A Step-By-Step Guide to Starting a Business in the USA
According to the Doing Business ranking of the World Bank, in 2020, the U.S. is in sixth place in the world by the ease /of doing business. Are you planning to start your business in this country? We have developed a full step-by-step guide to exploring the market, choosing the business structure type, calculating costs, finding financing, and registering a company.
1. Explore the Market
Before preparing the documents and business plan, you need to carefully analyze the market to get a full picture of the chosen industry, and namely examine consumer habits and the target audience’s financial possibilities, gather the data about your competitors, interest rates of banks, and much more. We have compiled a list of all the necessary services in the following table.
Market Analysis Services
|Name of the Service||What It Offers||How To Use It|
|Statistics by Industry and Business Environment|
|NAICS||The classifier of economic activities offering the comparison of business statistics by industries||The system assigns codes to different industries. Use the code to explore the data on your business and related areas: to review, analyze, and make economic forecasts|
|USA.gov Statistics||The statistics section on the US government website offering statistic data on any subject||Run a search on your topic: enter an exact set of keywords to get nationwide statistics or study the data for a particular state|
|Statistical Abstract of the United States||The U.S. Census Bureau Library offering the information on a variety of industries from agriculture to banking||In the Business Enterprise section you can find the data on the number, type, and size of enterprises; financial reports, information on business investments, expenses, profits, and sales|
| U.S. Census Bureau||The Census Bureau offering the data on the U.S. people and economy||Select the type of activity and the location you want to explore (a particular state or city). Click “Create Report” to get all the data on your subject|
|Statistics of U.S. Businesses||The U.S. Census Bureau offering business data statistics||The site contains the data for almost all American commercial institutions with hired workers. The information can be filtered by industry, size, and location|
|Information on Prospective Customers and Consumer Markets|
|Consumer Credit Data||The USA Federal Reserve System offering financial data||From consumer loan reports, you’ll find out what people are borrowing for. The data can be analyzed with regard to seasonal variations|
|Consumer Product Safety||The Consumer Product Safety Commission offering information on injuries or deaths associated with the use of consumer products||In the research and statistics section, you can search for data by product category (toys, sports goods, kitchenware, etc.) or hazard type (electric current, fire, water, etc.)|
|Segmenting the Population for Customer Orientation|
|American FactFinder||The Census Bureau offering the data on the U.S. people and economy||To get statistical information, use a keyword search or filter the information by topic, location, or age|
|Bureau of Labor Statistics||The U.S. Bureau of Labor Statistics offering the data on different demographic categories, including sex, age, race, and ethnicity||On the site, you can search for information by different categories: employment depending on demographic characteristics and place of residence, expenditures and income, industrial injuries and time spent on various activities|
|Market Employment Trends|
|Employment and Unemployment Statistics||The U.S. Bureau of Labor Statistics offering the information on the number of working people, wages, and labor demand||Explore the data on average wages in different sectors for each state, employment and unemployment, vacancies, hiring and dismissals, labor market forecasts and much more|
|Earnings by Occupation and Education||The U.S. Bureau of Labor Statistics offering the information on the number of working people, wages, and labor demand||Explore the information on hourly and weekly earnings in the chosen industry depending on age, gender, education, and other factors|
|Income Statistics||The U.S. Bureau of Labor Statistics offering the information on the number of working people, wages, and labor demand||Analyze income according to the type and time of employment. You can filter the data by state or look at the U.S. average|
|Exchange and Interest Rates|
|Daily Interest Rates||The USA Federal Reserve System offering financial data||Here you will find the interest rates set by most major U.S. banks, inflation indices, and much more. The data is updated daily.|
|Money Statistics via Federal Reserve||The USA Federal Reserve System offering financial data||This section provides overviews of small business lending, the data on the banking structure, currency rates, information on securities and interest rates|
|Production and Sales Statistics|
|Consumer Spending||The U.S. Bureau of Economic Analysis offering consumer spendings data||You will find out how much the population spends on the type of goods or services you are interested in, examine monthly expenditure trends, and compare the data for the whole country and specific states|
|Gross Domestic Product (GDP)||The U.S. Bureau of Economic Analysis offering consumer spendings data||Compare the value of the product you’re interested in and the revenues from its sale to understand the industry’s prospects. The data can be filtered by location – city or state|
|Tracking International Sales Performance and Market Efficiency|
|Balance of Payments||The U.S. Bureau of Economic Analysis offering information on international economic transactions||Here you will find the data on international trade in goods and services, income from investments, financial flows, as well as investments by country and industry|
|USA Trade Online||The U.S. Census Bureau offering the data on trade statistics||Explore export and import data from a range of industries to assess potential markets|
2. Develop a Business Plan
A business plan is a company’s roadmap for the management, planning, and attraction of investments. This document may look different depending on the chosen strategy: a traditional or a lean startup.
