How to Start a Business in the USA (2024 Ultimate Guide)

If you're seeking financial freedom, starting a business is the easiest way to gain it. Most entrepreneurs have four times their net worth compared to individuals working for someone else.

Starting a new business from scratch seems challenging, especially if it's your first time. You need to plan carefully, have patience, be flexible, and be self-motivated.

Before opening your business doors, you must learn how to make your new business thrive in the competitive market and avoid costly mistakes. That's why, at Foundeck, we've researched ways to help you become a business owner.  

Steps to Create a Business in the USA

Let's navigate the steps to help you start your business in 2024.

1. Define your business idea

The foundation of each business is built on a good idea. This is the concept that you will use to make your business. Keep it straightforward: You do not necessarily have to think of a new idea of how to change the world or even develop a groundbreaking technology or an idea that will transform an industry altogether.

Spend time thinking, get a piece of paper and pen, and write down ideas. It could be as simple as the type of goods and services you plan to offer or the specific market you want to enter. A clear picture of these aspects could help you avoid significant future problems.

Begin by making a list of your hobbies, daily activities, friends' and families' needs, inspiring businesses, and domains of knowledge.

Here are brainstorming questions you can consider:

1. What do you love to do? 
2. What are you good at?
3. What problem are you facing in your life?
4. Is there a problem or a need in my friends and family's lives?
5. Does your community have a problem or a need that needs solving?
6. What tasks do you tackle every day?
7. What type of business do you admire?
8. Which tasks can you make easier?
9. What service or items can you make more accessible to people?
10. How can you make a specific product or service better?

For the next step, you must filter your ideas until you arrive at the one that makes you the most thrilled to be working on. Ideally, it should be an area of interest, an area of competency, and an area with prior exposure. You should present your idea to your friends, relatives, co-workers, and potential customers to get their impressions, perceptions, and opinions.

2. Do market research and analyze the competition

The following step is market research, which is crucial before engaging in any business. This process entails identifying the extent to which the community will need the products or services you wish to supply. Market research enables you to investigate and learn about the specific industry and determine the size of the market and your expectant clientele.

Next, conduct a competitor analysis to determine your rival companies' strengths and weaknesses. This is one of the most critical tips for defining your selling proposition and avoiding a niche already filled by competition. Further, it can be a versatile instrument for refining and modifying the business concept if needed.

In your market research, include these elements:

1. Demographics: Some of the critical characteristics of your potential customers differ depending on whether you're targeting consumers or other companies. For customers, factors like location, age, gender, marital status, interest, job title, income, and whether they have kids are crucial.
2. Demand: is there a need for your offering?
3. Market size: how large is your target customer base? Will it grow or decrease in the future?
4. Location: where are your potential customers located?
5. Income: what's potential customer average business revenue or household income?
6. Market saturation: Are there similar options that already exist?
7. Purchasing habits: What are the types of products and services people purchase, and how often? How much do they spend?

After defining these elements, start your research using the following steps:

Collect data: There are many accessible sources of data related to demographics, consumers, economy, trade, and the proliferation of diverse industries that the U. S. government can access. Some of these are the:

• Census Bureau,
• Bureau of Labor Statistics
• Federal Reserve
• Bureau of Economic Analysis

Furthermore, you can also refer to research and consulting companies' reports, publications, articles, releases, and popular media.

Evaluate competitors: To understand the competition, do a competitive analysis to determine their market strengths, weaknesses, shares, entry barriers, and possible opportunities for your company. Look into their websites, physical stores, and social media platforms. It's also recommended that customer feedback on sites like Trustpilot or Yelp be reviewed to gain insight into their actual performance compared to what they promise. 

Talk to your customers: Once you have the initial data, engage with them directly to gain insight into their needs and preferences. It's not necessary to use a costly research firm; instead, use your social media, LinkedIn, community, and network to conduct interviews, surveys, and focus groups. Ensure you reach a large group to ensure your samples mirror your target audience information to avoid skewed results that could channel your company in the wrong direction.

3. Create a business plan

A business plan guides you on structuring, financing, running the market, and expanding your business. It communicates your vision to your partners and investors. Although there's no specific formula for developing a business plan, it should outline vital details and emphasize your company vision. Remember, the more detailed your business plan is, the more precise your goal.

