9 Things To Know Before Starting A Business

Entrepreneurs are often overwhelmed by state and federal laws, entity structure, financing, operations, legal compliance, and all the paperwork that comes with it. None of it is simple. Aspiring business owners need a step-by-step list of the essential things to know before starting a business.

Want to transform your great idea into a profitable company? Today is the jumping-off point. If you can achieve steps one to nine, you know how to work hard and follow through. Success awaits.

The odds of success are better than you think

You might have heard this statistic thrown around: Half of all businesses fail in the first year.

Like many statistics on the internet, this one is made up. The truth is around 20% of businesses fail in the first year, according to the U.S. Bureau of Labor Statistics¹. The situation is not quite as grim as people make it out to be.

Though as the years pass, survival gets harder: 45% of businesses fail during their first five years, and only 25% of companies make it to 15 years.

The path to lasting success starts with diligent preparation and research.

Step #1: Research your market

You’ve got your idea for a business. Now it’s time to see how realistic it is.

Conduct thorough market research into your field and study the demographics of potential customers and clients.

Market research helps you find opportunities in your market and get information on consumers. Professionals recommend that you gather demographic information of target customers, explore the opportunities and limitations inherent to your market, and conduct a competitive analysis.

A big mistake small business owners make is spending lavishly to conduct surveys and hold focus groups. For a start-up business, focus groups are far too expensive. You’re better off looking at online behavior.

As you research, remember that your product or service must be differentiated from the competition. You need to have a unique value proposition and be able to express it in clear terms to your customers. (Easy, right? Not at all. Just keep at it.)

Step #2: Create a business plan

Investors need assurance that they’ll see a return on their investment, and you can use your business plan to let them know your company is worth funding. It’s also an opportunity to get ahead of potential problems and address vital and challenging questions that may be on investors’ minds.

Your business plan is instrumental in securing funding and bringing on partners. It’s the first document potential investors will ask for because it provides a bird’s eye view of your business development and management approach.

A well-crafted business plan is a long-term guide to success

Use your business plan as a roadmap for structuring, operating, and expanding your new venture. If you do it right, your business plan will be helpful to consult as you move through each phase of launching and managing your business.

Creating traditional and lean business plans

Most business plans fall into one of two categories: traditional or lean. Traditional business plans are more common and go into greater detail. Expect to write around 15 – 20 pages. Lean business plans are shorter and focus on articulating only the most important points of your plan. They are typically only one page.

My advice? Create both.

Different investors have different expectations. Some investors are family and friends. Others are not your friends by a long shot. Let’s say you create both, but the lean plan is all you use. Don’t despair.

The legwork you put into creating a traditional business plan gives you the knowledge, skills, and confidence to talk about your business at a moment’s notice. Who knows when you’ll run into an angel investor?

There are nine components of a traditional business plan

(1) Executive summary

Start with an engaging introduction that explains the inspiration for and validity of your business. Include the problem you will solve, define a target market, and provide relevant financial information.

(2) Company description

Next, move to a top-down overview of your business’s plan for success. Include your goals and how you plan to achieve them.

(3) Market analysis

Here, you should discuss your position in the market and how you stack up against competitors. Go in-depth on your target market, market size, and growth rate. Be sure to include a competitive environment assessment.

(4) Organization and structure

Here, you will define an organizational hierarchy, risk management strategies, and who will be on the management team. Briefly write about their qualifications.

(5) Mission and goals

This section contains a mission statement and details what the business wishes to accomplish and the steps to get there.

(6) Products, goods, or services

Here, you’ll form the foundation of your company’s operations with respect to your product. Explain your product or service, including how it’s made (the product) or the method and delivery of your service. Include direct and indirect costs, associated expenses, and how you’ll bring the product or service to the market.

(7) Background summary

All the research you did in Step #1 comes in handy here. Briefly summarize the data you found on your business and industry.

(8) Marketing plan

Write about how you’ll promote your business and how much of your budget will go to marketing.

(9) Financial plan

This final section is the core of the business plan. It should include a proposed budget, projected financial statements, such as income and cash flow statements, and a balance sheet. Include five years of projected financial statements. If you’re going to include a funding request, this is where you put it.

Step #3: Consider financing

Now, you have to find the money for your business. Your business plan will be valuable in meetings with investors and banks.

