So you’re thinking about starting an online business.
Maybe you want to earn some extra money with a side hustle. Maybe you’re unhappy in your current job and looking for a way out. Or maybe you’re a mom like me who wants to bring in an income while staying home with your kids.
The truth is, it’s not that hard to start an online business. Really. It’s not.
The hardest part… figuring out the process.
Seriously. With more online businesses starting than ever before, how is it still so freaking hard to find a simple breakdown of the start-up process?!
How long does it take? How much will it cost to get going? And most importantly, what should you do first?
It really shouldn’t be so complicated.
So I decided to lay out the step by step process I took when I made my freelance writing business legit.
1 | Decide what kind of online business you want to start.
If you already know what type of business you want to create, go ahead and skip to the next step.
There are millions of online businesses, which means practically endless options.
Will you provide a service or a product? If you offer a product, will it be a digital product or something tangible?
If you already have certain skills or passions, find a way to build them into your business.
I just listened to an interview with a woman who makes 6 figures selling felt Christmas ornaments!
So don’t fool yourself into thinking you can’t make money just because your idea is incredibly niche-specific. Who says there isn’t a market for vinyl hopscotch decals written in Klingon?! (apparently there is) Live long and sell that shiz!
2 | Determine the right business structure.
The way you set up your online business depends on a few things, but there are some common business structures to choose from.
Basically, this means you’re a one-person operation. This is the cheapest and easiest way to set up a new business.
In fact, if you’re already operating a business, such as a blog, without being registered, you’re automatically considered a sole proprietorship.
With a sole proprietorship, assets and liabilities are directly tied to the owner. You file business taxes as part of your personal tax return.
The downside is that you’re liable for all debts and obligations of the business so you have little protection for your personal assets if the business goes sideways.
A partnership is the simplest structure when two or more people go into business together. There are two types: limited partnerships (LP) and limited liability partnerships (LLP.)
LPs have one primary partner with unlimited liability, while all the other partners have limited liability. The partners with limited liability typically have less control over the business as well.
LLPs offer limited liability to all partners, protecting each against debts or the actions of other partners.
Limited Liability Company (LLC)
LLCs offer some of the benefits of a partnership and some benefits of a corporation. Personal liability is protected to a certain extent in the case of bankruptcy or lawsuits.
Members of an LLC are considered self-employed and must pay self-employment taxes.
One potential downside of an LLC is that some states may require the LLC to be dissolved and re-formed if a managing member leaves or a new member joins.
Be sure to research your state’s requirements before starting an LLC with other members.
A corporation is considered a legal entity separate from its owners. It offers the highest protection for owners, but costs more to start up and is subject to more taxation.
There are several types of corporations with different legal and tax requirements, including C corps, S corps, and non-profit corporations.
The type of business structure you choose depends mostly on how many people are involved, the level of risk, and whether you want to offer stock options.
3 | Choose a business name.
The name you give your online business is important, but maybe not as big a deal as you think. This might fly in the face of other advice you’ve read, but let me explain.
A brick and mortar business needs a name that people will remember. My favorite cupcake shop is called Yummy Cupcakes. There’s no question about what you’ll get when you walk through the door.
Have you ever heard of Lampo Licensing, LLC? Possibly, but probably not. I bet you’ve heard of Dave Ramsey though!
Lampo Licensing, LLC is the umbrella company over all of Dave Ramsey’s businesses. It doesn’t matter if you’re familiar with Lampo Licensing because the name you’re meant to recognize is Dave Ramsey.
In the online world, the name of your business is often less important than your overall brand name. If you plan to show up as the face of your brand, your name is the one customers will recognize.
Tip: when you decide on a business name, search the USPTO database to make sure the name isn’t already trademarked.
Don’t forget to find out if the domain name is available too. Ideally you want the .com domain for your business (although .net is common as well and .org is best for non-profit corporations).
What you don’t want is to name your business “Yummy Cupcakes” and then find out that yummycupcakes.com is already in use. That will just cause confusion for your customers.
4 | Register your business with the state.
To make your business legit, you need to register with your local government. Typically this happens at both the city and state level.
Start by checking the website of your state government and then move on to city and/or county sites.
