io”, “dot xyz”, etc.). So competition is not what it once was. But you’ll still need to register your domain name early, to make sure that the one you want is available and that nobody else snaps it up later on.

If you want to try out some different combinations to find the right domain name, try Bust a Name, where you can enter your key terms and see some suggestions of available domain names. It only works with a limited number of extensions, though.

If you already know which domain name you want, and you just want to see what’s available and at what price, your best bet is Domcomp, which compares availability and pricing for almost 2,000 top-level domains across more than 30 registrars. (A registrar is simply a company through which you can register your domain name in return for an annual fee.)

Following the links from Domcomp will take you to the registrar’s website, where you can register your domain name in a few simple steps.

You’ll still need to find a web host and set up your site, of course, but at least once you’ve registered the domain name, you don’t have to worry about someone else taking it, and you can include the URL in any marketing materials you’re preparing.

5. Pick Up the Necessary Licences and Permits

So you registered your company name and acquired a tax ID earlier, right? But wait, the government hasn't finished with you yet! If you don’t get the right permits and licences to run your business, you could face heavy fines or even, in extreme cases, the closure of your business.

While these requirements may seem like a lot of bureaucracy, they do serve a purpose: protecting customers. Getting a licence shows that you have passed the government’s checks and in some cases that you have the necessary qualifications to do your job.

Your government website is the place to start when finding which permits you need. In Canada, for example, you can find a list on the Canada Business Network site. In the U.S., the Small Business Administration compiles links to all the state websites.

6. Set Up a Business Bank Account

If you set up any of the more complex legal structures, you’ll definitely need a bank account. If you operate as a sole proprietor, it’s possible to use your personal bank account, but not a good idea.

For one thing, you’ll make things harder for yourself when it comes to separating business profits and expenses from personal ones. You may also struggle to convince the tax authorities that it’s a legitimate business and that any expenses you deduct are truly business-related. And mingling your finances can also negate any other steps you may have taken to reduce your personal legal liability.

Traditionally, banks have charged much higher fees for business bank accounts than for personal ones, but that's not always the case now. Many business bank accounts are now available for no monthly fee. This search tool highlights some of the best offers available among U.S. banks. So there's no excuse not to get a bank account set up for your business.

7. Set Up a Basic Accounting System

Before you start operating your business, you need to set up a basic system for tracking the revenue you make and the expenses you incur.

The word “accounting” can give some people chills, but it doesn’t have to be very complicated. There are plenty of apps you can use these days to make things simple, and at the most basic level, for a very small business, you could simply use a spreadsheet with a list of revenue and expense items with dates and identifying details.

When you’re first starting out, you don’t have to have the perfect solution in place, particularly if you’re starting small. But you do have to have some solution in place. Keeping track of the money flowing in and out of your business is easy if you do it as you go along, but a nightmare if you have to go back and reconstruct it later.

So get something in place right from the start, no matter how rudimentary. For more guidance, see these tutorials:

8. Get the Right Insurance

For most business owners, “insurance” comes right after “accounting” in the list of words they don’t want to hear.

But, as with accounting, insurance doesn’t have to be complicated. There are several basic types that are relevant to businesses, such as general liability insurance, professional liability insurance, and commercial property insurance.

Different types of companies may also need vehicle insurance, workers’ compensation insurance, in-home business insurance, or a variety of other specialist insurance policies. Some policies may even be required by government regulations.

To find out what these types of insurance mean and whether you need them, read this tutorial:

Next Steps

Depending on your situation, there may be extra steps involved in setting up a small business. For example, you may need to find a location for your business and buy or lease special equipment. Or you may need to hire employees, in which case you’ll need to jump through a number of administrative hoops, as I mention in the last section of my tutorial on hiring your first employees. And, as I mentioned at the beginning, there may be particular requirements in your country that you’ll need to meet.

But this tutorial has covered the main administrative steps involved in starting a small business. You’ve learnt about:

  • choosing a legal structure
  • registering your company name
  • getting set up for tax
  • registering your website domain name
  • getting the necessary licences and permits
  • setting up a business bank account
  • creating a basic accounting system
  • getting the right insurance

Keep in mind, though, that the administrative steps are only a part of the process of starting a business. If you want to be successful, you’ll need to have a clear understanding of who your target clients are, how you will serve them, how you’ll make money, and much more.

If you haven’t done all of that yet, the following tutorial would be a good one to read next:

Graphic Credit

Sequence designed by Peipei Feng from the Noun Project.

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