How to Start a Business in The USA?
Starting a business in the US is the first step toward building a global brand. Take a look at famous companies such as Google, Facebook, Twitter, Airbnb, and Uber – they all started in America before expanding globally. Then there are companies like Uniqlo which actually began its operations overseas but became an international brand after seeing success in the United States. So what makes the US an ideal place to start a business?
Currently, America is the largest economy in the world with a favorable economic environment. If you set up a business in the U.S., you get direct access to nearly 336 million potential customers in America.
Becoming a US-based company will also give you access to new markets in 20 countries America has free trade agreements with. Moreover, you enjoy enhanced legal protections, lower tax rates, and various other advantages for your company.
Table of Content
- 11 Steps to Guide Starting a Business in The United States of America
- Find The Right Business Idea
- Conduct Research About The Local Market
- Make a Business Plan
- Select Your Business Location
- Choose Your Legal Business Status
- Brainstorm Your Business Name
- Register Your Business and Get an EIN
- Apply for Relevant Licenses and Permits
- Open a Business Bank Account
- Perform a Break-even Analysis
- Fund Your Business
- Concluding Remarks
11 Steps to Guide Starting a Business in The United States of America
Despite the many advantages the country has to offer, starting your own business in America can be a lot of hard work. But if you can just divide the entire complex process into essential steps, you will find it easier to start your own company.
This is what the scope of this article is all about. Here we’ll describe an 11-step checklist that will help you, from choosing the right business concept to making a business plan, launching your company, and funding it.
Let’s dive in.
1- Find The Right Business Idea
Before anything else, you’ll need to come up with the right business ideas. Have you taken any business advice in the past? You would know that most people tell you to monetize what you’re passionate about. But they usually miss out on two important elements.
First, the business you think up should be profitable.
And the second thing is, it should be something you’re extremely good at.
Moreover, the type of business you start depends a lot on how much time, effort, and money you’ll be able to invest.
If you do not have a great new business idea and what it entails, it’s best to answer the following questions:
- What are you passionate about?
- What you don’t like to do?
- What is your expertise?
- What’s that goal you’ve always wanted to achieve but haven’t been able to because of the lack of resources?
- What do people ask you for guidance on?
- What are things you can do for people better than anyone else?
Answering questions like these should help you figure out your business idea.
It is also possible that you already have a business concept. In that case, evaluate it to see whether you’ve expertise in it and if it has the potential to generate enough profit. Also, make sure that your idea is unique. Because a unique idea will help eliminate or significantly counter competition in the market.
2- Conduct Research About The Local Market
It could be very risky to start a business in America if you don’t know much about the local market and competitors. Therefore, it is vital to do thorough research and get to know your target market.
In the primary research, you should learn about what consumer demands are. Find out about consumer habits and expectations. Stay away from past data at this step. Rather, you should reach out to your potential customers and obtain data directly. For this purpose, you use surveys, questionnaires, and even interviews to know their demands.
Experts suggest that you should not survey your friends and family. But if they are your target audience, you can. Remember the difference between people who actually buy and people who claim they will. You certainly don’t want to put so much faith in what people say, develop the product, and then fail when you try to sell them the product.
After the primary research is over, you can do secondary research. At this stage, you can use census data and other helpful sources of information to gather data. Make sure you study, compile, and analyze the existing data in ways that fit your needs.
A SWOT analysis assesses four aspects of your business. These aspects are strengths, weaknesses, opportunities, and threats (SWOT). Conducting this analysis should help you determine whether your idea or product will perform well in the market or not. You might come across certain weaknesses in your business idea. Similarly, you may also find some opportunities to improve a product one of your competitors is offering.
Trends and Local Regulations
Your market research should cover the latest trends in your domain. Plus, you must also be aware of administrative procedures and regulations in the market.
3- Make a Business Plan
A business plan plays a vital role in creating any new business. It’s a dynamic document that describes in detail the goals, objectives, industry standing, operations, marketing ambitions, and financial projections of a company.
A good business plan not just outlines the high-level dreams and hopes you may have, but also the short-term & long-term goals and other key elements – such as budget – you may need to start, manage, and grow your business. You can use your business plan to attract and convince potential investors and financial institutions. Even if you don’t need any funding, you can utilize your business plan to add details and notice possible problems in your business idea.
