How to Start a Small Business in 2026: 13 Steps and Costs

To start a small business in the United States you test the idea, pick a legal structure, register with your state, get an EIN from the IRS, obtain the licenses your activity needs, open a business bank account, and set up a way to bill and file taxes. “How do I start a small business” is as much a question of order as of list, because each step produces something the next one needs. This guide covers how to start a small business in that order, with the documents and the fees for each step.

“Small” has a federal definition: the SBA’s size standards “determine whether or not your business qualifies as small”, and most manufacturers with 500 employees or fewer and most non-manufacturing businesses with average annual receipts under $7.5 million qualify.

How to start a small business in 13 steps

Starting a small business is thirteen jobs in a fixed order, and the order is what most guides leave out. The steps to start a small business each produce a document or a number the next one asks for.

1. Test whether the idea is viable
2. Research the market and write a business plan
3. Estimate what it costs to start a small business
4. Choose your legal structure
5. Pick and check the business name
6. Register the business with your state
7. Get an EIN and register for taxes
8. Apply for licenses and permits
9. Open a business bank account and set up bookkeeping
10. Fund the business, including how to start with no money
11. Get the insurance most small businesses need
12. Get online and find your first customers
13. Handle taxes in your first year

Steps 1 to 3 are a weekend of thinking. Steps 4 to 9 are paperwork, most of it filed online, and each state sets its own processing time.

Step 1. Test whether the idea is viable

Before any filing fee, find out whether strangers will pay you. Offer the thing at a real price and see what happens. If nobody buys, you learned it for the cost of a few conversations instead of a registered company with a year of insurance behind it.

Cheap ways to test demand

• Sell before you build. Offer it to ten people at your intended price. Interest is not evidence. A payment or a booking is.
• Do the job manually once. Deliver it by hand and time yourself, so you know your real cost per job.
• Take the free advice. The SBA funds Small Business Development Centers, SCORE mentors, Women’s Business Centers, and Veterans Business Outreach Centers, whose counseling is free or low cost. Its Answer Desk is 1-800-827-5722.

What the survival numbers say

Risk is front-loaded. Across establishments born from 1994 to 2022, the SBA Office of Advocacy reports an average of 67.7% of new employer establishments surviving two years, 49.2% reaching five years, 33.9% ten, and 25.5% fifteen. Of those reaching five years, 69.5% reach ten.

Step 2. Research the market and write a business plan

Two jobs, one afternoon. Research tells you whether enough buyers exist at your price, and the plan turns that into how the business makes money. The SBA splits it the same way: “Market research helps you find customers for your business. Competitive analysis helps you make your business unique.”

What to look up, and where

The SBA sets six questions: demand, market size, economic indicators, location, market saturation, and pricing, which it phrases as “What do potential customers pay for these alternatives?” Federal statistics answer most of them for nothing, because “there are many reliable sources that provide customer and market information at no cost”.

• Census Business Builder. The SBA’s reference for general business statistics, to “find information about business classifications and get data about your potential business market”. It reports businesses, spending and demographics for a radius around an address.
• Bureau of Labor Statistics and the Census Bureau. The SBA’s references for demographics, to “segment the population for targeting customers”, and for earnings by occupation, which is what you set wages against.
• Competitor pricing, gathered yourself. Call three competitors as a customer and ask for a quote. That is your price ceiling, and it answers market saturation: “How many similar options are already available to consumers?”

Write the competitive analysis from that, which the SBA says “should identify your competition by product line or service and market segment”. Then the plan. The traditional format has what the SBA calls the nine most common sections, from executive summary, company description and market analysis through to marketing and sales, funding request and financial projections. The lean one-pager covers nine boxes including value proposition, customer segments, channels, cost structure, and revenue streams. Write the long version if you are borrowing, the one-pager if you are funding it yourself.

Step 3. Estimate what it costs to start a small business

Owners ask how much does it cost to start a business before anything else, and it depends far more on the trade than the state. A solo consultant can trade legally for a few hundred dollars. A restaurant can need six figures. The SBA advises splitting the estimate into one-time and monthly costs, and counting “at least one year of monthly expenses, but counting five years is ideal”.

Its list of common items runs from office space, equipment and utilities to licenses and permits, insurance, lawyer and accountant, inventory, salaries, advertising, and making a website. Major equipment, a logo designer, and permits are one-time. Salaries, rent, and utilities recur.