The good news is that for many online businesses, it’s pretty simple to register and obtain a business license. Because you don’t have a physical location or sell food, for example, there are fewer hurdles to jump.
FYI with the rise of online business, some states now require that digital products comply with state sales tax laws so be sure to find out how your state handles digital sales.
If you’re forming an LLC or Corporation (see step 2) you’ll need to file Articles of Organization or Articles of Incorporation with your Secretary of State. Some states allow you to file online, while others require that you mail it in the old-fashioned way.
4 | File a fictitious name statement or DBA if necessary.
A fictitious business name or DBA (Doing Business As) statement has two purposes.
For one, it allows you to run your business under a different name, kind of like a nickname. For example, Sam Fox Painting might often be called Fox Painting. Filing a DBA would allow you to accept checks for either Sam Fox Painting or Fox Painting without any problems.
Also, a DBA allows you to operate up to 3 businesses within the same LLC. So Fox Consulting, LLC could be the umbrella company for both a social media strategy business and a web design business.
Instead of registering three separate businesses with the state, the DBA connects the two offshoots to the LLC.
You’ll submit the FBN or DBA form through your city, county, or Secretary of State. You might need to file a fictitious name statement before you can obtain a business license.
Tip: Sometimes you need to advertise your fictitious business name in a local newspaper for a certain time period before you can officially claim the name.
In California, you have to advertise the business name for 4 consecutive weeks before you can apply for the FBN.
You’ll need to find the specific requirements and approved newspaper outlets at the government site in charge of processing your fictitious name statement.
The newspaper outlet you choose will provide information about how to advertise a legal notice. Either the newspaper will send proof of publication to the local government office or you need to do this yourself.
6 | Get federal & state tax ID numbers.
In order to do things like pay taxes, you need a federal tax ID, also called your Employee Identification Number or EIN.
You can use this handy dandy tool provided by the IRS to obtain your EIN instantly as long as you have all the necessary information.
The need for a state tax ID depends on your state’s laws concerning employees and income tax.
For example, in California where I live, a business doesn’t owe state payroll tax unless it pays $100 or more in wages to an employee during a calendar quarter.
The bottom line is that as a business, you need a federal EIN, but you’ll need to research your state’s laws and filing requirements to figure out if you need a state tax ID.
7 | Open a business bank account.
Once you get your federal EIN (see step 6) you’ll be able to open a bank account for your business. Even if you’re the only person running your business, it’s a good idea to use a separate account.
Using a business bank account makes it easier to keep expenses and income from your business separate from your personal account.
Any major bank will have different checking account options based on the size of the business. You don’t have to use the same bank where you hold personal accounts.
8 | Create a website for your online business.
You can start working on your business website as early as you want. It’s smart to wait to launch until you have your business name locked in.
As I said in step 3, it’s a good idea to check that your business name is available as a domain before making a final decision. It’s usually best to use the .com domain because that’s what most people will try first when searching for your website.
Personally, I use WordPress because I’ve been using it for years, and I’m comfortable with it now. I was able to get my own website going on a pretty low budget.
Obvi you can hire a professional web designer if your budget allows, but it’s not necessary at the beginning if you’re pinching pennies. If you have basic computer skills and access to Google and YouTube, you can get a decent website up and running pretty quickly.
A lot of people will tell you that you need to have a solid branding strategy before you create your site.
Sure it’s nice to have an idea of the colors and style you want for your brand, but don’t let it prevent you from actually moving forward with your business.
Online businesses rebrand all the time. Sometimes you don’t really know what your brand should feel like until you’ve had a chance to work with your target audience or ideal client.
Related Post: Is Blogging for Your Business Really Worth It?
9 | Open a post office box.
Setting up a P.O. Box is definitely not necessary, but there are a couple reasons why it might be useful if you run your online business from home.
For one thing, it keeps your home address private. You’ll want to include your mailing address on your website, and a P.O. Box prevents you from disclosing where you live to all the strangers of the internet.
Second, you’ll be required to provide an address when you set up an email service provider, such as Mailchimp or Convertkit. The address is visible at the bottom of every email you send to your email list so a P.O. Box offers more privacy in this case as well.
Starting an online business is a process, but it’s not that hard if you follow these simple steps. Don’t get overwhelmed by all the paperwork. Just do one task at a time.