How to Start a Small Business: Complete Guide
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Before You File Anything
Most new business owners want to jump straight to LLC formation, but there are several decisions you need to make first that affect everything downstream. The most important is validating that your business idea has a real market. You do not need a formal business plan to get started, but you do need honest answers to three questions: who will buy this, how will they find you, and can you deliver it at a price that leaves enough profit to be worth your time. A weekend of market research on Amazon, Google Trends, and competitor websites will tell you more about your idea's viability than a month of planning in isolation.
Next, figure out your startup costs. Every business has costs before the first dollar of revenue comes in: registration fees, a domain name, inventory or tools, software subscriptions, insurance, and your own living expenses while the business ramps up. Write down every cost you can identify, add 25% for things you will forget, and make sure you can cover that total without financial stress. If you are bootstrapping, the number needs to come from savings, not credit cards. If the total exceeds what you can self-fund, explore business grants or small business loans before committing to the launch.
You also need to decide whether this will be a full-time business or a side venture. The answer affects your structure choice, your insurance needs, your tax obligations, and your timeline. A side business started while you are still employed has lower financial risk but creates complications around non-compete agreements, employer IP policies, and time management. Our guide on starting a business while employed covers the legal issues. If you are going full-time from day one, make sure you have enough personal savings to cover at least six months of living expenses, because most businesses take three to twelve months to generate consistent revenue.
Choosing Your Business Structure
Your business structure determines how you pay taxes, how much personal liability you carry, how you can raise money, and how much paperwork you file each year. The four most common structures for small businesses are sole proprietorship, LLC, S-corp, and C-corp. Most new small business owners should form an LLC because it provides personal liability protection, pass-through taxation (profits are taxed on your personal return, not at the business level), and relatively simple maintenance. But the right choice depends on your specific situation.
A sole proprietorship is the simplest structure and requires no formation filing. If you start selling products or services without forming a legal entity, you are automatically a sole proprietor. The advantage is zero paperwork and zero cost to set up. The disadvantage is that you and your business are legally the same entity, which means your personal assets (house, car, savings) are exposed if someone sues your business or if the business accumulates debts it cannot pay. For an ecommerce business that ships physical products, this risk is real: a product liability claim, a customer injury, or a large chargeback dispute could reach your personal finances.
An LLC (Limited Liability Company) creates a legal wall between your personal assets and your business liabilities. If the business is sued, only business assets are at risk. Formation costs range from $50 to $500 depending on your state, and annual maintenance fees range from $0 (in states like Ohio and Missouri) to $800 (California's minimum franchise tax). The LLC is the most popular structure for small businesses because it combines the liability protection of a corporation with the tax simplicity of a sole proprietorship. Unless you have a specific reason to choose a different structure, an LLC is usually the right starting point.
The difference between an LLC and a corporation matters when you plan to raise investment capital, hire many employees, or eventually go public. Corporations issue stock, which makes it easy for investors to buy ownership. LLCs issue membership interests, which are less standardized and can complicate investment deals. If you plan to seek venture capital or angel investment, many investors prefer to invest in C-corps (specifically Delaware C-corps) because the legal framework is well-established and predictable. If you are self-funding or using loans and grants, an LLC is simpler and usually more tax-efficient.
Tax treatment is the other major factor. Single-member LLCs and sole proprietorships report business income on Schedule C of your personal tax return. Multi-member LLCs file a partnership return (Form 1065) and each member reports their share on their personal return. Once your business earns enough profit that self-employment taxes become painful (roughly $50,000+ in annual profit), you can elect to have your LLC taxed as an S-corp, which lets you take a reasonable salary and receive additional profits as distributions that are not subject to self-employment tax. This can save $5,000 to $15,000 or more per year in taxes for profitable businesses. Our business structure guide walks through every option with examples.
The Registration Process
Once you have chosen your structure, the registration process follows a predictable sequence that works in every state, though the specific forms, fees, and processing times vary.
First, choose and register your business name. Your name needs to be distinguishable from existing businesses in your state, which you can check through your Secretary of State's business name search tool (every state has one online). The name also needs to be available as a domain name, since virtually every business needs a web presence. Check domain availability on any registrar before finalizing your name. If the exact .com is taken, consider whether a variation works or whether you should choose a different name. Securing the matching social media handles at the same time is also worth the effort while those usernames are still available.
Second, file your formation documents with your state. For an LLC, this means filing Articles of Organization (called a Certificate of Formation in some states) with your Secretary of State's office. The filing includes your LLC's name, the name and address of your registered agent, your principal office address, and whether the LLC will be managed by members or managers. Filing fees range from $50 (Kentucky, Mississippi) to $500 (Massachusetts), with most states in the $100 to $200 range. Processing takes one to four weeks by mail, or you can pay an expedited fee (typically $50 to $100 extra) for same-day or next-day processing. Our state-by-state guide has the exact fees and processing times for every state.
