How to start a business from scratch: the steps, in the right order
10 min readUpdated on
Almost nobody fails because they could not fill in a registration form. People fail because they spend before checking that anyone will pay, because their price does not cover taxes, or because the cash runs out in month five. This guide puts the steps in order, so the first thing you do is the one that removes the most risk.
The short version
- Before you register, get three people to pay you (or firmly commit to). It is the only validation that counts.
- Work out your price from what you need to earn, not from what the competition charges: add taxes, insurance and the hours you will not bill.
- To start on your own, the simplest legal form is usually enough: a sole proprietorship in the US, self-employment in most of the EU. A company makes sense when profit grows or you need to limit liability.
- Set aside 25 to 35 % of every payment for taxes in a separate account, from the first invoice.
- The minimum you need to sell is small: people can find you, book or buy, and pay you.
1. Check that someone pays before you spend
You do not validate an idea by asking "do you like it?", because everybody says yes. You validate it by asking for money or a firm commitment. Until someone pays, you have a hypothesis.
A cheap way to do it in two weeks:
- Write in one sentence what you offer, to whom and what problem you solve. If you need three sentences, it is not clear yet.
- Talk to ten people who fit that "to whom". Do not sell: ask how they solve the problem today and what it costs them.
- Offer the service right away to those who show interest, with a date and a price. One paid booking is worth more than fifty "sounds interesting".
- If nobody pays, change one thing —the audience, the price or the offer— and try again. Adjusting now is far cheaper than with a leased space.
2. Do the numbers backwards: from what you need to your price
The most expensive mistake at the start is copying the competition's price. You do not know their costs or whether they make money. Work out yours from what you need to take home. The figures below are illustrative and in your own currency.
| Item (monthly example) | Amount |
|---|---|
| What you want to take home | 2,000 |
| Health insurance and social contributions (varies a lot by country) | 450 |
| Fixed costs: rent or coworking, insurance, software, phone | 450 |
| Materials and travel | 150 |
| Income tax, estimate | 450 |
| Revenue needed (before sales tax or VAT) | 3,500 |
Now the hours. A month has about 160 working hours, but you will not bill them all: answering messages, travel, training, admin and cancelled appointments eat 30 to 40 %. If you bill 100 real hours, you need 35 per hour just to cover the table. Add sales tax or VAT on top if your business charges it.
If that price looks impossible where you work, the problem is not the price: it is the model. Raise the value (specialisation, packages, better clients), cut fixed costs or change what you sell. Finding that out in a spreadsheet costs nothing.
3. Sole trader or company
Most people starting alone use the simplest form, and move to a company later if the numbers justify it.
| In the US | In the EU (for example, Ireland) | |
|---|---|---|
| Simplest form | Sole proprietorship: no filing needed beyond local licences, often with a DBA if you trade under a brand name | Self-employed sole trader: you register with the tax authority |
| Limited liability | LLC, formed with your state; taxed like a sole proprietorship by default | Private limited company, registered with the companies office |
| Tax on profit | Personal income tax plus self-employment tax | Personal income tax plus social contributions; companies pay corporation tax |
| Usually worth it when | Profit grows, you have partners or real liability risk | Profit grows, you have partners or real liability risk |
When a company starts to pay off depends on your profit, your personal situation and local rules. It is the perfect question for a first meeting with an accountant: bring the numbers from step 2.
4. Registering, step by step
The paperwork is lighter than it looks, and much of it is online and free. What changes is where you file it.
In the US:
- EIN. A free employer identification number from the IRS, useful even as a sole proprietor for your bank account and invoices.
- State and local registration. An LLC is formed with your state; most businesses also need a city or county business licence, and some trades need a state licence.
- Sales tax permit. Needed if you sell taxable goods or services in your state. Which services are taxable varies widely from state to state.
In the EU (for example, Ireland):
- Register as self-employed with the tax authority (in Ireland, Revenue) before you start trading.
- VAT registration. Below a yearly turnover threshold you can usually stay unregistered; above it you must register and charge VAT.
- Social insurance. As self-employed you pay your own contributions, usually based on your income.
In both markets, depending on what you do, you may also need:
- Premises open to the public: zoning, safety and sometimes permits. Ask before you sign a lease: not every space suits every activity.
- Regulated professions (health, law, architecture…): a licence or registration with your professional body, and often professional liability insurance.
