How to Open a Small Business

Co-authored by Christine Michel Carter

Last Updated: January 31, 2023 References Approved

Once you’ve decided you want to start a small business, formulated your business plan, lined up financing, and secured a site, the time will finally come to actually open up shop. While planning a business may present challenges, the actual act of opening a business and bringing the business concept to fruition has its own set of difficulties. To have a better chance of long-term success, you need to get your business off to a good start. Here are a few tips on how to legally establish your business, hire your first employees, spreading the word, and organizing a grand opening.

Part 1

Part 1 of 4:

Legally Establishing Your Business

1
Ensure you have a business plan. A business plan is critical to the success of a business and can be seen as a plan that describes your business, products/services, market, and describes how your business will go about expanding for the next three to five years. It is essentially a "road map" for your business to follow going forward.
- How to Write a Business Plan offers much useful information on the process, such as: determining your potential market and its viability; identifying your business' initial needs and start-up costs; identifying potential investors; establishing your business strategy and marketing plan; and creating a clear, concise document that ends with your "executive summary," in which you essentially "sell" your business to investors and interested parties.
- See the following wikiHow articles for more information on How to Start a Small Business; starting up a small retail business such as a bakery; and the specifics of starting a business in California, for example, among others.
- To make sure you’re ready to open up, consult the U.S. Small Business Administration’s (SBA) 10-part checklist for starting a business.^{[1]
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  U.S. Small Business Administration
  U.S. government agency focused on supporting small businesses
  Go to source} Each part of the checklist is summarized in the following three steps below.
2
Determine the legal structure of your business. Before starting your business and filing the necessary papers, it is important to decide on how your business will be legally structured. Generally speaking, you will be establishing either a sole proprietorship; partnership; corporation; or limited liability company (LLC). There are important legal and tax implications for each.^{[2]
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- A sole proprietorship is owned and run by one person, and there is no distinction between the owner and the business. This means that all the business' profits, losses, debts, and liabilities are your responsibility. Choose this if you are the sole owner and want full responsibility for the business.
- Partnership: A partnership occurs when two or more people share ownership. In a partnership, each partner has equal share (unless specified) in the profits, liabilities, and management of the business. This can be useful in terms of pooling capital and expertise to start the business.
- Corporation: A corporation is an independent legal entity owned by shareholders. Generally, this structure is not appropriate for small businesses.
- Limited Liability Company (LLC): An LLC is similar to a partnership, except members are protected from personal liability for actions of the LLC. For example, if the LLC is sued, the personal assets of the partners are typically exempt. If you are worried about personal exposure to lawsuits or debts arising from your business, this may be a good option.
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3
Form the necessary legal structure. A different procedure exists for forming each one of these structures, and some require more work while others are extremely simple. Details surrounding how to form each type can be located on the U.S. Small Business Administration (SBA) website.^{[3]
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U.S. Small Business Administration
U.S. government agency focused on supporting small businesses
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- Forming a sole proprietorship is most simple, as it involves no formal action. Simply obtain your EIN (described below), establish a business name (described below), and your can include your business income on your personal tax return.
- LLC's, Partnerships, and Corporations are slightly more involved to form, requiring specific paperwork. To learn the details on each, check the SBA website, or contact the SBA.
4
Obtain a tax identification number. Also known as an Employee Identification Number (EIN), the EIN is used to identify your business for tax purposes. Applying for an EIN is simple, and can be done within minutes on the IRS website. ^{[4]
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Internal Revenue Service
U.S. government agency in charge of managing the Federal Tax Code
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- Note that if you are starting a partnership or a sole proprietorship, it is not necessary to obtain an EIN. However, it can be wise to do so anyway. Without an EIN, your business will be identified by your Social Security Number (SSN) for tax purposes. Keeping your SSN private reduces the odds of identity theft.^{[5]
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Register your business name. Unless you are running the business under your own name, such as "John Smith Painting," most states require you to register a "Doing Business As" (DBA) name for tax and legal purposes. Registering a DBA is done with your state government or county clerk's office. Search the specific requirements of your state online.^{[6]
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U.S. Small Business Administration
U.S. government agency focused on supporting small businesses
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- Establishing a DBA name usually just takes minutes to complete, and is especially useful if you have a sole proprietorship. This allows you to have a business name separate from your personal name. When you form a sole proprietorship, the business name will automatically default to your personal name unless you file a DBA.
6
Obtain a business license. The city or county which you operate within will require a business license. Typically, these forms can be found on the website for your city.
- These forms will require your business type, address, # of employees, EIN, and possibly information regarding revenue (estimations will work fine here).
- Keep in mind that licensing requirements often apply to online and home-based businesses as well as typical brick-and-mortar businesses. Requirements do vary according to location, so be certain to contact your local and state government to determine specific requirements.
7
Inquire as to other necessary permits. Unfortunately, each city or county has different permit requirements for businesses. These can include things like "Home Occupation Permits" for home based businesses, "Alarm Permits" if your business requires a commercial alarm, or various alcohol and firearm permits.
- Contact your local government's permitting bureau or similar authority, or seek out the local chamber of commerce or business association for advice.
8
Establish a bank account for your business. It is very important not to mix business and personal finances, as this can lead to issues with the IRS. Having separate bank accounts for business and personal transaction simplifies accounting and makes tax requirements easier to understand.
- To open a business account, simply contact your local bank or credit union.
9
Contact a small business lawyer or accountant for further guidance. While forming a sole proprietorship is relatively simple, if you are forming an LLC, Corporation, or Partnership, it is essential to involve a professional.
- A professional can guide you through which forms to fill out, and can also help you draft important partnership documents. For example, forming an LLC or Partnership involves documents specifying what ownership is attributed to each partner. This must be specified in a legally valid form.

