Key Summary
- It is important that you begin with market research and create a detailed plan.
- Register your business name and ensure it is not covered by any trademarks.
- Hire a registered agent to help you with registering your business.
- Consider the location you want to register your business in to ensure maximum benefit to your business.
- Once your business is registered, set up a business bank account and insurance.
How to Start a Business in the USA in 10 Steps
Starting a business in the United States is an exciting journey, but it requires careful planning and adherence to certain steps to ensure success. This guide outlines the 10 essential steps you need to follow to turn your business idea into a reality in the American market.
1. Market Research and Business Plan
Conducting thorough market research is the foundational step in starting a business in the USA.
This process involves gathering, analyzing, and interpreting information about your industry, potential customers, and competitors.
Although typically businesses end up being different from the initial plan, it gives both yourself and any potential investors/stakeholders a clear idea about your vision and that you are capable of executing it.
Here’s how you can approach it:
Understand Your Industry
Begin by exploring the industry you’re entering. Look at current trends, growth potential, and long-term prospects. Understanding the broader market dynamics helps you position your business effectively.
Identify Your Target Market
Knowing your target audience is crucial. Define your ideal customers based on factors like age, gender, income level, buying habits, and geographical location. The more specific you are, the better you can tailor your products or services to their needs.
Analyze the Competition
Research who your competitors are, what they offer, and how they operate. Identify their strengths and weaknesses. This knowledge helps you find a competitive edge, whether it’s in pricing, quality, service, or innovation.
Market Demand
Assess the demand for your product or service. Look for gaps in the market that your business could fill. Surveys, focus groups, and customer interviews can be valuable tools for gauging interest and validating your business idea.
Develop a Business Plan
Within your business plan you should include concise business goals and unique values. Highlight the nature of your business and what differentiates you in the market. You should also include a comprehensive market analysis, business structure, and marketing strategy.
There are plenty of online resources and templates that can help when putting together a business plan. We’ve included two of the best below, for financial modelling, road mapping and overall strategy.
2. Choose a Business Structure
Choosing the right business structure is a crucial decision when starting a business in the USA, as it affects your taxes, legal liability, and operational complexity. Here’s a brief overview of the most common structures:
Sole Proprietorship
This is the simplest structure, where one individual owns and operates the business. It’s easy to set up and offers complete control, but the owner is personally liable for all business debts and obligations. Taxes on business income are paid through the owner’s personal tax return.
Partnership
This structure involves two or more people who share ownership of the business. There are two main types: general partnerships, where all partners manage the business and are equally liable for debts, and limited partnerships, with both general and limited partners. Partnerships enjoy pass-through taxation, meaning the business itself isn’t taxed, but profits and losses pass through to the partners’ personal tax returns.
Limited Liability Company (LLC)
An LLC combines the liability protection of a corporation with the tax benefits and flexibility of a partnership. Owners, known as members, are not personally liable for business debts. LLCs can choose how they want to be taxed, either as a sole proprietorship, partnership, or corporation.
Corporation
A corporation is a separate legal entity from its owners, offering the most protection against personal liability but with more regulatory requirements. The two main types are C-Corporations and S-Corporations. C-Corporations face double taxation (the company and shareholders are taxed separately), while S-Corporations allow profits and some losses to be passed through directly to owners’ personal tax returns without being subject to corporate tax rates, however, non-citizens cannot be shareholders in an S-Corporation.
3. Register a Name
You’ll need to pick a name for your business in the United States. Names are hugely important for brand identity and create an instant impression with customers.
Once you’ve brainstormed some ideas, you’ll need to verify the name you have chosen is available. It cannot encroach on existing trademarks. Use the US Patent & Trademark Office search tool to verify your name is ok to use.
If the name you have chosen is available, you may wish to trademark it so that others are prevented from using the same, or similar.
4. Selecting a State to Register Your Business
Choosing the right state to register your business in the USA is a decision that can have significant legal and financial implications. Each state has its own set of rules, regulations, tax rates, and benefits, making this choice more than just a geographical consideration.