- Customer data (always, as soon as you save a phone number): a privacy notice on your website, and in the EU full GDPR compliance with cookie consent.
5. The taxes you will deal with
You do not need to be an expert, but you do need to know what exists so nothing catches you by surprise.
| In the US | In the EU (for example, Ireland) | |
|---|---|---|
| Income tax | Yearly return, with business profit reported on your personal return | Yearly self-assessment return |
| Paying during the year | Quarterly estimated tax payments | Preliminary tax before the year's return |
| Social contributions | Self-employment tax for Social Security and Medicare | Self-employed social insurance on your income |
| Sales tax / VAT | Sales tax, set by each state and sometimes city | VAT, charged once you pass the registration threshold |
- Sales tax and VAT are not yours. You collect them for the government. If you spend them, the next filing hurts.
- Some services are exempt, such as many healthcare and education services, depending on where you are.
- Watch your second year. The first return often comes with the balance for year one and advance payments for year two at the same time. Without savings, many get stuck here.
- Keep every record. Invoices, receipts and bank statements must be kept for several years.
E-invoicing between businesses is spreading across the EU, with dates set country by country. In the US, invoicing is freer but sales tax rules keep changing. Ask your accountant what applies to you before you choose invoicing software.
6. Separate the money from day one
Most small businesses that close do not run out of customers, they run out of cash: they make money on paper and cannot pay the tax bill. Three habits prevent it almost every time.
- A bank account just for the business. Even when it is not mandatory, it is the difference between knowing what you earn and guessing.
- A second account for taxes. Every time you get paid, move the sales tax or VAT and a share for income tax there. That money no longer exists.
- A buffer of three months of fixed costs before you give up another income. The first months are almost always slower than planned.
7. Set up the minimum you need to sell
To start, you do not need an agency logo, business cards or an office. You need three things to happen without you being there:
- People can find you. A complete Google Business Profile —it is free— and a website of your own that says what you do, where and for how much. We cover it in how to create a website for your business.
- People can book or buy on their own. Every back-and-forth message to set a time is a customer cooling down.
- You can get paid. By card, in advance or with a deposit. It cuts no-shows and saves you from chasing payments.
You can do it by stitching several tools together or with one that does it all. The options and their real costs are in tools to run a small business.
8. The first ten customers
The first ten do not come from advertising. They come from proximity and persistence, in this order:
- Your network, with a specific ask. Not "I have started a business", but "I am looking for three people with back pain who want to try a session this week".
- People who already have your customer. The gym if you are a physical therapist, the florist if you plan weddings. One cross-referral beats a hundred impressions.
- A review for every job. Ask the same day, with the direct link. With ten real reviews your profile starts showing on the map.
- Make coming back easy. A package of sessions or a reminder after six weeks turns one customer into recurring income.
Paid advertising works best once all this is in place: it amplifies a system that converts, it does not replace it.
9. Mistakes that close businesses in year one
- Leasing a space before you have customers. It is the hardest fixed cost to undo. Start mobile, online or in a shared space.
- Charging little "to get going". You attract customers who only care about price, and you cannot raise it later.
- No cancellation policy. An empty slot from a no-show is money that never comes back. Write the rules down before the first booking.
- Depending on one channel. If every customer comes from one social network or platform, the business is theirs. Your customer list and your website must be yours.
- Forgetting health cover. In the US especially, self-employed people pay their own health insurance, and it is often the biggest line in the budget.
Frequently asked questions
How much money do you need to start a business?
It depends on the model. A mobile or online service business can start with very little: registration, insurance if your profession requires it, and a website with bookings. What gets expensive is premises —rent, deposit, fit-out— which is why it pays to delay them until you have customers.
Can I invoice without registering?
If the activity is regular, you generally need to register, whatever you earn. There are special cases for occasional income, but they are not a safe rule: check before you send your first invoice.
Do I need an accountant from the start?
It is not mandatory, but for most people it pays off. Choosing the wrong structure, missing a sales tax or VAT registration, or forgetting estimated payments costs more than a year of advice. At the very least, book one meeting before you register.
Is it better to start with or without premises?
Without, if your work allows it. Working mobile, online or renting a room by the hour lets you test demand with costs you can stop within a month.
How long does it take for a business to become profitable?
A low-cost service business can cover its costs in a few months; one with premises and investment often takes more than a year. What matters is your own maths: how many customers a month cover the table in step 2, and how fast you are winning them.