Here are crucial elements to include in your business plan:

1. Executive summary: Information about your business, including its name, the product or service you will offer, straightforward information, and why the business will succeed. Finish this one as much as you possibly can so that you do not fall into the trap of getting sucked in by the details too readily.
2. Company description: Elaborate what your business does, the challenges you intend to solve, target customers, your competitive advantages, and the strengths that will lead to success.  
3. Mission and goals: Include a brief statement of your mission and objectives and how you plan to achieve them within the next five years, and as a rule, it should not exceed 100 words.
4. Products and services: create a detailed description of what your business intends to do, how it will satisfy the markets' needs, and if it wants to protect its intellectual property, such as copyrights and patents.
5. Market analysis: Apply your research to describe the target audience, the size of your market, how this type of business can succeed, and key economic indicators. Also, look at the competitors.
6. Organization and management: Explain the business structure and include the company's organizational chart to show owners and hierarchy within the business.
7. Operational budget: Submit a financial plan that includes startup and running expenses like legal fees, machinery and equipment, license and insurance, employees' wages, and marketing.
8. Marketing: Explain how you will establish and attain your business objectives, acquire customers, and increase your followers. Include what advertising channel, both online and offline, you intend to adopt, the strategies for promotions, and the sales.
9. Financial objectives: Provide a financial prediction on the sales levels for the next one to five years. Mention major expenses you would incur and the break-even analysis. You can use SCORE templates for industry data if the information is unavailable.
10. Appendices: Make sure to scan any pertinent documents and attach them to the presentation for the potential partner or investor to view, such as financial documents, Product specification details, references, and licenses.

4. Have an exit strategy.

Having an exit plan is vital, especially when approaching financiers. It shows them how you intend to sell the business or transfer ownership when, for instance, you are exited or retired. It is also helpful in ascertaining that one is in a position to get the best value once the exit time comes. The right approach depends on your goals and situation, but options include:

1. Selling the company to a new owner
2. Liquidating assets
3. Transferring business to family members
4. Shutting down

5. Choose business structure

Choose the proper legal structure or business form because they affect your taxes, kind of registration, level of personal responsibility, or the way to obtain funds.

Some structures are pass-through entities, meaning profits and losses are reported for the owners on their individual tax returns. Other structures allow the proprietors to operate unincorporated businesses without forming with local, state, or federal authority.

Here are the primary business structures in the US:

1. Sole proprietorship

A sole trader is an unincorporated pass-through company run by one owner who is wholly liable financially. When you own your own business, you are a sole trader. You can also have a different business name by filing a trade name, fictitious business name, or "DBA" with the state.

Pros

• Easy to form
• No additional paperwork during incorporation with your state
• Total control of your company

Cons

• You are liable for business debts
• Challenging to raise capital
• The company may have a limited lifespan

2. Limited liability company

An LLC is its own legal entity that provides limited liability to all members and has pass-through taxation. This business structure must have a registered agent.

Pros

• Offers members liability protection
• Easy to set up
• You can incorporate an LLC as a single-member LLC

Cons

• Unlike sole proprietorship, you need to file paperwork with your state regularly.
• You cannot issue stocks
• You must pay your state's annual fees

3. General partnership

A general partnership (GP) is an unincorporated business entity consisting of more than one person, with each partner having joint liabilities.

Pros

• Easy to form
• Default business entity
• Pass through taxation
• Equal rights distribution

Cons

• Potential personal liability
• Easy dissolution
• Difficult funding process

4. Limited partnership

Limited partnerships (LP) have two or more shareholders, with only one having the legal responsibility of fulfilling the partnership debts out of their personal wealth, known as the general partner. In contrast, the others are known as limited partners.

Pros

• Limited partners enjoy personal liability protection
• Pass-through taxation
• Easy to create and report
• Limited partners don't pay self-employment taxes

Cons

• Unlimited personal liability
• Limited partners have no right to make management decisions
• Difficulty transferring ownership
• Less flexible when changing managerial roles

5. Limited liability partnerships

LLPs are business entities formed by two or more partners, and all partners have limited liability. Professionals like lawyers or doctors mostly undertake these businesses.

