How to start an online business: 9 steps to get started

Published Wednesday 27 May 2026

Table of contents

• Step 1: Weigh the pros and cons of starting an online business
• Step 2: Choose your online business idea and model
• Step 3: Conduct market research
• Step 4: Register your business and understand Canadian regulations
• Step 5: Write your business plan and set a budget
• Step 6: Explore finance options
• Step 7: Build your online presence
• Step 8: Launch your marketing and acquire customers
• Step 9: Launch, optimize, and grow
• Start your online business with confidence using Xero
• FAQs on starting an online business in Canada

Key takeaways

• Online businesses in Canada cost less to launch and run than brick-and-mortar operations, and they reach break even faster according to a survey of 171 business advisors.
• Registering your business, getting a Business Number from the CRA, and understanding GST/HST rules are essential early steps that many new owners overlook.
• A short, flexible business plan paired with a realistic budget helps you adapt quickly; reserve around 40% of your startup budget for digital marketing.
• Canada's e-commerce market is valued at US$41.79 billion in 2025, giving online entrepreneurs a large and growing customer base to tap into from home.

Step 1: Weigh the pros and cons of starting an online business

Before you invest time and money, it helps to understand what makes online businesses different. Xero surveyed 171 accountants and bookkeepers who prepare financial statements for 6,000 small businesses across the US, the UK, and Australia. Their insights reveal clear advantages and a few honest pitfalls.

Advantages of starting online

The experts compared online businesses with brick-and-mortar operations across several measures. Here is what they found.

• Higher profit margins. 57% say online businesses have a higher net profit margin.
• Greater resilience. 67% say online businesses are less likely to fail, and 69% say owners lose less if they do.
• More innovation. 63% say online businesses are more likely to be based on a novel idea.
• Lifestyle flexibility: online business owners are twice as likely to hold down a day job as well.
• Lower stress: just 9% say online owners are more stressed, compared to 48% for brick-and-mortar owners.
• Cheaper to start: six in 10 say retail is cheaper to start online, and two-thirds say services are cheaper online.
• Lower running costs: seven in 10 say it costs less to run a small business online.

Common pitfalls to watch for

The survey also uncovered challenges that catch new online business owners off guard.

• Digital marketing. 35% say digital marketing is hard to figure out.
• Technology. 32% say owners can struggle to understand the tech.
• Transaction fees. 33% say online transaction fees catch people out.
• Time online. 29% say the hours spent on social media and reviews can be tough.
• Website quality. 26% say businesses struggle to create a genuinely good website.

The online and brick-and-mortar businesses in this study had comparable revenue, so these differences were not likely due to scale. The 171 accountants and bookkeepers who participated had an average of 35 clients each, equating to a collective clientele of 6,000 businesses.

Step 2: Choose your online business idea and model

Once you understand the landscape, the next step is to settle on a business idea and a model that suits your skills and budget. Online business ideas fall into several categories, and the model you choose shapes everything from startup costs to daily operations.

Common online business models

Each model has different requirements for inventory, capital, and technical skill. Consider which aligns best with your strengths and resources.

• E-commerce store: sell physical products through your own website or a marketplace like Amazon or Etsy.
• Dropshipping: list products online and have a third-party supplier ship them directly to your customers. Learn more in Xero's guide to dropshipping.
• Digital products: sell courses, templates, ebooks, or software with no physical inventory.
• Affiliate marketing: earn commissions by promoting other companies' products on your website or social channels.
• Services and consulting: offer professional skills such as design, writing, coaching, or bookkeeping to clients remotely.
• Content creation: build an audience through blogs, podcasts, or video, and monetize through ads, sponsorships, or memberships.

Define your niche

A clear niche helps you stand out in a crowded market. Think about what specific audience you want to serve and what makes your offering different from existing options.

The experts in Xero's survey said their top tip for new online businesses is to "define your target market." Work out which people or businesses will buy from you. Then make your product or service perfect for that specific group. Check out Xero's guide to online business ideas for more inspiration.

Validate your idea early

Before committing fully, talk to potential customers. Ask if they like your idea and your price point. While you are at it, ask who they buy from now and learn about your competitors' strengths and weaknesses. A few honest conversations can save you months of wasted effort.

Step 3: Conduct market research

Market research helps you confirm there is real demand for your idea before you spend money building it. Even a few hours of research can reveal whether your concept has legs or needs adjusting.

Validate demand

Start by checking whether people are actively searching for what you plan to sell. Free tools like Google Trends show you search interest over time and across Canadian regions. If search volume is growing, that is a positive signal.

Browse online marketplaces like Amazon and Etsy to see how many competitors sell similar products. Read customer reviews to spot gaps; complaints about existing products are opportunities for you to do better.

Analyze your competitors

Identify three to five businesses that serve the same audience. Look at their pricing, product range, website quality, and customer reviews. Note what they do well and where they fall short.

Pay attention to how they market themselves. Which social platforms do they use? What kind of content do they publish? Understanding their approach helps you find angles they have missed.