Financiers will have a variety of questions for you, so go into meetings prepared to answer three big questions:

  • How much money do you need?
  • How long do you need it for?
  • What’s your exit strategy?

Here, exit strategy refers to how you plan to transfer company ownership when you leave.

Have well-thought-out answers to these three questions, and you increase your chances of securing financing.

But don’t forget, you will need to be prepared to answer more specific financial questions:

  • Do you require a loan to get started?
  • Are you willing to exchange a percentage of your ownership for capital?
  • Will you leverage home equity or credit cards?
  • How long will it take for your business to generate sales?

You don’t need to accept financing from every investor

Don’t be afraid to say no. It’s vital to explore every possible business loan and financing option and make an informed decision on how to finance your new business.

Consider a small business loan

If you want to retain complete control of your business but don’t have enough funds to start, consider a small business loan.

Once you have your materials ready, contact banks and credit unions to request a loan. You’ll want to compare offers to get the best possible terms for your loan.

SBA programs offer funding options for eligible businesses

The US Small Business Administration also offers several investment programs.

  1. Small Business Investment Company (SBIC)
  2. Small Business Innovation Research (SBIR)
  3. Small Business Technology Transfer (STTR)

Go ahead and see if your business is eligible. You may be surprised.

Step #4: Choose a business structure

Business structure affects how much you pay in taxes, your ability to raise money, the paperwork you need to file, and your personal liability. To do business legally in your state, you must file for incorporation according to the state code. The process of filing for incorporation requires that you select a business structure.

While you can convert to a different business structure in the future, there may be restrictions. This could result in tax consequences and unintended dissolution, among other complications.² Get formation and incorporation right the first time is high on the list of things to know before starting a business.

Stop for a second: I’m a CPA, not an attorney. That means I cannot advise clients to take action on business structure, and I’m limited in the extent, detail, and manner of my consultation.

I won’t say: “You should incorporate as an LLC. I’ll put the documents together.”

I can say: “Here is how I define your business structure. Here are the tax implications that come with your business structure.”

Now that we’ve cleared that up, we can move on.

Sole Proprietorship

Sole proprietorships are the most common legal structure for small businesses. You’re automatically considered a sole proprietorship if you do business activities but don’t register as a business or entity. Sole proprietorships don’t produce a separate business entity, meaning your business assets and liabilities aren’t separate from your personal ones.


If two individuals are starting a business, forming a partnership is a common choice. There are two kinds of partnerships: limited partnerships (LP) and limited liability partnerships (LLP).

Limited partnerships have one general partner with unlimited liability, while all other partners have limited liability. The partners with limited liability also tend to have less control over the company.

Limited liability partnerships are similar but give limited liability to every owner. An LLP protects each partner from debts and liabilities levied against the partnership.

Limited Liability Company

It’s safe to say that an LLC is a business structure whose distinguishing feature is the separation of business liability from personal liability. An LLC is a “pass-through entity,” which means profits pass through the company to the members or managers.

There’s plenty of tax saving potential, but because LLC owners submit personal tax returns for business-related income, they face a stiff self-employment tax. Today, we’re talking about things to know before starting a business. Here’s one: most larger small businesses are LLCs, and there’s a reason why. LLCs are easy. Light administrative work gives you time to focus on scaling operations, building a brand, and prospecting for clients.


A C-corporation (C-corp) is an entity separate from its owners or shareholders. It’s a common form of organization for larger companies, but less so for small businesses. C-corps offer many, many avenues to reduce taxes.


An S-corporation (S-corp) structure allows business income to be passed through to owners and shareholders directly as income, which shields them from corporate tax rates. It avoids double taxation, a drawback of C-corps.


A benefit corporation, sometimes called a B-corp, is a for-profit corporation. They are taxed the same as C-corps but differ in purpose: If you think you’re driven by your mission just as much as you are by profit, you might consider registering as a B-corp.

Step #5: Register your business

Your location and business structure determine how you incorporate and register your business. Most of the time, it’s as simple as registering your business name with state and local government entities.³

If you conduct business under your legal name, registration is unnecessary, at least in Texas. But of all the things to know before starting a business, remember this: never turn down personal liability protection and built-in legal and tax benefits.

Do you need a business license?

