Starting your own business, either full time or as a side hustle can be a great way to take control of your income. Not only can it help you reach FI faster, but you can pare down a full-time business once you reach you reach FI if you want. A side hustle can decrease the amount of income your investments need to provide. Allowing you to “FIRE” sooner.
But setting up a legal business can be intimidating. If you have a small side hustle making a few hundred dollars a month, you likely just need to keep track of your profits so you can pay your taxes. However, if you want to be more official and really make a go of it, there are some things you can do to optimize your business.
That’s why we’ve created this quick guide for how to start a business.
In this article, you’ll discover the 11 steps that you need to take to make the “owning your own business” dream, a reality. By following the Explore, Organize, and Promote model in this guide, you may be able to get your own small business off the ground faster than you think!
Ok, let’s get started.
The first step in starting your own business is to explore the opportunities that are available to you as an individual and in the marketplace.
How do you do that? Well, it all starts by sitting down out a table with a blank sheet of paper (or an open computer) and conducting an old-fashioned brainstorming session.
1. List Your General Passions And Interests
What things get you excited? What are you good at? What do you spend the most time thinking about?
When you look out into the world, what area do you see that people need help in? What you see in the world may seem obvious to you, but I promise it’s not. We all see the world differently and what is a glaringly obvious problem to one person is a non-event to another. The problems you see are the ones you are uniquely qualified to help fix.
These can all help you come up with ideas for areas that you are an “expert” in. Here are some examples:
- Health & Fitness
If you’re good at using your hands, then a physical trade might be a good option. Write that down.
And if you’re a full-on tech geek write that down too.
At this stage of the game, don’t limit yourself. We’ll narrow things down in step #2, but for now, it’s perfectly ok to be general and broad.
Podcast Episode: Finding Your Side Hustle Idea With Nick Loper
2. Find Your Niche
To explain the idea of finding your niche, let’s pretend that after making your list of passions and interests, you decide to open a business in the “pets” category. That’s awesome! But if you’re thinking of just being another seller of common pet products like leashes, kennels, and treats…stop.
- Your competition will be too high and your profit margin too low.
- You want to search for a product or service with less competition and higher profits.
To do that, you need to “niche down”–a term which means to find a smaller, more precise subset of the market to appeal to.
Let’s Niche Down!
What You Do
To give you an idea what narrowing down a niche looks like in action, check out these significantly more precise pet business ideas:
- German shepherd trainer
- Mobile pet groomer (or if you want to niche down further, become a “fur dying specialist.”)
- Obedience expert (i.e. dog or cat whisperer)
- Doggie day care operator
- Pet competition trainer
If you love to bake, yes, you could open up a generic bakery store. But I like these ideas better:
- French baked goods and pastries
- Cupcakes (or if you want to go even more niche, mini-cupcakes or cake pops)
- Donuts with creative toppings
- Artisanal pies and cobblers
Or, if you want to combine your love for pets and baking, then you could open a “Pet Bakery!”
…Ok, maybe not, but I had to mention it because, yes, that is a thing.
Who You Serve
Another way to niche down your business idea is to choose your customer base. You know the adage “you can’t please everyone?” It’s true; you can’t. So who are you going to serve?
Narrowing your customer base isn’t going to hurt your business. It’s going to help it! Yes, you will push away customers who aren’t an ideal fit for you… that’s good! Because the opposite of that is pulling in customers that are a perfect fit. And that is what you want.
Here are some ideas for a niche customer base:
- Moms or dads
- The elderly
- Restaurant owners
- Car lovers
- Pregnant women
- People who are in the process of moving
- College students
- and on and on…
I could go on forever with categories of people.
There is a commercial in my city for a local lawyer who rides a motorcycle. In his commercials he is riding his motorcycle, he has tattoos and a leather jacket. He’s a biker. If you like motorcycles and you need a lawyer, there will only be one choice! He likely does a steady business with this niche.
Know Your Competition
At this step, market research will also be necessary.
- If your town already has five cupcake shops, then there’s a good chance that niche may already be tapped out.
- But if you only find one mom-and-pop coffee shop within a 10-mile radius of your community, then you may have a real opportunity there.
Do some online research to get an idea of the competition you would face with any of the niches you have in mind.
3. Choose A Name
If you want your business to operate under a different name than your name, then you will need to choose a name–also sometimes known as a fictitious name or DBA (doing business as).
There is no perfect formula for picking out a great name, but “simple and catchy” obviously always trumps “complicated and boring.” Also, check to make sure another business isn’t already using the name in your area.
Once you’ve settled on your name, you can file for a trade name or DBA with the Secretary Of State. DBAs are great because they allow sole proprietors to open business checking accounts, something we’ll discuss later.
If your customers will be writing checks to the company itself you will have to have a tradename and a checking account in the business’ name. You will not be able to deposit checks written to your business into your personal checking account.