A Traditional Startup
The traditional business plan provides for in-depth market research with accurate calculations and a detailed strategy for up to five years. Usually, this document consists of several dozens of pages and includes the following investigations:
- Positioning: what the company and the industry in general are by nature, what your mission and values are, and what product you’re going to sell.
- Strategy and the unique selling proposition (USP): what makes a product or service unique, what development stage you are at, what goals you have, and when you want to achieve them.
- Market analysis: who your main competitors are and how you can stand out from them.
- Target audience analysis: who exactly you are creating the product for.
- Structure: how the company is organized, how many people work in it, and what responsibilities they fulfill.
- Marketing strategy: how you are going to attract and retain clients.
- Financing: what the initial capital is, should you take a loan or attract investments?
- Financial analysis: cost, sales, profit, and loss forecasts.
A Lean Startup
This strategy is more flexible and implies constant changes depending on market demands. The lean startup model is improved on the fly, so the initial plan is a brief document outlining the main points of the strategy:
- the USP: the value of the product or service to consumers and your competitive advantage.
- Market analysis: your target audience and competitors.
- Customer relationship: what communication channels you will use, what experience consumers will gain.
- Financing: revenue sources and initial costs.
The goal of a lean startup is to minimize risks and avoid high costs. Therefore, such a business makes plans for a short period of time and constantly tests hypotheses in practice. A minimum viable product is introduced to the market, the creation of which doesn’t take much time, money, or effort. Then they study consumer feedback and adjust further actions according to it.
We have prepared an example of a business plan: download and study it to develop your own strategy.
3. Select a Business Structure
Companies in the US are divided into four main types depending on the form of organization (structure). Each of them has advantages and disadvantages. Let’s consider all the nuances in detail in the table below.
Main Types of Business Structures in the USA
|Structure Type||Who’s Good For||Ownership||Liability||Taxes|
|Sole Proprietor||Service sector workers: hairdressers, designers, photographers, accountants, etc.||Sole Proprietorship||The owner’s unlimited liability: payment of fines or lawsuits will affect not only business assets but also personal property||The Self-Employment Tax (FICA) which includes social security tax (12.4%) and health insurance (2.9%)|
|Partnership||Teams of equal specialists: financiers, lawyers, programmers||Collective (two or more people)||Depends on the type of partnership:General: unlimited liability of the founders for all financial and legal obligations of the business;Limited Liability: the liability applies only to each partner’s contribution to the business and does not affect personal property||Each partner pays taxes individually depending on his income|
|Corporation||Large companies with a branched structure, a large number of owners who plan to attract investments and place their shares on the exchange||Shareholders: for an S corporation – an unlimited number; for a C corporation – up to 100 participants||The shareholders’ liability for obligations under the investment capital||Depend on the corporation type:С — double taxation: on company and shareholders’ income;S — income tax only|
|Limited Liability Company||An enterprise that needs a flexible structure: this type of business brings together the advantages of both a partnership and a corporation||An unlimited number of members||The limited liability of the owners according to the amount of their investments||Each owner pays taxes individually|
4. Calculate the Initial Costs
Calculate how much it will cost you to start a business and think about whether you have enough money. In the checklist, you’ll find the main eхpenditure items – mark the ones that suit you or add your own:
- office rent;
- business licenses and permits;
- insurance policy;
- buying communication equipment;
- buying equipment and materials (if you produce anything);
- market research;
- website development;
- legal and accounting services;
- advertising and marketing.