Pros

• Partners enjoy limited liability for actions of the LLP
• Easy to form with less paperwork
• No limited number of partners 

Cons

• Can't issue stock
• Partners must actively take part in the company
• Partners are personally liable for LLP malpractice claims

6. Corporation 

A corporation also protects your other assets from business liabilities in a way an LLC also does. Taxing corporations have two choices: the C corporations and the S corporations. When deciding on an S Corp formation, small corporations can enjoy passing through taxation if it meet the requirements set by the IRS.

On the other hand, large and startup businesses that intend to source for venture capital usually opt for the C Corp taxation.

Pros

• Liability protection to owners
• Unlimited corporation lifespan
• Unlimited number of shareholders

Cons

• Shareholders can have limited liability
• Costly and complicated to set up
• Subject to double taxation

Before settling for one of these business structures, discuss it with your accountant or attorney since each structure has tax treatments that could affect the bottom line.

6. Choose business name

Choosing the right name for your business is essential since it represents the business brand, offerings, and values. Reflecting on your mission statement may assist you in getting an ideal business name.

Try the name out before using it for the final decision. Its pronunciation and spelling should be clear in another language and not sound vulgar. Also, ensure the name isn't trademarked or looks like a competitor's trademark. Find out if the domain name is available, and double-check the spelling.

If business registration is not mandated, it may be advisable to register your name for protection purposes. This can be done by selecting an entity name, filing for a federal trademark, or a website domain. You can also claim relevant social media accounts to prevent competitors from occupying them, even if they are not actively used initially.

7. Register your company

Again, depending on the location and type of business, not every business has to be registered. As a rule, sole traders and general partnership trading businesses do not need to register, inasmuch as they trade under the individual's name.

Most limited liabilities, limited partnerships, limited liability partnerships, and corporations must register in a state of operation. Before registering, you must designate a registered agent to accept legal papers for your business. The agent should be from the same state where you are registering; it is not mandatory to hire one, but you can do it yourself.

Incorporated companies require a federal tax identification number (EIN) to pay taxes. Registration rules and fees vary from state to state; refer to the SBA website to learn your state's specific laws.

8. Get licenses and permits for your business

All businesses don't need special licenses or permits to start operating. Federal licenses, such as agriculture, fisheries' aviation, or transportation, are essential if your business is under federal control. The SBA also lists all the issuing agencies and the respective regulated industries.

In some cases, other licenses and permits are needed at the state, county, or local level for particular economic activities, such as restaurants, retail, construction, farming, and plumbing. Visit your state, county, and local websites to determine the business's necessary permits.

9. Put your finances in order

Here is how to do that.

1. Open a business bank account

 prevent the mixture of business and personal money, so start a business bank account. You will require the name you want to use for your business and your business's tax identification number (EIN). It is an account that will process all business activities and is mainly needed when applying for a business loan or credit.

2. Hire a bookkeeper or use accounting software

it is recommended that any business that deals with products have accounting software with functionality in tracking products. It should include ledger transactions, generate income statements, and be able to handle payables or receivables. Some software also offers bookkeeping functionalities, such as invoicing and tax computation. Alternatively, you can opt for online bookkeeping services if that's your preference.

3. Determine your break-even point

Some expenses you will need to set aside are supplies, professional services, office space, licenses, wages, etc., before sourcing startup capital. As the business might not be profitable early, you should overestimate the costs and ensure the company is covered by at least half a year.

10. Fund your business

Opening a business may not require much capital; however, you must have upfront costs. Your business plan budget shows you how much you will need to spend. You can use Self-funding, although it is costly and risky if you haven't invested much money. Here are ways to secure business initial funding:

1. Investors: These are people or firms who agree to finance your business according to the business plan that you present to them in return for equity interest. It is thus essential to make sure that you read their terms and conditions to avoid losing control of your business.
2. Loans: Banks grant credit, believing the borrower will repay an amount plus interest. If you want a small business loan, be prepared to present good credit, sound business plan, and assets. If you ever require an SBA-guaranteed loan, SBA's Lender Match can help.
3. Crowdfunding: Many people invest a small sum of money into your business in exchange for future rewards, not equity. However, it is worth noting that most crowdfunding platforms work under a model where they take a certain percentage of the total amount of funds you are collecting.
4. Grants: Many dollars originate from government departments, non-profit organizations, and businesses that provide grants that should be repaid, but they restrict how the funds are used.