Third, get your EIN (Employer Identification Number) from the IRS. This is your business's tax ID number, the equivalent of a Social Security number for your company. You need it to open a business bank account, hire employees, and file business tax returns. The application is free, takes about five minutes online at IRS.gov, and you receive your EIN immediately. There is no reason to pay a service to do this for you.
Fourth, apply for any business licenses and permits required in your state, county, and city. Requirements vary dramatically by location and business type. An ecommerce business operating from home in Texas might need only a sales tax permit and a home occupation permit. The same business in New York City would need a general business license, a sales tax certificate of authority, a home occupation permit, and potentially additional permits depending on the product category. Contact your city's business licensing office or use the SBA's business license finder tool to identify exactly which permits you need.
Fifth, open a business bank account. This is not optional for any business with liability protection. If you commingle personal and business funds, a court can "pierce the corporate veil" and hold you personally liable for business debts, eliminating the entire reason you formed an LLC or corporation. Open a dedicated business checking account, get a business debit card, and route all business income and expenses through business accounts exclusively.
Legal Requirements and Compliance
Once your business is legally formed, you have ongoing compliance obligations that vary by state. Most states require an annual report (sometimes called a biennial report) that confirms your business address, registered agent, and member/officer information. Filing fees for annual reports range from $0 to $300 depending on the state. Miss an annual report deadline and your state can administratively dissolve your LLC or revoke your corporation's good standing, which creates headaches if you need to prove your business is active for contracts, bank accounts, or licenses. Our annual filings guide lists every state's deadlines and fees.
If you sell physical products, you almost certainly need to collect and remit sales tax. Every state with a sales tax requires sellers who meet economic nexus thresholds (typically $100,000 in sales or 200 transactions in the state) to register, collect tax at the point of sale, and file returns on a monthly, quarterly, or annual basis depending on your volume. Sales tax compliance is one of the most complex ongoing requirements for ecommerce businesses because you may owe tax in dozens of states simultaneously. Automated software like TaxJar or Avalara handles the collection and filing for $20 to $100+ per month depending on your volume.
Business insurance is another requirement that new owners often overlook. At minimum, you need general liability insurance ($500,000 to $1,000,000 in coverage is standard) to protect against customer injury, property damage, or advertising injury claims. If you sell physical products, product liability insurance is essential because a single product injury lawsuit can exceed $100,000 in legal costs alone, even if you win. If you have employees, workers' compensation insurance is required by law in nearly every state. Business insurance typically costs $30 to $100 per month for a small ecommerce operation with no employees, depending on your product category and revenue.
An LLC operating agreement is technically optional in most states (only a few states require it), but every LLC should have one. The operating agreement defines how the business is owned, how profits are distributed, how decisions are made, and what happens if a member wants to leave or the business dissolves. Without one, your state's default LLC laws govern these questions, and the defaults rarely match what the owners actually intended. For single-member LLCs, the operating agreement also strengthens the legal separation between you and the business, making it harder for a creditor to pierce the veil.
Setting Up Your Operations
With the legal foundations in place, you need to set up the operational infrastructure that lets you actually run the business. Start with your business address. If you work from home, you can use your home address for most purposes, but be aware that it becomes public record in most states (anyone can look up your LLC's registered address). A virtual mailbox service like Anytime Mailbox, iPostal1, or a UPS Store box provides a commercial address for $10 to $30 per month and keeps your home address private.
Set up a business phone number separate from your personal line. Google Voice (free), Grasshopper ($14-$80/month), or OpenPhone ($15/month) all provide a dedicated business number that you can answer from your personal phone. This keeps your personal number private, looks more professional, and makes it easy to separate business calls from personal ones when you eventually hire someone to handle customer service.
Before launching, understand when you need professional help. A CPA is worth hiring from year one, because tax mistakes in the first year compound and become expensive to fix later. A business attorney is worth a consultation during formation to review your operating agreement, advise on your structure choice, and flag any industry-specific legal requirements. These professionals cost money upfront but save multiples of their fees by preventing mistakes. A CPA who identifies a $5,000 tax deduction you would have missed has paid for themselves several times over.
Finally, set realistic expectations for your first year. Most businesses are not profitable in the first three to six months. Revenue grows slowly at first as you build your customer base, refine your marketing, and work through the inevitable operational problems that every new business encounters. The businesses that succeed are not the ones that launch perfectly; they are the ones that launch adequately and then improve relentlessly based on what their customers and their numbers tell them. Our first year guide covers what to expect month by month.