Some of these costs such as rent, utilities, advertising, and buying materials will become regular. The salary of employees will also be added to the regular costs.
To get a complete financial picture, add one-off costs to regular ones for at least one year, and draw up a small report. This will enable you to estimate how much money you will need, reduce risks, and assess future profits.
5. Check Out the Tax Requirements
Each state has its own tax laws. Therefore, all companies in the U.S. are subject to both federal and local taxes, which vary by region.
Major types of federal taxes are as follows:
- Income tax: is levied on businesses as income is earned during the year.
- Self-employment tax: includes social security tax and health insurance for individual entrepreneurs.
- Employment tax: relates to enterprises with employees and includes taxes on social security and healthcare, federal income tax, and federal unemployment tax.
- Estimated tax: is levied if the amount of income tax withheld on your salary is insufficient or you receive additional income (interest, dividends, alimony, bonuses).
- Excise tax: levies on certain activities, such as communications and air transportation, fuel, primary retail of trucks, trailers, and tractors.
Additional taxes in different states may be, for example, the following:
- sales tax: trade in goods and services;
- property tax: vehicles, computer equipment, and other business assets.
6. Insure Your Business
The insurance will protect personal and corporate assets from unexpected costs such as accidents, lawsuits, or natural disasters. The types of insurance just like taxes depend on the location and type of activity.
Let’s review the six main types of insurance:
- Civil liability. It protects against financial loss due to bodily injury, property damage, medical expenses, libel, defense of legal claims, and settlement of bonds or court decisions.
- Product liability. Suitable for those who manufacture and sell products: the insurance will protect against damage that could lead to injuries or accidents.
- Professional liability. If you provide services, the insurance will protect against losses in case of failures.
- Commercial real estate. Relevant for companies with large amounts of real assets. The insurance covers such cases as fire, hurricane, flood, vandalism, and other emergency incidents.
- Home-based business. It is added to the homeowner’s insurance and provides equipment protection and covers the liability for third party injuries.
- Business owner’s policy. This is an insurance package that combines all standard insurance options and saves money.
How to choose insurance:
- Assess the risks. Think about the factors that threaten your business. To take into account all the possible risks, visit the National Federation of Independent Business website and check out the advice on choosing insurance.
- Consider the type of activity and location. The laws of the state where you do business and your occupation may require a specific form of insurance.
- Find a licensed insurance agent. Review the terms and conditions of different agents to find the right one.
- Insure your employees. If you hire a team, take care of employee health insurance. You can insure each of the workers or the whole team. For more information about health insurance, visit the U.S. government health insurance exchange website.
- Overestimate it every year. Are you scaling up your business or buying new equipment? All this could be a reason to purchase additional insurance.
7. Define Funding Sources
You already know what initial capital you will need. So, now you just have to figure out where to get the money. It can be self-financing, a loan, or different types of investments.
Use your own resources, e.g. savings or help from family or friends. In this case, you get complete control over the business, though you bear all financial responsibility by yourself.
Such investments are primarily aimed at start-ups. The peculiarity of venture capital is that it is offered in exchange for a share of ownership in the company. So, be ready to give up total control over your business.
To get venture capital financing, find an experienced investor, show the business plan, undergo an expert review, and agree on investment terms. They are usually carried out in rounds: as certain stages of the plan are completed, the company receives additional financing.
Unlike venture capital investors, crowdfunders do not require ownership in the business in exchange for financing. They expect gratitude in the form of a “gift”: for example, a product, a service, a benefit, or a mention.
This method of financing is particularly relevant for small businesses related to creativity or innovation. The advantage is that the risks are minimal: you keep full control over the company.
f you lack a start-up capital but don’t want to look for investors then take a small business loan. A bank or credit institution will ask you for a business plan and financial documents on your expenses and forecasts.
If the bank was afraid of high risks and did not give a loan, use the Lender Match tool which is an intermediary between entrepreneurs and lenders of The Small Business Administration (SBA). The SBA is the guarantor of repayment, so the chances of getting a loan increase.