Grants exist for underrepresented groups, such as women, veterans, and racial and ethnic minorities, to encourage diversity in business ownership. If you are looking for grants, search GrantWatch, the government grants database, and the Economic Development Administration.

11. Get insurance cover

It is advisable to have insurance in business, even the one being run from home with no employees involved. The kind of coverage you need depends on the type of business you're conducting and its risks. As your business expands, you need to extend the coverage. All the states mandate workers' compensation insurance if you hire employees.

Contact an insurance agent to determine the need for insurance coverage. Independent agents can conduct research and find the best rates and policies from the various insurers.

Let's explore different insurance types and what they cover:

12. Get business tools

You need tools to run your business smoothly and make working conditions easier. With the ideal tools, you can easily automate tasks, avoid errors, and help you save time. Here are some tools to consider:

1. Accounting software: This software assists you in managing your funds as part of the business by tracking income, preparing reports, and taxing—for example, QuickBooks.
2. Project management software: Enables one to schedule and supervise tasks, assign resources for specific projects, and keep track of employee performance, e.g., ClickUp.
3. Customer relationship management (CRM) software, such as Zoho CRM, helps schedule customer meetings, manage sales processes, and check routine tasks, such as customer service follow-ups.
4. Credit card processor: You can receive money directly from clients using their credit cards, e.g., Stripe.
5. Merchant services: This include processing clients' money, depositing the payment into your business account, and allowing recurring customer payments, such as Square.
6. Point of sale (POS): A tool to manage customer money, integrated into programs such as accounting software, e.g., Clover.
7. Email hosting enables you to establish business emails using your preferred domain name. A good example is G Suite Software.
8. Virtual private network (VPN): This ensures that business organizations can access the Internet securely and privately, which is vital for companies dealing with sensitive information, e.g., NordVPN.

13. Advertise your business

Since you already have your marketing strategy in your business plan, you should put it into action:

1. Build a brand: Your brand is who you are and should be applied correctly throughout web platforms, ads, emails, and social media accounts.
2. Create a website: Having a presentable, professional, and easy-to-navigate website is paramount, especially when showcasing products or services offered. Provide information about your business, how clients can reach you, and your social media accounts. A range of website platforms allows for creating simple websites, even if you do not have programming knowledge like Wordpress.
3. Design a logo: Hire a graphic designer to create an attractive logo representing your business's values. If you don't want to hire a designer, you can use economy sites with free templates.
4. Optimize your website: Use relevant keywords to enhance the site's SEO, increase its ranking in search results, and attract a larger audience.
5. Advertise: you can target your audience by running promoted posts on social media and paid advertisements in local newspapers and community apps. You can also use commercials and printed materials.
6. Ask for reviews: One recommended strategy for getting better reviews is asking customers to provide reviews. Ensure you feature the best ones on your website and other social media platforms.

14. Hire a team

You may need to employ people to help operate your business at the initial stage or shortly after commencing it. Although adding employees increases costs and affects your new business, hiring staff leads to long-term business growth.

When hiring employees, consider the following:

1. Be practical about hiring: Identify the staff you need to start the business and the people you will require to run it efficiently. Check which roles are missing and then build around these gaps.
2. Craft clear job descriptions: Compose detailed adverts for available positions, with details on the candidates' responsibilities, needed skills, and experiences, among other things. Stress that it is a startup company that appeals to people passionate about creating something from scratch. This assists in eliminating unsuitable candidates.
3. Rethink interviews: You might not get the best person for the job during a traditional interview. You should apply real-life situations, a friendly encounter, or an assessment of skills to determine compatibility.
4. Offer competitive packages: Find the average wage rates for such positions in the industry and region. Also, it offers non-financial rewards to encourage employees, such as flexible work hours, work-from-home, and growth opportunities to retain talent.

Form Your LLC with Foundeck Today

Foundeck offers a range of fast and efficient online company formation services, allowing you to register a business structure of your choice quickly from anywhere and keep it compliant. To get started, kindly contact us here.

Winding Up

The steps mentioned above provide you with a path to start your business. However, every entrepreneurial journey is different, and you may encounter unique challenges. Don't worry, it's part of the journey. Success in every business requires time, patience, and effort. Putting in work is the best way to achieve your financial freedom and goals. Kindly contact one of our Foundeck experts here if you have any questions about how to start a business in the USA.