Define your target audience

Go beyond basic demographics like age and location. Think about your ideal customer's goals and buying habits. The more specific you are, the easier it becomes to create products and marketing messages that resonate.

Consider creating a simple customer profile that includes who they are, what problem they need solved, and where they spend time online. This profile will guide your decisions across every step that follows.

Step 4: Register your business and understand Canadian regulations

Getting the legal side right from the start protects you and builds credibility with customers. Canada has specific requirements for online businesses, and sorting them out early saves headaches later.

Choose a legal structure

The structure you pick affects your taxes, personal liability, and paperwork. Here are the most common options for Canadian online businesses.

• Sole proprietorship: the simplest and cheapest to set up. You and the business are legally the same entity, which means you are personally liable for debts.
• Partnership: similar to a sole proprietorship but shared between two or more people. A written partnership agreement is strongly recommended.
• Corporation: a separate legal entity from its owners. It offers limited liability protection but involves more paperwork and higher setup costs.

Register with the CRA and get a Business Number

Most Canadian businesses need a Business Number (BN) from the Canada Revenue Agency (CRA). Your BN is a unique nine-digit identifier used for tax accounts including GST/HST and payroll.

You can register online through the CRA's Business Registration Online service. Provincial registration requirements vary, so check with your province or territory as well.

Understand GST/HST obligations

You must register for and charge GST/HST once your revenue exceeds $30,000 over four consecutive calendar quarters. Even below that threshold, voluntary registration lets you claim input tax credits on business purchases.

Some provinces also charge provincial sales tax (PST) or a harmonized sales tax (HST). Make sure you understand which taxes apply based on where your customers are located.

Know your privacy and marketing rules

Canada's Personal Information Protection and Electronic Documents Act (PIPEDA) governs how you collect and store customer data. If you collect customer data such as email addresses or payment details, you need a clear privacy policy.

Canada's Anti-Spam Legislation (CASL) requires you to get consent before sending commercial electronic messages. This includes marketing emails and texts. Non-compliance can result in significant penalties, so build consent mechanisms into your email sign-up forms from day one.

Step 5: Write your business plan and set a budget

A business plan forces you to think through your idea from multiple angles, and a budget keeps you grounded in reality. Together, they form the foundation for every decision you make in the early months.

Why a short plan works for online startups

Traditional 20-page business plans are great if you are pitching investors. But most online startups do not need outside funding to get started, which frees you to write a plan that works for you.

Almost 60% of new online business owners struggle to forecast revenue for their first few months (Global eCommerce report, Xero, 2019). That is because so much depends on digital marketing, which is a massive experiment in the early days. A shorter, more fluid plan is easier to update as you learn.

What your plan should cover

Even a one-page plan should address the basics. Consider including these elements.

• Business idea: what you sell and who you sell it to.
• Revenue model: how you make money (direct sales, subscriptions, commissions).
• Target market: your ideal customer profile from step three.
• Competitive advantage: what sets you apart from existing options.
• Startup costs: a realistic estimate of what you need to spend before your first sale.
• Marketing approach: the channels you plan to test first.

For a step-by-step walkthrough, see Xero's guide to starting a business.

Build a realistic budget

List all your expected costs and plot them on a calendar so you know roughly when they will hit. Then add some modest sales projections. You will be in the red early on, but that is how starting a business goes. Make sure you have a plan for paying bills in the meantime.

Online business consultant Shahemen Farid of Boobooks Accountants says it takes time for your long-term budget to become clear. "We suggest clients who are starting an online business go in with three months of working capital and base their forecasts on that first quarter."

Common budgeting mistakes to avoid

Xero's expert survey identified several costs that new online business owners commonly underestimate.

• Website costs. 35% of experts say people underestimate the cost of a good website. Off-the-shelf templates help, but creating a great user experience may require freelance help.
• Digital marketing. 37% say startups get caught out by marketing costs. Most digital advertising is sold on a cost-per-click basis, and with only about one in 50 visitors making a purchase, costs add up quickly.
• Transaction fees. 33% say businesses do not budget correctly for transaction fees. Most major payment providers charge around 2.5%–3% plus a small flat fee per transaction in Canada. Factor that into your pricing.
• Shipping costs.39% of Canadian e-commerce businesses cite high shipping costs as their top operational challenge. Customers often expect free shipping, so factor those costs into your pricing from the start.

Step 6: Explore finance options

Once you know what your startup will cost, the next question is how to fund it. Banks are unlikely to finance an online startup unless you already have a strong business track record, but there are other paths.

Self-financing is common

Many online service businesses grow out of small freelancing teams with low operating expenses. You can get started with a laptop and a few software subscriptions, which most people can pay for out of pocket.

Retailers need to invest more, but they can manage risk by starting with limited inventory and ramping up only when demand is confirmed. "You can start an online retail business for 20K now," says Shahemen Farid of Boobooks Accountants. "So people are increasingly able to self-finance."

Other sources of funding

If you need extra capital, consider the following options.