The fees you can pin down exactly

Registration is the one cost you can look up rather than estimate. The SBA says that “in most cases, the total cost to register your business will be less than $300, but fees vary depending on your state and business structure”.

California’s annual tax is the one that surprises people. The Franchise Tax Board is explicit: “Every LLC that is doing business or organized in California must pay an annual tax of $800. This yearly tax will be due, even if you are not conducting business, until you cancel your LLC.” Keep receipts for pre-opening spending, because the IRS lets you “elect to deduct up to $5,000 of business start-up costs and up to $5,000 of organizational costs”.

Step 4. Choose your legal structure

The biggest decision in how to start a small business is the legal structure, because it sets whether your personal assets are exposed if the business is sued or owes money, and how the profit is taxed. For a first-time owner the real choice is sole proprietorship or LLC, with an S corporation election to revisit once profits are meaningful.

The default matters. Start trading without registering anything and you are a sole proprietor, with your personal savings and property behind the business. Form an LLC once the business could plausibly be sued or owe money you could not cover. A contractor working on other people’s property fits. A weekend Etsy seller with $200 of stock usually does not, yet.

How LLCs and S corps are taxed

An LLC is a state-law structure, not a tax category. The IRS treats “an LLC with only one member” as “an entity disregarded as separate from its owner”, and “a domestic LLC with at least two members” as “a partnership for federal income tax purposes”. An LLC that wants corporate treatment files Form 8832. An S corporation is an election on Form 2553, “signed by all the shareholders”, limited to “no more than 100 shareholders” and “only one class of stock”. Its appeal is a salary plus profit distributions outside self-employment tax, which pays off only above a certain profit level.

Step 5. Pick and check the business name

Search your state’s business register and the USPTO trademark database before you print anything, because finding a conflict after the signage and the domain is expensive. Three kinds of name protection do three different jobs.

• Entity name. “An entity name can protect the name of your business at a state level.” This is the name on your formation documents.
• Trademark. “A trademark can protect the name of your business, goods, and services at a national level.”
• DBA, or trade name. “Registering your DBA name doesn’t provide legal protection by itself, but most states require you to register your DBA if you use one.” A sole proprietor trading under anything other than their legal name almost always needs one.

Step 6. Register the business with your state

Registering the entity is usually one filing, with the Secretary of State in most states. The SBA says that “if your business is a limited liability company (LLC), corporation, partnership, or nonprofit corporation, you’ll probably need to register with any state where you conduct business activities”. Two extras catch people out. You need a registered agent, who “receives official papers and legal documents on behalf of your company” and must be in that state. Operating across state lines can also mean foreign qualifying, and then you pay fees “in both their state of formation and states where they’re foreign qualified”.

Step 7. Get an EIN and register for taxes

An EIN is your business’s federal tax ID and this is the easiest part of how to start a small business. It is free, the application is online, and the IRS issues the number immediately. Do it after registering the entity and before the bank, because the bank will ask for it.

The IRS states that “you never have to pay a fee for an EIN” and that you can “get your EIN straight from the IRS in minutes”. You must be the responsible party or an authorized representative, with that person’s Social Security number or ITIN, your principal place of business must be in the US or its territories, and “you can apply for only 1 EIN per responsible party per day”. Our walkthrough: how to get an EIN number. In states with a sales tax, selling taxable goods or services also means a sales tax permit from your state revenue department, before the first sale, because sales tax you failed to collect is still owed.

What a one-person business can skip

A sole proprietor with no employees can use a Social Security number instead. Many still get an EIN, because banks ask for it and it keeps your Social Security number off client paperwork. What you skip is the payroll layer: no employer tax accounts, no W-4s or I-9s, no payroll provider, no workers’ compensation and no unemployment insurance.

If you will hire: employer registration and payroll

Hiring adds registrations that come before the first payday. The SBA gives the order: get an EIN, “find out whether you need state or local tax IDs”, decide whether the role is an employee or a contractor, “ensure new employees return a completed W-4 form”, “schedule pay periods to coordinate tax withholding for IRS”, pick who administers payroll, and “report payroll taxes as needed on quarterly and annual basis”.

Two federal forms are not optional. The IRS tells employers to ask “all new employees to give you a signed Form W-4 when they start work”, and work eligibility goes on Form I-9: “All U.S. employers must properly complete Form I-9 for every individual they hire for employment in the United States.” Each employee’s name and Social Security number go on their Form W-2. On the state side, workers’ compensation is required “through a commercial carrier, self-insured basis, or state Workers’ Compensation Program”, and unemployment insurance “varies by state, and you may need to register with your state workforce agency”. Set the pay schedule before the first hire, because deposit deadlines follow it.