Ok, now that you’ve chosen your niche and you’ve decided on your business name, it’s time to start taking the, admittedly rather boring, but necessary steps to organize your business.
During this step, there are two goals you want to accomplish:
- Make sure your business is legal (i.e. audit-proof).
- Implement efficient systems for tracking payments and expenses.
4. Decide On Your Business Structure
There are four main structures that you can choose for your business:
- Sole Proprietorship
- Limited Liability Company (LLC)
- Corporation (S-Corp, C-Corp, or B-Corp)
If you are just starting out, I recommend beginning with a sole proprietorship. Establishing one is absolutely free, and you simply report your business’s net profit or loss on your personal income tax report. Easy.
Do keep in mind, however, that as an owner of a sole proprietorship, you are personally responsible for any debts or lawsuits your business incurs. LLCs and corporations protect you from this liability but do require more paperwork and cost more money.
To set one up Google “How to start an LLC in [your state]” and you will get the information you need. Look for your state’s website, it should be a .gov. It will likely be on the Secretary of State or Corporation Commission website.
For example, in Arizona, I had to fill out a form called “Articles of Organization” and submit it to the Corporation Commission. I also had to put an ad in a newspaper stating the formation of the LLC. I was a little nervous about placing an ad in the newspaper, I’d never done anything like that before. But when I called and said what I needed the people at the paper knew precisely what to do.
Related: Books To Kick Start Your Side Hustle
5. Obtain An EIN
An EIN (Employment Identification Number) is a nine-digit number that the IRS assigns to businesses for tax filing and reporting. It’s basically a social security number for the business. You are required to obtain an EIN if you set up your company as an LLC, or as an S, B, and C-Corp.
If your business is structured as a sole proprietorship, you are not technically required to get an EIN, but you probably want to anyway because without one you can’t hire employees in the future.
Getting your EIN from the IRS is free and easy. Just fill out your EIN Application, and you’ll be on your way. Once you have it keep it handy! Don’t lose it. You’ll need it quite often.
6. Open A Business Checking Account
The first accounting baby step you need to take is to open a business checking account. You will need your EIN and Articles of Organization from the state.
Having a separate checking account for your business is essential. It will allow for proper accounting of your business income and expenses. But you must refuse to ever combine your personal and business account.
All business income should funnel into your business checking account, and all business expenses should be paid from this account. This is important for both taxes and just being able to see if your company is actually making money!
7. Open A Separate Savings Account For Tax Withholding
Once you start paying yourself an income from your business, you need to withhold a portion to cover the self-employment tax that you will be required to send to the IRS each quarter.
If you withhold 25% of every penny you take home for taxes, you should always have more than enough to cover your quarterly tax liability.
This means if you are going to pay yourself $3,000 from your business checking account, $750 immediately goes to your tax savings account, and the $2,250 leftover is what you get to keep and spend.
8. Choose An Efficient Invoicing And Accounting System
It doesn’t matter how great your business is if you don’t get paid or if you’re operating in the red every month. That’s why invoicing, and accounting is so important.
When you’re just starting out, you can use Microsoft Excel or Google Sheets to make perfectly acceptable invoices for free and your business checking account checkbook can be your stop-gap accounting system.
However, do-it-yourself invoicing can get time-consuming, and you’re probably going to eventually want an accounting system that offers more features and better insights into your business.
Here are a few invoicing and accounting software companies that are popular with small business owners:
Now that your business is up and running, you need to find customers! That’s where promotion comes into play.
Promoting your business through strategic advertising and networking can be what elevates your business from a side hustle to your full-time job.
Below, you’ll find steps to help you get the word out about your business online and in your community.
9. Create A Website
It’s not as hard as you may think to get a website up and running. If you want the max amount of features and flexibility, then I recommend taking the time to learn WordPress.
But if you’re looking for simplicity or “drag-and-drop” functionality, then you may want to check out one of the other popular website design builders listed below:
For a more thorough walk-through on how to start a website, check out our guide: How To Start A Blog.
10. Design And Print Your Business Cards
It’s easier and more affordable than ever to design your business cards!
Below is just a small sampling of the many great business card printing shops available online:
With each of these sites, you can upload your artwork or design your card right on their site.
11. Network With Other Professionals In Your Niche
I can’t stress enough how important this is.
- The more people you meet face-to-face in your industry, the better off you’ll be.
- Not only will you have the opportunity to learn from others’ experiences, but you may be able to strike some mutually beneficial business deals.
How do you find other professionals in your niche? Joining trade-specific social media groups and attending trade conferences are my two favorite ways.
If you’ve always been intrigued by the idea of starting your own business but have stayed on the sidelines so far, you can do this thing! It all starts with taking the first step.
If you’ve already taken that first step and have had success starting your own business, we’d love to hear your story. Be sure to comment below or connect with us on social media.