Part 2

Part 2 of 4:

Preparing To Open Your Business

1
Determine employer responsibilities. Before you begin hiring, make sure you have taken the necessary steps to be able to collect federal and state wage taxes, provide employee eligibility verification, and obtain worker's compensation insurance, among others.
- One of your central obligations to ensure that employees are eligible to work in the United States. To do this, you must complete "Form I-9" within three days of hiring a new employee. Completing this form will require you to submit documents to verify your employees citizenship and confirm their eligibility to work in the United States. The form can be downloaded on the U.S. Immigration and Customs website. Note that you do not need to submit this form with the Federal Government, but you do need to keep it on file for three years after the date of hire or one year after the date of termination, whichever is later.
- Make sure to register for Workers Compensation Insurance with your state's Workers Compensation Insurance Program.
- When hiring an employee, they must provide you with a signed Form-W4 before they begin employment, which you must send to the IRS. This allows you to withhold federal income tax.
- Further information regarding hiring and employer responsibility are available on the SBA website (https://www.sba.gov/category/navigation-structure/starting-managing-business/starting-business/establishing-business/hiring).
2
Hire the right people. The first impression is critical for a new small business, and unless you’ll be doing all the work yourself, that impression will be made at least in part by the people you hire.
- Ideally you can find someone who is familiar with the business — someone who has twirled dough if you’re opening a pizza shop, for instance — but even more important is finding a person who is willing and eager to learn. You need employees who want to learn to do things (and represent your business) your way.
- You do have to be willing to let go a little, however. This business has been your baby for a long time, but as you let it out into the world, you’ll need help taking care of it. Look for employees who are eager to contribute ideas and adapt as the business goes through its early growing pains.
- Do your homework. Look over resumes. Call references. Don’t just hire your nephew to make your brother happy. (Wait until your business gets on its feet.)
- Key questions like "Can you provide an example of a problem that you successfully solved?" may offer insights into a potential employee's ambition, ingenuity, and work ethic.^{[7]
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  Research source}. Keep in mind that such questions are common, however, and the interviewee may have prepared stock answers already. (An inability to answer effectively is thus a bad sign.) In addition, try to think up a few problem-solving hypotheticals, for instance, that are specific to your small business.
3
Prepare your site. Whether you have a physical or virtual business site, the impression it makes on your initial customers will go a long way toward determining your chances of success.
- If your business involves a storefront — a candy shop or used-book store, for instance — set up your space to represent your vision for the business. Coordinate color patterns and décor with your logo, for example, or consider personalizing it with family photos to establish your essential connection to this business. Consider hiring a professional interior designer and/or decorator.
- A web presence is becoming (if not already) essential for any new small business, so don’t take this aspect for granted. Especially if your business has a substantial web-based component, make your site intuitive, manageable, and suited to the brand identity you want to build. Hiring a professional web designer may be a good idea.
- If your budget is tight, and/or your business does not require a traditional storefront, don’t overspend on a fancy space. A local coffee shop can make a good place to meet clients, or you can rent a space as needed for such gatherings. Wait until your business has a solid foundation before expanding into a nicer space.
4
Consider a “soft” opening. There is no rule that says your first day of business has to also be your Grand Opening. Give your business a chance to work out the kinks before announcing itself to the world.^{[8]
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- Restaurants are probably the best-known example of businesses that often have soft openings — dry runs of dinner service with invited guests, maybe even just friends and family. But the concept can work with just about any small business. Send your new landscaping company’s crews out to work on your local relatives’ houses, lure your friends in with free pedicures, or convince your book club to come in and discuss their life insurance needs.
- Open officially for business without great fanfare, maybe for a week or two before your (well-advertised) Grand Opening. Customers will probably just trickle in, but that will make it easier to practice getting things right before the hopeful rush of customers to come.