State Taxes
Some states are known for being more business-friendly due to lower tax rates. States like Delaware, Wyoming, South Dakota, and Nevada offer no state corporate or personal income taxes, which can be a substantial advantage. It is, however, crucial, to consider other taxes like sales tax, property tax, and franchise tax that may apply.
Legal Frameworks
Each state has its own legal framework affecting businesses. Some states, like Delaware, are popular for their business-friendly legal environment, particularly for corporations. Delaware’s Corporation Court is renowned for its expertise in corporate law, offering efficient resolutions to business disputes. If you are choosing a state you are unfamiliar with, it would be useful to choose an experienced registered agent, like Valis International, that is familiar with the regulations within that location.
Assess Operational Costs
The cost of doing business varies significantly across states. Factors like real estate costs, minimum wage laws, and utility expenses should be considered, for instance, opening a business in a USA state with high real estate costs might significantly increase your overhead.
Market Accessibility
Proximity to your target market is crucial. If your business relies heavily on local customers or a specific demographic, choosing a state with easy access to your market is beneficial.
Funding Opportunities
Some states have more robust ecosystems for startup financing, grants, and investor networks. For tech startups, states like California and Massachusetts offer a wealth of venture capital opportunities.
Personal Preferences
Personal factors like family, lifestyle preferences, and climate can also influence your decision. Being comfortable in your living environment can contribute to your overall business success.
5. Hiring a Registered Agent
Hiring a registered agent is a crucial step when setting up a business in the USA, particularly if you’re forming an LLC or a corporation. A registered agent acts as the official contact for your business, responsible for receiving important legal and tax documents on behalf of the company.
Here’s what you need to know about selecting a registered agent:
Role and Responsibilities
The primary role of a registered agent is to receive and forward legal documents, such as service of process notices, official government correspondence, and compliance-related documents. They ensure that you receive these critical documents promptly, helping your business maintain good legal standing with the state.
Requirements
A registered agent must have a physical address (not a P.O. box) in the state, like Valis International, where your business is registered and available during standard business hours to receive documents. This is essential for compliance with state regulations.
Assess Operational Costs
The cost of doing business varies significantly across states. Factors like real estate costs, minimum wage laws, and utility expenses should be considered, for instance, opening a business in a USA state with high real estate costs might significantly increase your overhead.
Choosing a Registered Agent
You can choose an individual, such as an attorney or a trusted business associate, or a professional registered agent service. While an individual might be a cost-effective choice, a professional service offers advantages like privacy, consistency, and expertise in handling legal documents. They can also help if you do business in multiple states, providing a registered agent in each state.
Professional Services
Professional registered agent services come with a fee, but they offer added benefits. They can help safeguard your privacy by keeping your personal address off public records, provide regular compliance alerts, and offer expert guidance on state legal requirements.
For non-residents or those who travel frequently, using a professional service ensures that important documents are handled promptly and securely.
Changing Your Registered Agent
If you need to change your registered agent, it can usually be done by filing a form with the state’s business filing agency and paying a small fee. It’s important to ensure that your registered agent’s information is always up-to-date to avoid missed notices and potential legal issues.
6. Register a Business Entity
Now that you’ve hired a registered agent, you are ready to register your business entity. Once you have registered your business, it is liable, taxable, and under governance so this is a big step.
You will also need to have completed this step before you apply for an EIN, licenses, and permits. This is partly because you need to be sure that the name you choose for your business is available. You can confirm that your business name is available with the US Patent and Trademark Office.
Registering your business entity also confirms the legal structure of your business, for example, a C-Corp or LLC. To register your business, you will need to file an Article of Incorporation (for corporations) or an Article of Organizations (for LLCs). These documents are filed with your chosen state’s Secretary of State.
7. Apply for an EIN
Once your business structure and name are chosen, you will need to register the business in the USA and apply for an Employer Identification Number (EIN).
