Starting an Online Business: A Guide for Entrepreneurs

Starting an online business is something that can be done with minimal cost and, if you take the time to plan your steps and keep yourself informed, minimal stress. It gives you the freedom to work out of your own home, be your own boss, and set your own schedule.

Write a Business Plan

This is the very first thing you should do when you’re starting an online business. Your business plan is a detailed document containing market research and projections, overhead costs, specific duties of anyone involved in the business—everything from your business purpose to the electrical company behind your overhead lights.

While this doesn’t need to be registered with any specific government agency (though it will be a good document to show any potential investors), it’s crucially important if for no other reason than that it forces you to think about the obscure details you could otherwise overlook.

(Take a closer look at writing a business plan in our June 2011 post, “What is a Business Plan?,” for a closer look at the kinds of things you should be thinking about in detail.)

Build Your Website

If you’re not a web designer, you have two choices: hire a designer to create your website, or use a template.

A designer is going to be able to take specific direction, offer real human suggestions, and all around be more satisfying to work with (if you work with a good designer). They’re also going to cost you a few hundred bucks for a simple website, which may or may not be in your budget. If it isn’t in your budget (and maybe even if it is), try using a template service to create a basic, simple website and budget for a customized website later.

Now that you have a website, you’ll need to find somewhere to put it. There are many, many companies offering web hosting, most of which will serve you just fine—just make sure to read terms and conditions carefully and understand what is and isn’t included in your package.

(Matt’s April 2011 blog post, “Missing the Forest (Your Business) For the Trees (Your Website),” gives more hints and tips on setting up your business website.)

Register Your Business

Unless your business is your name (which may be the case for consultants, real estate agents, and other types of businesses), you’ll need to register your business in order to accept payment under your business name. (If someone writes you a check for “A&B Professional Designers,” you’ll need documentation showing that you own that business to a business bank account and cash it!)

First, decide what kind of business you are. Many online businesses start small, and if you’re working out of your home and keeping costs low in other ways, you probably won’t have much money tied up in company overhead; this could make a sole proprietorship the perfect structure for you—your finances are directly tied to the finances of the business, but you can’t default on a loan if you don’t have any loans! Sole proprietorships are the simplest business to set up, the cheapest, and have the lowest responsibilities.

But you do have a responsibility to report your earnings to the IRS. Any business, online or no, needs to file a tax return. If you’re a sole proprietorship, you can either get an EIN or use your social security number. If you decide to incorporate or form an LLC, you do need to get an EIN.

(Take a look at our series on organizing your business Part 3 and Part 4 for a closer look at the next level of businesses, the incorporated entities.)

Keep Your Business In Compliance

You’ll likely need a sales permit in your state, county, and/or city; each of these levels of government will likely also have additional business license and permit requirements.

Check with your Secretary of State, your County Clerk or County Tax Collector, and your City Hall for your requirements. Or, have a compliance service get your business licenses for you.

Regardless of your type of business, there will be periodic filings and renewals that you’ll need to stay on top of—and your business’s compliance is nobody’s responsibility but your own. To that effect, sign up for your state and local government’s mailing lists, open all of your mail promptly, and get a business advisor.