Benefits divide the same way. The IRS points out that self-employed owners have “many of the same options to save for retirement” as employees in company plans, with a SEP set up on the one-page Form 5305-SEP and a SIMPLE IRA plan on Form 5305-SIMPLE. For staff health cover, a Small Business Health Options Program plan “is generally the only way for a small business or non-profit to claim the Small Business Health Care Tax Credit”, worth “up to 50% of the costs you pay for your employees’ premiums” with fewer than 25 full-time equivalent employees, among other conditions.

Step 8. Apply for licenses and permits

Federal licensing covers a short list of activities, so many small businesses need no federal license at all. If yours is not on the SBA’s list, licensing is a state, county, or city matter. Check all three, because a city permit is easy to miss when the state paperwork went smoothly.

Federal licenses: the short list

The SBA names eleven federally regulated activities, each with its own agency: agriculture, meaning “the import or transport across state lines” of animals, animal products, biologics, biotechnology or plants; alcoholic beverages; aviation; firearms, ammunition, and explosives; fish and wildlife; commercial fisheries; maritime transportation; mining and drilling on federal lands; commercial nuclear energy; radio and television broadcasting; and operating an oversize or overweight vehicle.

State, county, and city permits

For everyone else, “the licenses and permits you need from the state, county, or city will depend on your business activities and business location”. Activities commonly regulated locally include auctions, construction, dry cleaning, farming, plumbing, restaurants, retail, and vending machines. Start at your Secretary of State’s website, then your county and city clerk.

Where you operate: home, leased space, or online only

Your address decides your regulation as well as your rent. The SBA puts it plainly: “Your business location determines the taxes, zoning laws, and regulations your business will be subject to.” For a property you buy, rent, or build, the SBA says to “make sure it conforms to local zoning requirements”, and working from home means you “might have fewer zoning restrictions” while “zoning ordinances can still apply even to home-based businesses”. Zoning is local, so your city planning department confirms whether the address is allowed and whether it needs a home occupation permit. Online only still has a filing address, which sets the taxes and licenses.

Step 9. Open a business bank account and set up bookkeeping

Open the account before your first payment lands. Mixing business and personal money is a common bookkeeping mistake, and it undermines the liability separation you paid for. The SBA puts the benefit first: “business banking offers limited personal liability protection by keeping your business funds separate from your personal funds.”

Banks typically ask for your “Employer Identification Number (EIN) (or a Social Security number, if you’re a sole proprietorship)”, your formation documents, ownership agreements, and your business license. Bring all of it to the first appointment, and compare fees as well as introductory offers, because “rates, fees, and options vary from bank to bank”. Our comparison of the best business bank accounts in the USA lines them up side by side.

Bookkeeping basics for year one

Pick an accounting method and stay on it. Under the cash method “you report income in the tax year you receive it” and deduct expenses in the year you pay them. Under the accrual method you “report income in the tax year you earn it” and deduct expenses in the year you incur them, whatever the payment timing. Cash suits many service businesses. Where an inventory is necessary to account for your income you must generally use an accrual method, although the IRS lets certain small business taxpayers use the cash method and account for inventoriable items as materials and supplies that are not incidental.

Then keep three habits from week one: record every sale and expense, keep the receipts, and invoice promptly with a unique number on each bill. The IRS retention rule is three years after filing, six years if you did not report income of more than 25% of the gross income shown on the return, and no limit where a return was fraudulent or never filed. Our guide on how to make an invoice covers the required fields, and the free invoice generator produces one now.

Step 10. Fund the business, including how to start with no money

No single grant hands a new US business its startup capital, and that is worth stating plainly because a lot of search results imply otherwise. USA.gov puts it directly: “There are no federal grants for starting a business.” Searches for free money to start a small business lead to grant directories, and the honest version of how to get money to start a small business is savings, borrowing, investment, or a grant aimed at a specific group.