The SBA Investment Programs
The Small Business Administration offers three investment programs:
- Small Business Investment Company (SBIC). Private investment funds invest in start-ups under the guarantee of the Small Business Administration.
- Small Business Innovation Research (SBIR). Designed for small businesses that are involved in advanced government research.
- Small Business Technology Transfer (STTR). Another program that finances companies operating in the innovation research and development sector.
8. Think About Whether to Buy a Franchise or a Running Business
There are two other options to start your business: to buy a franchise or an existing business.
A franchise is the purchase of a ready-made business model, name, logo, and other brand attributes from the owner of the company. This scheme is often used by chain restaurants, shops, and hotels. You benefit from brand recognition and a well-established business scheme but you lose freedom because you must obey the established rules.
Buying an operating business, on the contrary, provides for both total control and total responsibility for the business. This option may be risky for inexperienced entrepreneurs.
If you choose to buy a franchise or a ready-made business, follow these steps:
- Estimate your capital. What exactly you can buy and manage depends on the initial capital.
- Assess your skills. A franchise would be the best choice for beginners, while more experienced entrepreneurs could buy a ready-made business.
- Gather the information. Research the history and structure of the business you intend to buy, consider rent issues, cash flows, financial prospects, licenses, and permits. Seek advice from an accountant and a lawyer if necessary.
9. Choose a Location
The taxes, exemptions, and additional business requirements will be determined by the state where you register your enterprise. You can find more information about them on the chosen state website. Let us tell you what are the main criteria to be guided by.
- Business expenses. License and insurance requirements, the cost of rent, real estate, and utilities, minimum wage laws, and many other factors differ from region to region.
- Zoning regulations. Any area is usually zoned by law for residential and commercial use. Some regulations may restrict or prohibit certain activities including even home-based businesses.
- Taxes. Income tax, sales tax, property tax, and corporate taxes vary by region. Some states are known to have a tax environment that is loyal to certain types of companies.
- Exemptions. Sometimes local governments offer special conditions for small businesses such as soft loans, tax breaks, or other incentives.
10. Choose a Name and Create a Logo
The name must be unique, reflect the identity of the brand, the product offered, and also take into account the laws of the state where you do business. There are four main components of the name.
- Brand name. The main requirement is not to use naming which echoes or is similar to the existing one. Before you register check the uniqueness of the name on the state website.
- Trademark. This name should be unique, too. Check the chosen brand name as well as the name of the goods or services with the official trademark database maintained by the U.S. Patent and Trademark Office.
- Doing Business As (DBA). This is actually a fictional, non-public name for registering a company. This step is optional; it may be necessary in some cases, for example, when a company is split up or a subsidiary is established in another state with its own laws.
- Domain name. Registering a website address is a way to protect your brand presence on the Internet. A domain name may but should not be the same as a legal name or a trademark.
The logo is the main visual symbol of the brand that helps to recognize and stand out from the competitors. The emblem should reflect the essence of business or USP, be simple and catchy. The Logaster online generator will help to create such a logo.