This number is essentially like a social security number for your business, and is often required for tax and banking. You’ll need to apply through the IRS website to obtain an EIN.
During the application, you will need to provide the following:
- Legal business name
- Personal details
- Business details (ie. address)
- Employees
- Business start date
- Tax details
The application is best applied for online. You can, if needed, apply via fax or mail but this is more time consuming. By fax or mail, you can expect to wait at least 6 weeks for a response but online applications will receive an EIN instantly upon submission.
8. Permits and Licenses
Your business may require various permits and licenses depending on its industry and location. Whilst the application process is largely similar, it can slightly vary from state to state so be sure to consult your relevant authority when applying.
Some licenses will require proof of insurance or credentials before being approved. They also often require a fee.
Common license types include:
- State business licenses, for example, operating licenses
- Federal business licenses, for industries such as agriculture, broadcasting, and transportation
- Local business licenses, including building permits, land use permits, and health licenses
- Professional license, required for professions such as accountants, doctors, electricians, and plumbers
- Sales tax licenses, needed if you plan to sell goods
- Home based business licenses which are required if you are a consultant or freelancer
9. Business Banking
When setting up a business bank account, the first step is selecting a bank and an account type that best suits your business needs.
Bank Account Features
Look for features that are beneficial for your business, such as low fees, minimum balance requirements, efficient online banking services, and easy access to bank branches. Different banks offer various types of business accounts, each with unique advantages like reduced transaction fees or complimentary business debit cards. It’s essential to compare offerings from multiple banks to ensure you find the most suitable account for your business’s financial requirements.
Documents
To open your business bank account in the USA, you’ll need to prepare the necessary documentation. This typically includes your business’s formation documents (such as Articles of Incorporation or Articles of Organization), your Employer Identification Number (EIN) from the IRS, and personal identification. Depending on your business type and the bank’s requirements, you may also need to provide additional documents like partnership agreements, business licenses, or DBA certificates.
Opening the Account
Arrange a meeting with a bank representative to start the account setup. It’s crucial during this process to fully understand the account’s terms and conditions, including any associated fees, interest rates, and transaction limits. Having a dedicated business bank account is not only vital for efficient financial management and tax preparation but also plays a significant role in establishing your business’s credibility and professionalism.
10. Understanding the Importance of Business Insurance
Obtaining business insurance is a crucial step in safeguarding against unforeseen risks and liabilities. Insurance provides a safety net that can protect the financial health of your business in the event of accidents, lawsuits, natural disasters, or other unforeseen circumstances.
Different types of insurance cover various aspects of business risk, from property damage to legal liability. The kind of insurance you need largely depends on the nature of your business, the industry you operate in, and specific risk factors associated with your business activities.
The most common types of business insurance include:
General Liability Insurance
This is fundamental for any business. It covers legal fees and damages if your business is sued for personal injury, property damage, or other common liabilities.
Property Insurance
Essential if you own or lease a physical space. This insurance covers equipment, inventory, furniture, and other physical assets against theft, fire, and natural disasters.
Professional Liability Insurance
Also known as Errors and Omissions (E&O) insurance, it’s crucial for service-based businesses. It protects against claims of negligence, malpractice, or misrepresentation.
Workers’ Compensation Insurance
Required in most states if you have employees. It covers medical expenses and lost wages for work-related injuries and illnesses.
Product Liability Insurance
Important for businesses that manufacture or sell products. It covers damages arising from product defects that cause injury or harm.
Business Interruption Insurance
This helps cover the loss of income if your business operations are disrupted due to a covered loss, like a natural disaster.
Conclusion
Starting a business in the USA in 2024 involves a well-structured and strategic approach. Plan well, register your business, hire a registered agent, and set up a dedicated business bank account.
These steps are key to ensuring smooth operations and compliance with legal requirements. With these steps in mind, you can lay a solid foundation for your business’s success in the American market.
We’re here to help. If you are looking to start a business in the USA, contact us today with our handy form.