When creating your business plan, make sure to include all or some combination of the following sections:
It briefly describes what your business is, its goals, and methods to achieve those goals.
It tells the reader about your company like what problem it solves and why your idea is the best.
It includes details such as the target market, its size, growth rate, trends, etc. to examine your competitive position.
Organization and Management
This section explains the structure of your business and also tells who will be running it.
Product Line or Service
Write about what product or service you offer to consumers. Explain how your offerings compare to existing competitors.
This section details how your business will attract and retain consumers.
Outline how much funding you will require if you’re asking for it. Specify whether you need equity or debt, what terms shall apply, and the duration.
This includes financial projections for the next 5 years. The aim here is to reassure the reader that you’re a stable business and will succeed.
4- Select Your Business Location
This is one of the most important considerations you’ll make. Because the city, state, and neighborhood you select to establish your business in will have a direct impact on the taxes you, what zoning laws and regulations apply to you, and what licenses and permits you need to seek.
It’s true that your business location will largely depend upon the location of your intended audience, business partners, vendors, and your individual preferences. But you should also pay attention to the associated costs, benefits, risks, and constraints of various government agencies.
The place you pick to start your business will help determine costs such as standard salaries, rental rates, property values, utilities, government licenses, fees, business insurance rates, and more.
Similarly, zoning laws might also help you choose the right location. In general, the neighborhoods are either classified as commercial or residential. So, zoning ordinances in your area can restrict or completely ban your business, Therefore, it’s always a best practice to get in touch with the city planning department. They will tell you about local zoning requirements based on which you make sure you conform to them.
Moreover, it is also important to understand what the tax environment looks like for your city, county, and state. The tax landscape in an area will define your property tax, sales tax, income tax, and corporate taxes.
5- Choose Your Legal Business Status
The legal business structure you choose will impact everything from taxes to daily operations, your personal liability, and more. If you’re going to start a business in the USA, you should know it has 15 legal statuses. Following are the three most common of them all:
Limited Liability Company (LLC)
This is widely popular and for good reasons too. An LLC status will actually limit your personal responsibility for business liabilities or debts. The ease of setting up a business entity and attractive taxation rates are some other advantages of an LLC structure.
Just like LLC, C-Corporation offers you liability protection. Moreover, it consists of single or multiple shareholders. The liability of all shareholders is limited to what amount they contributed.
The sole proprietorship is ideal for owners who want to start a solo business in the USA. It’s relatively easy to set up and gives you complete control of your business. However, it does not offer you liability protection.
6- Brainstorm Your Business Name
Picking a perfect name for your business is not easy. You’ll want something that is unique, easy to remember, and most importantly, suggests the products or services you sell. Your brand name should comply with state laws. It should distinguish your company from the competition.
The spelling and pronunciation of your company should be simple. Moreover, you can’t pick a business name that a registered company is already using. Rather, it should distinguish your company from the competition. If available, you can select the same name as your domain. It will protect the website address of your business.
7- Register Your Business and Get an EIN
Once you’ve settled on a perfect business name, you should protect it. Here you will file forms with the business agency in your state, generally the Secretary of State. During the process, you will need to hire a registered agent service. They will accept legal documentation on your company’s behalf.
Also, you will need to submit a filing fee. Then you will receive a certificate from the state. This certificate can be used to apply for appropriate licenses, business bank accounts, and a TIN or tax identification number.
In the next step, you can apply for an EIN or the employer identification number. Except for sole proprietorships having no employees, all other businesses must possess a federal employer identification number. Applying for an EIN is easy. The Internal Revenue Service (IRS) provides this as a free service. Submit your EIN application to the IRS today and they will issue your EIN immediately (normally within minutes).
8- Apply for Relevant Licenses and Permits
In order to operate, most businesses require a mixture of state, local, and federal licenses. The type of legal requirements you may need to comply with depends on your business category and jurisdiction. For this reason, you will have to get in touch with the local government office. They will provide you with licensing information that applies to your business.
