How to Start An Online Business

Start with a Business Idea

Every accomplishment starts with an idea. If you’re interested in starting a business, you probably already have an idea to work from, but it might still be a bit vague in your mind. Validate your idea through market research, and by looking to expand the knowledge you’ll need to apply when running and growing your business — such as by studying the industry and reflecting on the personal experiences of yourself and others when dealing with businesses in the industry in question. This will help you figure out how you’re going to differentiate your business from others.

The fewer words it takes you to explain your business, the more solidified your idea has become. You need to be able to craft an elevator pitch: a succinct description based on the concept that you’re quickly describing your business to a stranger within the time it takes to ride in an elevator. Usually, this means explaining your business in about 50 words or less. For comparison, this paragraph is just over 120 words.. Don’t be afraid to modify your idea while you’re in the planning stages. Creativity and flexibility will serve you better than rigid adherence to the first concepts that crossed your mind. However, your idea does need to be at least solid enough to work with in order for you to effectively begin your business plan.

Incorporating Your Business

Your business needs to have one of four specific structures in order to comply with the law and define certain aspects of your finances. In the United States, these are the business models you can choose from. You’ll find that some meet your specific needs better than others, and you should always go with the structure that fits your business best.

Sole Proprietorship

In a sole proprietorship, the business is synonymous with the owner. This is often a service-based business, with the owner providing the service in person (for example, a self-employed plumber), but you’ll also see sole proprietors of small brick-and-mortar retail stores.

A sole proprietorship is what’s referred to as a pass-through entity, meaning the owners take the profits and losses on their personal tax returns, but the business itself does not pay taxes. However, sole proprietors are subject to self-employment taxes.

Sole proprietorships offer maximum control and are easy to set up, with low startup costs, but they come with some disadvantages too: the owner has full legal and financial liability, meaning if the worst happens and the business gets sued, the litigant can go after the owner’s personal assets. It’s also harder to raise capital from investors or to get business loans because this is the type of business that is built to remain small. It’s not built to last, either — since the business and the owner are the same entity, the life of the business is dependent on the working years of the proprietor.

Partnership

A partnership is almost the same as a sole proprietorship except for the ownership of the business is divided among multiple participants. Partners share profits and losses, and the same liabilities a sole proprietorship is subject to, although split between the owners. Partnerships can also set up special allocations, which redistribute profits and losses between members in a proportion that doesn’t necessarily match their percentage interests in the business.

Most new businesses don’t go the partnership route, although it’s popular among some professional service providers like lawyers or doctors. Partnerships are also pass-through entities, with all partners claiming their respective profits and losses on their personal tax returns. Members of partnerships are also subject to self-employment taxes.

Corporation

A corporation is a state-chartered organization, owned by shareholders who can appoint or elect a board of directors to manage the business. Incorporating protects the business owner from liability, so if the business was financially backed by a bank and the business failed, the bank cannot seek to collect from the owners’ personal assets. The same protection applies if the business is sued.

This makes incorporation a safer choice for businesses planning to hire employees or seek bank financing. The state registration also protects the name of the business. However, all corporations are required to hold meetings and file mandatory annual reports. This results in a lot of paperwork.

Limited Liability Company (LLC)

An LLC is a state-chartered organization with some of the advantages of a corporation combined with the tax advantage of being a pass-through entity. An LLC offers liability protection and has no ownership restrictions — in fact, an LLC can consist of a single member. It’s less formal than a corporation and requires less paperwork. LLCs can also arrange special allocations in the same way a partnership can. However, stock in the company cannot be sold.

Defining Your Business's Unique Selling Proposition

You may have touched upon your USP earlier while evaluating the idea behind your business. Now is the time to solidify it and polish it into something that can really work to set you apart. A truly successful USP needs to have all the following qualities.

Uniqueness

The USP itself doesn’t have to be unique, but it should be unique to you among your competitors. It must set you apart from your competition.

Ever-presence

Your USP needs to underpin your business’s personality and philosophy, and must always be present within your culture and daily operations. Your marketing strategy should be based on it.

Audience appeal

Your USP must make your business attractive to a particular kind of customer — specifically, the kind you target. It must be exciting and get you noticed.

Consistency and reliability

If you have a great USP and customers watch it slowly fade away, you’ll lose them for good. They’ll lament the old days of your business when it was different and special. And then they’ll move on.

Choosing a Great Business Name

Generally, good business names are somewhat descriptive of what the business does or sells, and frequently include the USP in some fashion. It’s also common to include the names of the owners or founders. While this is a good formula to start with, you shouldn’t just stick these three things together and make that your business’s name — you can come up with something much better if you put some more thought into it.

Choosing a name for your business isn’t always straightforward — the name you want may be taken by a previously registered company in your state. It’s also a common (and smart) practice to name your business and choose your future website’s domain name at the same time to ensure they match, but unfortunately, your desired domain name may be taken as well. To avoid either of these situations sending you back to square one, come up with a list of possible business names rather than becoming too focused on a particular name immediately.

Some states also forbid the use of certain words in a business name (e.g. “Federal”), and many require you to include words like Limited, Company or Incorporated depending on your business structure. Keep these restrictions in mind while coming up with potential names. Once you find a great name, register your business as soon as possible.

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Creating a Logo for Your Business

Creating a logo – and keeping your startup costs low – can be tricky for lean startups that don’t have the capital to spend on building your team. Luckily, creating a memorable logo doesn’t have to involve a professional designer and can be achieved with free tools for logo creation available online.

Establish Your Message

Once you’ve chosen the perfect name, it’s time to determine your message. Think about what key aspects of your business you want to communicate to potential customers. Ask yourself who you are as a company and what you stand for. For example, are you an expensive luxury brand or are you trying to attract more of a young, cool audience?

Determine Your Visual Identity

The next step is to establish your company’s personality and branding strategy. This is where visual elements like color, shape, and logo type come into play. Don’t be afraid to experiment with different fonts, image/word arrangements, and color schemes. This is the fun part!

Check out the Competition

It’s amazing how much you can learn from your competition. It’s important to research what’s out there so you can see what’s working and what’s not. You also want to make sure you’re differentiating your business enough so you’ll stand out from the rest of the industry.

Create Your Final Design

Before you finalize your perfect logo design, it’s important to get feedback from sources you trust. You don’t need to go overboard here, just get a few opinions from people you know will be constructive and honest.

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Frequently Asked Questions

Do I need a business license for an online store?

There are no eCommerce-specific business licenses. Instead, you should treat your business like a brick-and-mortar store when it comes to the licenses and permits you need.

What are the requirements to start a business?

The requirements will depend on where your business will be located. Common requirements include business registration, federal taxes, state taxes, business permits, business licenses, etc.

What business is best to start?

If you're looking to start your business with little or no capital, a dropshipping business might be one of the best places to get started.

How do you register your business name?

You can register your business name by registering a trademark, creating a business structure like the ones described on this article, or filling a DBA.