Not in Texas. But licensing requirements vary according to the type of business and federal, state, and local requirements. I recommend that you start by checking your city or state government website.

Should you apply for an Employer Identification Number (EIN)?

Yes. You need an EIN to pay federal taxes, hire employees, open a bank account, and apply for business licenses and permits. You can fill out an application online here.

Step #6: Get a business bank account

The merging of personal and business financial activity leads to fiscal confusion, especially as a business grows. It can also lead to legal trouble.

Any small business that wants to be competitive in the marketplace should have a business bank account.

For more help choosing a business bank account, check out my previous blog on the subject. The importance of business banking is one of the top things to know before starting a business. Get your financials squared away first; make money second.

Step #7: Hire a CPA

Choosing a CPA is one of the most important early steps in your business’s lifecycle. It’s not biased. It’s the truth. The first accountant you decide to work with has the power to shape your tax and financials for better or worse over the long term.

I can’t stress enough how much value you’ll lose by reducing your CPA to a pencil pusher. They should be someone you can rely on for sage advice and year-round strategies.

Do I really need a CPA? Curb your skepticism.

You might think you can get by without an accountant. If so, you’re not alone. Almost half of business owners manage their finances and accounting themselves.² But these are micro-businesses, mostly sole proprietors.

If you incorporate as a partnership, LLC, or S-Corp, you need a CPA. That’s the bottom line.

A notable exception: if your business is not bringing in enough revenue to produce a profit, you might not need a CPA. Unfortunately, there’s not a lot of money to keep track of and not much in the way of taxes.

If your business is revenue-positive, avoid the common skepticism about paying for an accountant. The majority of business owners (second year and above) think they’re worth it — 88%, according to one study.⁴

Step #8: Apply for business insurance

Even if your business operates from home or has no employees, you need insurance. The type of insurance required depends on your business and the risks involved.

Insurance packages are available for specific industries — like cleaning business insurance, for example — which includes a combination of coverage types. You can also pick and choose specific coverage that suit you.

  • General liability insurance
  • Commercial property insurance
  • Professional liability insurance
  • Workers’ compensation insurance

Note that some of these, like workers’ comp, may be required by law depending on the state you’re operating in.

Step #9: Grow your business

Now that you’re set up, it’s time to grow. The specific strategies for your business will depend on various factors — that’s where a great working relationship with a CPA comes in handy—receiving specific, actionable advice for growth that matches the reality of your financial position.

To grow your business, you need to expand your customer base and increase revenue. One of the things to know before starting a business is this: there are no free lunches. You’ll need to enhance your product or service, introduce new options, and expand your marketing if you want more customers and revenue.

Future-proof your business with tax, accounting, and business advice in one place

Business is getting faster. Decision-making time is getting shorter. No more playing telephone with your business advisor and CPA. It will be too slow.

That’s why I’m bringing 360𝆩 business advisory services to small businesses, along with our end-to-end tax, accounting, and financial leadership services. Enterprise has it. So should you.

In most cases, I work with companies starting at 1M in yearly revenue, but I’d love to talk to you if you believe your product or service has the potential for growth.

Are you ready to build a future-proof business?

Schedule a discovery call with me today.

Talk soon,
Jeremy A. Johnson, CPA


  1. Table 7. Survival of private sector establishments by opening year. Bls.gov. 2022. Available from: https://www.bls.gov/bdm/us_age_naics_00_table7.txt
  2. Choose a business structure. U.S. Small Business Administration. 2023. Available from: https://www.sba.gov/business-guide/launch-your-business/choose-business-structure
  3. Brown E. 2019 small business finance and HR report. OnPay. 2019 [cited 2023 May 11]. Available from: https://onpay.com/hr/basics/2019-small-business-finance-hr
  4. Marks G. Why in the world are most businesses happy with their accountant? Inc.com. 2015. Available from: https://www.inc.com/gene-marks/why-in-the-world-are-88-of-business-owners-happy-with-their-accountants.html
Meet the Author

Jeremy A. Johnson is a Fort Worth CPA who combines strategic tax planning, accounting, CFO services, and business advisory services into a single, end-to-end solution for growth-stage businesses.

Jeremy writes for small business owners who need actionable information on tax strategy, efficient accounting practices, and plans for long-term growth.

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