You must also check with your state or city to know whether you require a seller’s permit. A seller’s permit, if required, will authorize your business to charge customers the sales tax. In addition to the seller’s permit, it has various other names such as resell permit, reseller permit, resale permit, state tax ID number, and more.
9- Open a Business Bank Account
Once your business starts spending or accepting money, you should apply for a business bank account. The most common types of business accounts involve a savings account, checking account, merchant services account, and credit card account.
When opening a business bank account, you will have to provide your company name along with your federal EIN. You can use this business account to invoice customers, pay suppliers, and more.
With a business bank account, you will cherish the following perks that a standard personal bank account does not offer:
Now your customers don’t need to check out to you directly. Instead, they can pay you using their credit cards. With a business bank account, you will also be able to authorize your employees so that they can tackle everyday banking tasks on your company’s behalf.
Having a business bank account helps to separate your business funds from your personal finances. This ensures limited personal liability protection.
With business banking, your company can get a line of credit. This gives your company access to money for use in emergencies or when it needs new equipment.
Your company can use credit card accounts to make significant startup purchases and build a credit history.
10- Perform a Break-even Analysis
You need money to start a business. But how will you gain insights into your startup costs? Well, performing a break-even analysis is one way to do this.
A break-even analysis is basically a financial calculation. It compares the total cost of starting a new venture to the unit sale price. The resulting figure is the break-even point. It gives an idea about when your business will start making money.
For this, you need to create a list of all your required physical supplies and evaluate the cost of hiring any professional services. Similarly, you should be aware of what you will pay to get appropriate licenses and permits. Other costs you need to calculate could be related to real estate such as your office space. You can also include any payroll and benefits expenses, if applicable.
Remember that your business may take years before it starts making a profit. So, it’s good to overestimate the costs of starting your business. Experts suggest you should have enough cash available to cover expenditures of six months of operation.
After you have estimated your overall startup costs, it’s time to determine a financial result (break-even point) that shows neither loss nor profit. The formula to calculate this result in terms of sales dollars is “Fixed cost ÷ Contribution margin”.
To find out the contribution margin, you should subtract the cost to make a product from the total sales revenue.
As an entrepreneur, you can use this formula as a tool to know the minimum level of performance required for your business to refrain from losing money. This formula also enables you to understand where your profits actually originate from. Hence, you can set your production goals in an appropriate manner.
11- Fund Your Business
Once you know how much money you will need to start a business in the USA, it’s time to consider your funding options.
Now funding comes in two categories. You can either rely on internal funding or external funding.
The primary form of internal funding is self-funding or bootstrapping. In this case, you finance your company by leveraging your financial resources. This option comes in various forms. For instance, you can use your savings accounts or turn to your friends and family to bring in the capital. You may also tap into your 401(k) funds for this purpose.
If we talk about the benefits of self-funding, it gives you complete control over your business. But on the flip side, you put all the risk on your own shoulders using this financing option. So, be very careful to not overspend what you can afford.
External funding includes the following various options.
Angel Investors – If you need a significant amount of money upfront to start a business, you should attract an angel investor. An angel investor is interested when they find out that your early-stage company is making money or has the potential to do so.
Venture Capital – Venture capital investors generally focus on high-growth businesses. They may offer you venture capital in return for an active role or ownership share in your company.
Crowdfunding – You can also start an equity crowdfunding campaign. This will help you raise smaller amounts from multiple people.
Business Grants – These are similar to loans but you don’t have to pay them back. Options include women-owned business grants, grants for minority-owned businesses, and more.
Business Loans – For financial assistance, you can also apply for small business loans from banks or other alternative lenders.
If you want to start a business in the United States, you need thoughtful planning and follow the above-mentioned points at the very least to get started. But your job does not end here.
For long-term success, it’s essential that you make some additional considerations as well. For instance, you can buy insurance for your business, market and advertise yourself, and scale your venture.
Similarly, you can get professional translation services from CCJK when required. You may need our services to translate legal contracts, market surveys, licenses, permits, and various other documents. Since the USA is a great melting pot, we will help you communicate effectively with your clients, vendors, and partners in their native language.
This pretty much sums up our guide on how you can start a business in the USA. We wish you the best of luck on your remarkable entrepreneurial journey. And hope that your business thrives in the vibrant American business ecosystem.
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