Basic Business Requirements in 10 Popular States
|State||Company Name Requirements||Statutory Requirements||Annual Requirements|
|California||Must not match or resemble the name of an already registered company||At least 3 managers. The only exception is if there are less than three shareholders||Annual reportsIncome tax — 8.84% of net profitMinimum franchise tax ($800)|
|Texas||Should contain the words “corporation”, |
“company”, “incorporated” and be consistent with the purpose specified in the constitutional documents. May not contain the word “lottery” or resemble an already registered one
|Number of managers – one or more||Annual reportsIncome taxFranchise tax (tax rates vary depending on the reporting year)|
|New York||Should contain the words “corporation”, “incorporated”, “limited” and be consistent with the purpose of the organization. It may not match or be similar to a registered name or contain certain words such as “banking” and “insurance”||At least 3 managers. The only exception is if there are less than three shareholders||Annual reportsIncome tax (except for certain types of a corporation)Fixed minimum tax (the rate depends on the company’s profit)|
|Florida||Should contain the words “corporation”, |
“company”, “incorporated” and be consistent with the purpose specified in the constitutional documents and the laws of Florida. Must be different from those already registered
|Number of managers – one or more||Annual reportsIncome tax (5.5% of net taxable income)|
|Illinois||Should contain the words “corporation”, “company”, “incorporated”, “limited”. Can’t coincide with those already registered or contain the words and phrases like “insurance”, “assurance”, “indemnity”, “acceptance of savings deposit”, “banking”, “corporate fiduciary”||Number of managers – one or more||Annual reportsFranchise tax (0.1% of declared capital for 12 months)Income tax (7% of net income)|
|Pennsylvania||Can be in any language but should be written in the English letters or symbols, Arabic or Roman numerals. Must contain the words “corporation”, “company”, “incorporated”, “limited”.||Number of managers – one or more||Annual reportsIncome tax (9.9% of taxable income)|
|Ohio||Should contain the words “сompany”, “сo.”, “corporation”, “сorp.”, “incorporated”, ”inc.”. Can’t coincide with an already registered one or hint at a relationship with a public authority in any of the states||At least 3 managers. The only exception is if there are less than three shareholders||Annual reportsNo franchise or income tax|
|Michigan||Should contain the words “corporation”, “company”, “incorporated”, “limited” and align with the goals of the corporation. Can’t coincide with already existing names and use the words “bank”, “industrial bank”, “deposit”, “surety”, “security”, “trust”, “trust company”||Number of managers – one or more||Annual reportsIncome tax for C corporations (6%)Alternative tax credit for small businesses (1.8%)|
|Georgia||Should contain the words “corporation”, “company”, “incorporated”, “limited”, align with the goals of the company. Can’t coincide with already existing names. Cannot be longer than 80 characters including spaces and punctuation marks||Number of managers – one or more||Annual reportsIncome tax (5.75% of net income)Net capital tax (depending on the amount of capital)|
|North Carolina||Should contain the words “corporation”, “company”, “incorporated”, “limited” and can’t coincide with already existing names. Mustn’t reflect the objectives prohibited by the laws of the state||Number of managers – one or more||Annual reportsIncome tax (2.5%)Franchise tax for C ($1.5 per each $1,000; minimum $200)|
11. Register Your Business
The registration will turn the business into an official legal entity. You can apply online at the website of the selected state. To do this, you need to pay the fees (usually no more than $300), collect the necessary information and documents as to company name, location, structure type, number and value of shares (for corporations).
The number and content of documents depend on the type of enterprise and region. We have collected general requirements for different types of business structures in the table below. Local requirements should be clarified at the state website.
Document Requirements for Business Registration Depending on the Structure
|Structure Type||Required Document||Document Content|
|Limited Liability Company||Corporate Charter||Company name, contact details, names of the founders|
|Operating agreement||Powers, duties, responsibilities of each of the participants as well as decision-making algorithm|
|Partnership||Partnership Certificate||Company name, address, names of partners|
|Partnership Agreement||Powers, duties, responsibilities of each of the participants as well as a decision-making algorithm|
|Corporation (both types)||Certificate of Registration||Name, business purpose, number of offered shares, the value of shares, managers, and officials|
|Corporate Charter||Duties, powers, and responsibilities of officials and shareholders, a decision-making algorithm|
12. Get Your Tax Number
To be able to do business legally, you must register a state tax number and state number.
Employer Identification Number (EIN) is a unique state number of the company as a taxpayer without which it is impossible to do business, and namely pay taxes, open bank accounts, or hire employees. You must apply for it immediately after you’ve registered the business. You can use the tax service website to do this.
A state tax number is only required if the business is subject to additional taxes other than federal taxes.
13. Apply for Licenses and Permits
Most businesses require two types of licenses: from state and local authorities.
The state license is required for such activities as agriculture, alcohol beverages, aviation, firearms, ammunition and explosives, fishing and wildlife, sea transportation, mining, nuclear power, radio and television, transport and logistics. The cost and the nuances of obtaining the license depend on the agency to which you apply.
To find out if you need a state license for your business, check the requirements on the state’s official website. For example, some states require special permission even for hairdressers or photographers.