• Self-funding. “Self-funding lets you leverage your own financial resources to support your business”, with full control and full risk. For most first businesses this is the answer.
• SBA microloans. Up to $50,000, averaging about $13,000, maximum seven-year term, interest “generally, between 8%-13%”. The realistic first loan to start a small business.
• SBA 7(a) loans. “The maximum loan amount for a 7(a) loan is $5 million”, for working capital, equipment, and real estate. Aimed at established businesses more than day one.
• Bank loans. For owners who want to “retain complete control of your business, but don’t have enough funds to start”. Expect to show a plan, projections, and often personal collateral.
• Investors and equity. “Investors can give you funding to start your business in the form of venture capital investments”, “normally offered in exchange for an ownership share and active role in the company”. Individual investors are the angel route, and the SBA licenses Small Business Investment Companies, which make “equity and debt investments in qualifying small businesses”. Almost all venture capitalists want a board seat, so a local service business rarely goes here.
• Crowdfunding. Raises money “from a large number of people” who usually receive a product or perk rather than equity.

Our step-by-step on how to get a business loan covers what lenders check. For grants to start a small business, the money that exists is targeted: see our directory of USA small business grants and the list of small business grants for women.

How to start a business with no money

Starting with almost nothing is common. Pick a business whose startup cost is time rather than capital: cleaning, dog walking, tutoring, bookkeeping and most consulting need skills, a phone, and a way to get found, and the first paying job funds the second. Our walkthrough of how to start a cleaning business is a worked example. Trade as a sole proprietor until liability or a contract requires an entity.

Step 11. Get the insurance most small businesses need

Insurance is legally required in one situation and commercially necessary in others. The SBA lists workers’ compensation, unemployment insurance, and disability insurance as what the federal government requires of every business with employees, and it adds that laws requiring insurance vary by state. Disability coverage is the one to check rather than assume, because the SBA names only a handful of places where disability pay is required: California, Hawaii, New Jersey, New York, Rhode Island and Puerto Rico. With no employees you buy on risk rather than obligation. The SBA lists six common types:

• General liability. Covers “bodily injury, property damage, medical expenses, libel, slander, defending lawsuits, and settlement bonds or judgments”, for any business.
• Product liability. Covers loss “as a result of a defective product that causes injury or bodily harm”.
• Professional liability. Covers “malpractice, errors, and negligence”, for service businesses.
• Commercial property. Covers “loss and damage to company property”.
• Home-based business. Added to homeowner’s insurance as a rider, it offers “protection for a small amount of business equipment and liability coverage for third-party injuries”.
• Business owner’s policy. An “insurance package that combines all of the typical coverage options into one bundle”, and the SBA points it at most small business owners.

Two things force the decision early: commercial landlords and business clients often will not sign without proof of general liability coverage, and licensed trades often have a minimum written into the license.

Step 12. Get online and find your first customers

The part of how to start a small business that no filing covers is finding customers. Your first ten come from being findable and easy to book: a site with your services and prices, a Google Business Profile so you appear in local search and maps, and a way to take an inquiry without a phone call. Existing contacts, local groups, and referrals usually beat paid advertising in month one, and our guide to small business marketing covers the low-cost channels.

How to start a small business online

An online business runs the same thirteen steps, with the storefront replaced by a site that takes orders or bookings. How to start a website for a small business comes down to four things: one page per service with your area and prices, a contact method that works on a phone, a domain with a matching email address, and a checkout or booking form. UENI builds all four for you, and if you are still weighing up whether a site is worth it, see I need a website.

Step 13. Handle taxes in your first year

The last piece of how to start a small business is tax, and two obligations catch new owners out: self-employment tax, which is larger than people expect, and estimated tax, which is due four times a year. Set money aside from your first payment, because nothing is withheld for you when you work for yourself.

The IRS sets self-employment tax at 15.3%, made up of “12.4% for social security” and “2.9% for Medicare (hospital insurance)”. You owe it once net earnings from self-employment reach $400 or more. The Social Security portion applies up to an annual cap, set at $184,500 for 2026, and the Medicare portion has no cap.

On estimated tax, individuals including sole proprietors, partners, and S corporation shareholders “generally have to make estimated tax payments if they expect to owe tax of $1,000 or more when their return is filed”. Corporations use a $500 threshold. Payments use Form 1040-ES and fall due on April 15, June 15, September 15, and January 15 of the following year. You generally avoid a penalty by paying at least 90% of the current year’s tax or 100% of the prior year’s, whichever is smaller.

Every expense you record lowers the bill, and unrecorded expenses are lost. Work from a small business tax deductions checklist so routine items are captured as they happen. If you work from home, the simplified method is a “standard deduction of $5 per square foot of home used for business (maximum 300 square feet)”, capping it at $1,500, and our guide to the home office deduction explains which method suits which setup.