Part 3

Part 3 of 4:

Spreading the Word

1
Start early. Don’t wait until opening day, or even until you know when opening day will be. Be proactive in establishing brand awareness and generating anticipation. A “coming soon” sign on your in-preparation storefront is a good start, but not enough on its own.
- Preserve the bulk of your initial marketing budget for the Grand Opening, but before that time utilize budget-friendly options like flyers, targeted direct mail, and a social media presence.
- Try to build your brand even before your location is ready. If you’re going to be selling handcrafted necklaces or handmade pierogies, seek out a local craft or food festival where you can set up a table and sell your wares. (Be sure to advertise your forthcoming retail presence.) If you’re an accountant, maybe you can volunteer to offer tax advice at the local community center or library (and hand out business cards).
- Take advantage of of the plethora of free consumer data provided by the Census Bureau and Department of Labor to learn more about customers.^{[9]
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  Expert Interview. 30 September 2020.}
- After you've identified your consumer profile (who’s actually buying the product), use the federal data to find even more consumers and reach the masses. Couple this data with insights from free reports provided by research firms (such as Nielsen) to determine how best to market your product/service to your consumer mass.^{[10]
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  Christine Michel Carter
  Global Marketing Expert
  Expert Interview. 30 September 2020.}

1
Establish a marketing budget. The run-up to opening and first few months of operation may very well make or break your new small business, so make sure you give your initial marketing push a strong effort.
- One suggestion is to dedicate 20% of your first year’s marketing budget to your Grand Opening. This amount should be significant enough to spread your message widely at a time when your ads are likely to be their most effective, but at the same time isn’t an “all your eggs in one basket” situation that leaves you with limited ability for subsequent advertising.^{[11]
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- Spend, for example, $4,500 advertising your Grand Opening, because that amount should be sufficient for two media buys. If that amount is beyond your reach, you may be able to utilize a mix of flyers, direct mailings, promotional items (balloons, banners, etc.), and a “sign spinner” at a busy intersection for around $1,500.^{[12]
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- This, of course, assumes you have a fairly large marketing budget of $22,500 ($4,500 is 20% of $22,500). Since many businesses have much smaller marketing budgets (maybe only a few thousand dollars), always work within whatever 20% of your marketing budget is.
2
Use traditional media. If your marketing budget allows, consider using traditional media like radio or newspaper. If you can manage television advertising as well, it is always a good idea to diversify your ad presence.
- Before tossing radio aside as an outdated media format, note that some three-quarters of U.S. adults listen to radio at least occasionally, and often do so when driving somewhere. Thus, radio can be a particularly good advertising method for retail stores and restaurants. Target your advertising by format (Top 40, Country, Talk, etc.) and time of day to maximize impact.^{[13]
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- Newspapers are popular among over-35 adults, but even a decent percentage of younger adults read a paper occasionally. Newspapers are still a cost-effective way to reach thousands of potential customers.
- Consider including coupons as well; they provide not only motivation to visit but a tangible connection between a potential customer and your business. It is also easy to track their effectiveness, as more coupons coming in mean they are doing their job.^{[14]
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- You may assume that TV advertising is beyond your small business budget, but there are options for producing and placing lower-cost ads, sometimes with the assistance of the local broadcast network. Consider bunching your ads during programs relevant to your targeted customer base — TV judge shows for a legal practice or the nightly news sports report for a golf training academy, for instance — so that you seem like a major sponsor.^{[15]
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3
Use social media. Even if you don’t know your tweets from your tags, or assume that your tailor shop doesn’t need a social media presence, make use of all avenues to spread the word about your business.^{[16]
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Christine Michel Carter
Global Marketing Expert