Once you get your licenses and permits, you have the right to do business legally within the state. But if you want to open a branch in another region, you’ll need to go through the same procedure again. Besides, remember that the term of some licenses and permits is limited: keep an eye on when you need to renew them.
14. Open an Account
A bank account will enable you to make cashless payments and take loans. You can open it after you get a state tax number. To choose a bank, compare conditions for business accounts and choose the most profitable in terms of rates, transaction costs, fees, and early termination charges.
To open an account, you need to provide your tax number, company registration document, license, and property agreements. The financial institution may also ask for additional papers.
Starting a Business in the U.S. for Non-Residents
Opening a business in the U.S. to a non-resident is real if you consider all the details. There are two ways to register a company: remotely (through an intermediary) and personally (by coming to the U.S.). We will answer the main questions that foreigners are concerned about before starting a business.
Which Type of Business Should I choose?
The simplest structure that will suit two or more equal professionals (such as lawyers, doctors, and accountants). In the case of a general partnership, each of the founders has unlimited liability, i.e. risks both corporate and personal assets.
Such a structure may be suitable at an early stage to test your business idea. As the business develops, it can be re-qualified as a limited liability company or corporation.
Of the two types of corporations (C and S) only C is available to the U.S. non-residents. This type of organization is chosen by companies that are planning to attract investments or place shares on the stock exchange.
C corporations are subject to double taxation: federal income tax and payments from shareholders’ income. Members do not risk personal property in case of debts or penalties.
Limited Liability Company
This type of organization combines the advantages of a partnership and a corporation and is suitable for small businesses with a limited number of founders. A limited liability company does not pay corporate taxes but each of its members must pay self-employment tax. In most cases, partners do not risk personal assets in case of fines or lawsuits.
A limited liability company should not be chosen if you intend to attract investments since investors do not provide funds for this type of organization.
Do I Need a Visa?
If you plan to do business remotely from your country with the help of intermediaries, then you will need no visa. Those who plan to live and work legally in the U.S. will need a visa. The main types of business visas are described below.
Visa Types for Foreigners Who Want to Start a Business in the U.S.
|Е-2||To invest in the U.S. economy and confirm the legality of the origin of this amount|
To own at least 50% of the company’s shares or hold one of the managerial positions
To confirm that the enterprise is active and profitable
To come from a country the U.S. has a treaty of commerce and navigation with (check out here)
|Two years, renewable indefinitely|
|L-1||To have a company that plans to open a subsidiary office in the United States|
To hold a continuous managerial position in the company during the year
|Up to three years, renewable|
|O-1||To prove “exceptional abilities” in business by demonstrating success. These can be awards, membership in relevant associations, important business contributions to the industry, high income, etc||Up to three years, renewable|
What State Should I Register My Business in?
Since each region has its own laws and regulations, we recommend that you first check out the official state website. Please note the following criteria:
- The peculiarities for your type of business. The peculiarities for your type of business. Some states may have more favorable conditions for specific activities. For example, Delaware is popular among IT startups: it is easier to get venture capital investments and defend your interests in court in case of disagreement.
- Tax law conditions. Check out the tax requirements for the preferred type of business structure and select the most appropriate ones.
- Permits and licenses. Find out what additional approvals are needed for your business.
- Business physical presence requirements. Are you planning to register your company in one state and do business in another? Make sure the law allows you to do that.
What Is the Company Registration Process Like?
You can go through all the stages of registration personally or assign it to a licensed incorporation agent.
If you register the company yourself, go to the selected state’s website in the business section and select “Register a company”. The system will guide you step-by-step through the process: you’ll know what documents you need to fill out and how much it will cost. Then you will need to get your tax number, licenses (if required), and open a bank account.
If you want to start a company without coming to the U.S., hire an agent who will do the paperwork for you.
Where Can I Get More Information?
When preparing to start a business in the U.S., rely only on official sources with verified information such as:
- The U.S. Small Business Administration: step-by-step instructions for starting a business, useful links, tips.
- The Internal Revenue Service: all about taxation.
- The U.S. Citizenship and Immigration Services: visa types and requirements.
- State Department Websites (e.g. New York, California, Texas): detailed information on documentation requirements, taxes, naming, and online application for starting a business.