How to start a small business at home

Working out how to start a small business from home means every step above plus three additions: check that local zoning allows it, get a home occupation permit if your city requires one, and confirm what your homeowner’s or renter’s policy covers, because business equipment and business visitors usually sit outside it.

Home is the mainstream route. The SBA Office of Advocacy counts 36,207,130 small businesses in the US, of which 82.3%, or 29,811,495 firms, have no employees at all. Use a space you can measure if you want the home office deduction, and consider a business address service on public filings if you would rather your home address stayed off a public register.

How the rules change by state

The federal steps in how to start a small business are identical everywhere: the EIN, self-employment tax, estimated payments, and the federal license list do not vary. What varies is where you file, what it costs, and which local licenses apply.

• How to start a small business in California. Articles of Organization at $70, filed online, a Statement of Information at $20 due within 90 days of registration and every two years after that, and the $800 annual LLC tax due even in a year with no activity.
• How to start a small business in Texas. A certificate of formation (Form 205) at $300, the highest of the three. Card payments carry a statutory convenience fee of 2.7% of the total.
• How to start a small business in Florida. Articles of Organization and the registered agent designation at $125, with an optional $30 certified copy and $5 certificate of status.
• Everywhere else. Expect a formation filing, and many states also require an annual or biennial report, so check yours. Some add an annual tax or franchise fee. Sales tax registration is separate.

Your first 90 days after launch

The paperwork side of how to start a small business ends here and the trading starts.

1. Get paid once, properly. Land the first customer, invoice with a unique number, and record the payment the same week.
2. Calendar the obligations. Estimated tax dates, your state’s report date if it has one, and license renewals, with reminders a month ahead.
3. Check your unit economics. Time three jobs and total their costs against what you charged, then adjust the price while you still have few customers.
4. Make the first estimated tax payment. A rough payment beats a missed quarter.

Frequently asked questions

What are the first steps to starting a business?

Test the idea with real buyers, research the market, and estimate twelve months of costs. Then choose a structure, register with your state, get a free EIN, apply for your licenses, and open a business bank account. The bank asks for the EIN and formation documents, so keep that order.

How much does it cost to start a small business?

It depends on the trade more than the state. Registration is the predictable part: the SBA says it usually costs under $300, and of the three states in this guide, formation fees run from $70 in California to $300 in Texas. Equipment, permits and a year of monthly expenses sit on top.

Do I need an LLC to start a business?

No. Trading without registering anything makes you a sole proprietor, which is legal and free. The trade-off is that you can be held personally liable for the business’s debts and obligations. Form an LLC once that risk is real, or a contract requires it.

Is an LLC a business license?

No. An LLC is a legal structure you create by filing with your state. A business license is permission to carry out a specific activity in a specific place, from a federal agency, your state, county, or city. It does not license the activity.

Do I need a business license?

Probably, but usually not a federal one. Federal licensing covers a short list of activities such as alcohol, firearms, aviation, broadcasting, and commercial fishing. Everything else depends on your activity and location. Check the state, the county, and the city.

How do I start a small business with no money?

Choose a business whose startup cost is your time rather than capital, such as cleaning, tutoring, or consulting. Trade as a sole proprietor, take deposits where the trade allows it, and let the first job fund the second. There are no federal grants for starting a business.

Sources

• SBA: Market research and competitive analysis
• SBA: Write your business plan
• SBA: Calculate your startup costs
• SBA: Choose a business structure
• SBA: Register your business
• SBA: Pick your business location
• SBA: Apply for licenses and permits
• SBA: Open a business bank account
• SBA: Get business insurance
• SBA: Fund your business
• SBA: Hire and manage employees
• SBA: Microloans
• SBA: 7(a) loans
• SBA: Size standards
• SBA: Counseling and local assistance
• SBA Office of Advocacy: FAQ about small business
• USA.gov: Start your own business
• IRS: Get an employer identification number
• IRS: Limited liability company
• IRS: S corporations
• IRS: Hiring employees
• IRS: Self-employment tax
• IRS: Estimated taxes
• IRS: Estimated tax FAQs
• IRS: Publication 583
• IRS: Simplified home office deduction
• IRS: Retirement plans for self-employed people
• HealthCare.gov: SHOP Marketplace basics
• Social Security Administration: Contribution and benefit base
• California Secretary of State: LLC forms and fees
• California Franchise Tax Board: Limited liability company
• Texas Secretary of State: Form 205 instructions
• Florida Division of Corporations: Articles of Organization