Expert Interview. 30 September 2020.} Some 80% of your fellow small business owners are using social media, particularly for marketing.^{[17]
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- The appeal of social media advertising is its low cost and direct connection to potential customers, but remember that the trade-off is likely to be a greater time commitment. Do a detailed analysis of your targeted and existing customer base and try to coordinate your brand identity and message across platforms.^{[18]
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- With the ever growing number of social media platforms, you may feel the temptation to be active in as many as possible. But don’t spread your business (or yourself) too thin. If your salon targets 40-something moms who likely use Facebook, focus your energies there. Don’t get caught up in posting all the time; a few times a week will likely suffice. You’ll be plenty busy with all the other details of opening your business.^{[19]
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- There are, however, ways to link multiple social media platforms. Consider this option if you can manage it without, again, spreading yourself too thin at a very busy time.
- Social media presence is especially important if your business is online based. In addition to social media, consider internet advertising using technology like Google Adwords. Adwords allows an ad from your business to pop up whenever a user searches particular key words on google. When somebody clicks on your ad, you pay. For an online based business, this can be especially important since it communicates your business to the broader internet. It is also important for traditional brick-and-mortar businesses too, since it reaches an audience that primarily is exposed to the internet as opposed to other forms of media.^{[20]
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Part 4

Part 4 of 4:

Opening for Business

1
Consider when to make your opening “grand.” As mentioned, there is no requirement to hold your Grand Opening on your first day of business, and it is often advisable to wait even a couple of weeks before staging it.
- Schedule your Grand Opening for a day and time that suits your product or service — a Saturday morning for a diner; a Friday evening for an ice cream parlor; early evening for a martial arts studio.^{[21]
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Make it an event. Work hard to build excitement in the days and even weeks leading up to your Grand Opening.
- Use the term “Grand Opening” in your marketing — it makes it seem more special than just an “open for business” notice. Create excitement by offering prizes, giveaways, demonstrations, special deals, etc., for visitors that day.^{[22]
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- Hire a photographer to capture the event for media (traditional or social) consumption. Bring in live entertainment, extra staffing, even security if you expect an especially large crowd.^{[23]
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- If your business and/or its location aren’t conducive to a large public Grand Opening, consider having an event more along the lines of a “launch party” at a nearby restaurant, banquet hall, etc.
3
Guarantee a positive customer experience. Plan ahead and do whatever you can to ensure that attendees walk away from your Grand Opening with a positive first impression of your new business. Oversights as simple as inadequate parking, long food lines, or running out of paper products in the restrooms can sour an otherwise enthusiastic reception.^{[24]
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- Have extra staff on hand to make sure customers don’t have to wait too long for service or attention.
- If parking may be an issue, try to work out arrangements beforehand with other businesses or community groups — perhaps setting up satellite parking at a nearby church, for instance.
- Send attendees home with a token of your appreciation — ideally something with your logo on it — along with a coupon / special deal for a return visit.
4
Involve the community. Establish your connection to the local community from the very start of your business. Let people envision your business having a positive community impact for years to come.
- Invite the local press to your event, but also other local business and community leaders. Network with as many as possible and establish yourself as a member of the local team.^{[25]
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- If possible, align your Grand Opening with a community event, when local crowds will already be gathered. Make it seem like a part of that larger celebration. Sponsor the entertainment at the holiday lighting celebration or midsummer festival. Advertise both your business and your deep connection to the community.^{[26]
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