Starting a business requires a legal structure, a few government registrations, a way to handle money, and depending on your industry, specific licenses or permits. None of it is as complicated as it sounds, but skipping steps early on can create expensive problems later. Here’s what you actually need to get up and running.
Pick a Legal Structure
Your business structure determines how you pay taxes, how much personal risk you carry, and how much paperwork you deal with. Most new businesses choose one of three options.
A sole proprietorship is the simplest. There’s no separate legal entity, which means you and your business are the same thing in the eyes of the law. You report business income on your personal tax return and pay self-employment tax on your profits. The downside: if someone sues your business or it racks up debt, your personal assets (house, car, savings) are on the line. A sole proprietorship requires no state formation filing, which is why many freelancers and side hustlers start here.
A limited liability company (LLC) creates a legal wall between your personal finances and your business. If the LLC gets sued or goes bankrupt, your personal assets are generally protected. Profits and losses pass through to your personal tax return, so you avoid corporate taxes, but you still owe self-employment tax on earnings. Forming an LLC means filing paperwork with your state and paying a formation fee, which varies by state but typically runs between $35 and $500.
An S corporation also shields your personal assets and passes income through to your personal return without corporate-level tax. The difference is how you pay yourself: as an S corp owner, you can split income between a reasonable salary (subject to payroll taxes) and distributions (which are not), potentially lowering your overall tax bill. S corp status requires filing a separate election with the IRS after you register your entity with the state, so it adds a layer of complexity that makes more sense once your business is earning enough to justify it.
If you’re just getting started and want liability protection without much overhead, an LLC is the most common choice. You can always elect S corp tax treatment later if it makes financial sense.
Register Your Business Name
If you’re operating under any name other than your own legal name, you’ll need to register it. For an LLC or corporation, the name is registered when you file your formation documents with the state. Sole proprietors and partnerships typically file a “doing business as” (DBA) registration, sometimes called a fictitious name filing, through their county or state office. Fees are usually modest, often under $50.
Before you commit to a name, search your state’s business name database to make sure it’s available. It’s also worth checking the U.S. Patent and Trademark Office database to avoid picking a name that’s already trademarked in your industry.
Get an EIN
An Employer Identification Number (EIN) is essentially a Social Security number for your business. The IRS issues them for free, and you can apply online in minutes at irs.gov. You need an EIN if you plan to hire employees, open a business bank account (most banks require one), or operate as anything other than a single-member sole proprietorship. Even sole proprietors often get one to keep their Social Security number off invoices and tax forms shared with clients.
Licenses and Permits
What you need here depends entirely on your industry and location. Some businesses require federal licenses (firearms dealers, commercial fisheries, alcohol producers). Many more need state-level professional licenses: think contractors, real estate agents, cosmetologists, accountants, and healthcare providers. On top of that, your city or county may require a general business license or specific zoning permits, especially if you’re running a business from home or opening a physical storefront.
There’s no single national database that lists every permit you need. Your state’s secretary of state website is the best starting point, along with your city or county clerk’s office. The SBA also maintains a directory of state-level licensing resources. Budget time for this step, because some licenses involve applications, background checks, or inspections that can take weeks.
Open a Business Bank Account
Keeping business money separate from personal money is one of the most important things you can do early on. For LLCs and corporations, mixing funds (called commingling) can weaken your liability protection, giving a court reason to hold you personally responsible for business debts. Even for sole proprietors, a separate account makes taxes dramatically easier.
To open a business bank account, most banks will ask for your EIN (or Social Security number if you’re a sole proprietor), your formation documents (like your articles of organization for an LLC), any ownership agreements if you have partners, and your business license. Shop around on fees. Some banks offer free business checking with low transaction volumes, while others charge monthly maintenance fees.
Set Up Basic Bookkeeping
You need a system to track income and expenses from day one. This doesn’t have to be fancy. Cloud-based accounting software like QuickBooks, Xero, or Wave (which is free) can handle invoicing, expense tracking, and basic financial reports. The goal is to know how much money is coming in, where it’s going, and to have clean records when tax season arrives.
Set aside a percentage of every payment you receive for taxes. As a business owner, no one withholds taxes from your income automatically. You’re responsible for paying estimated taxes quarterly to the IRS (and usually to your state). The exact percentage depends on your income and structure, but setting aside 25% to 30% of profit is a reasonable starting point for most small business owners.
Get the Right Insurance
Your legal structure provides some liability protection, but insurance fills the gaps. General liability insurance covers claims like customer injuries or property damage. If you’re offering professional services or advice, professional liability insurance (also called errors and omissions) protects against claims that your work caused a client financial harm. If you hire employees, most states require workers’ compensation insurance.
Costs vary widely based on your industry, location, and coverage limits. A home-based consultant might pay a few hundred dollars a year for a basic policy, while a contractor or restaurant owner will pay significantly more. Get quotes from multiple insurers, and look into business owner’s policies (BOPs) that bundle general liability with property coverage at a discount.
Build Your Minimum Viable Presence
You need a way for customers to find you and pay you. At minimum, that means a website (even a single-page site with your services, contact info, and location), a Google Business Profile if you serve local customers, and a way to accept payments. Square, Stripe, and PayPal all let you accept credit cards with no monthly fee, charging per-transaction instead.
A dedicated business email address (yourname@yourbusiness.com rather than a free Gmail address) costs a few dollars a month and immediately makes you look more professional. Most domain registrars bundle email with a domain purchase.
How Much Money You Need to Start
The hard costs of simply forming and registering a business are lower than most people expect. A sole proprietorship with a DBA filing might cost under $100 total. An LLC with a state filing fee, EIN, and basic insurance might run $300 to $1,000 depending on your state and industry. The bigger expenses come from what your specific business requires: inventory, equipment, marketing, software subscriptions, or a commercial lease.
You don’t necessarily need a business loan on day one. Many service-based businesses launch with almost no upfront capital. If you do need funding, having your legal structure, EIN, and business bank account already in place makes you eligible for small business credit cards, microloans, and eventually SBA-backed loans. Lenders want to see that you’ve set up a real business, not just an idea.