• Credit cards: quick access to funds, but interest rates are high.
• Personal loans: you will likely need to offer something you own as security.
• Friends and family: they might lend cash or buy in as investors.
• Crowdfunding: best suited to ideas with viral potential that excite a crowd.
• Government programs: the Canada Small Business Financing Program and Business Development Bank of Canada (BDC) offer loans designed for small businesses. The Business Benefits Finder can help you search for grants and funding.

Step 7: Build your online presence

Your website, storefront, or platform is where customers find you, learn about your offerings, and decide whether to buy. Getting this foundation right is worth the effort. Canada's e-commerce market is valued at US$41.79 billion in 2025, with projections reaching US$66.89 billion by 2030. Setting up correctly from the start positions you to capture a share of that growth.

Choose your domain and brand identity

Pick a domain name that is easy to spell and remember. For a Canadian audience, consider a .ca domain to signal local presence, though .com works well if you plan to sell internationally.

Your brand identity includes your business name, logo, colour palette, and tone of voice. Keep it simple and consistent across your website and social channels. A polished, cohesive look builds trust with first-time visitors.

Set up your online shop

Retailers can use existing marketplaces like Amazon, Etsy, Facebook, or dozens of others. It is a fast way to start because you drag and drop product images into the shop and the marketplace processes payments for you. The downside is less control over how your shop looks, plus a cut from each sale.

You can also create your own online shop using platforms like Shopify, WooCommerce, Wix, and BigCommerce. These cost a monthly subscription fee and you pay a percentage on each sale, but you get more flexibility over design and customer experience.

Set up an online office or studio

If you offer professional services, you likely already know how to work remotely. Collaboration tools for video calls, project management, and file sharing make it straightforward to serve clients from home.

Content creators and coaches can attract customers by sharing free content on social platforms, then convert followers into paying customers through courses, memberships, or one-to-one sessions. The online model lets you serve more clients than an in-person setup.

Prioritize user experience and trust

Make sure your site loads quickly, works well on mobile, and makes it easy to find products or services. Clear navigation, professional photography, and visible contact information all build confidence.

Add trust signals such as secure payment badges, a clear return policy, and customer reviews. These small details can make the difference between a visitor who browses and one who buys.

Step 8: Launch your marketing and acquire customers

In the online world, people do not walk by your business by chance. You need to earn each visit to your website. Only about 2–3% of those visitors will make a purchase. A mix of marketing channels gives you the best chance of finding what works.

The honest truth about digital marketing

There is no single playbook that works for every business. There will be plenty of trial and error. You can make some smart guesses, but you need to test several channels early on because results can be wildly unpredictable.

"There's no telling what will work and what won't," says Ben Charlton of Air8 Digital, an agency that helps small businesses navigate digital marketing. "You have to experiment. But you can do that without spending a fortune."

Channels to explore

About 94% of Canadian small businesses post on social media monthly. Yet widespread participation does not automatically translate into results. Having a presence and having a strategy are two very different things. Here are the main channels to consider.

• Search engine optimization (SEO): create helpful content that ranks in Google over time. It is a long-term investment that builds free, organic traffic.
• Paid advertising. Google Ads and Meta Ads let you target specific audiences quickly, but costs can add up if you are not tracking results carefully.
• Social media: share content on platforms where your audience spends time, including Instagram, TikTok, LinkedIn, and Facebook. Short-form video on TikTok and Instagram Reels is especially effective for brand discovery.
• Email marketing: build an email list and stay in touch with potential customers. CASL requires consent before you send commercial messages in Canada.
• Partnerships and influencers: collaborate with complementary businesses or creators who already have your target audience's attention.

How much to budget for marketing

E-commerce consultant Marc McKeown encourages clients starting an online business to keep 40% of their startup budget for marketing. "We'd spend that in the first three months to see what things work and make a plan from there."

That may sound like a big share, but digital marketing may be your only source of sales or leads. The investment is offset by the money you do not have to spend fitting out a physical shop or office.

Step 9: Launch, optimize, and grow

After months of planning and building, it is time to go live. A structured launch helps you catch problems early and build momentum with real customers.

Pre-launch checklist

Before you open for business, run through these essentials to make sure everything works smoothly.

• Test your checkout: place a test order to confirm payment processing, shipping calculations, and confirmation emails all work.
• Check all pages: review every page on your site for broken links, typos, and missing images.
• Set up analytics: install a tool like Google Analytics so you can track visitor behaviour from day one.
• Prepare customer support: set up a contact form or email address and decide how quickly you will respond to enquiries.

Start with a soft launch

Consider sharing your site with a small group of friends, family, or early supporters before a full public launch. Their feedback can help you spot issues with navigation, product descriptions, or the ordering process that you might have missed.

A soft launch also lets you test your fulfilment process with real orders at a manageable volume. Fix any hiccups before ramping up your marketing spend.

Optimize for conversions

Once traffic starts flowing, focus on turning visitors into customers. Small changes can make a meaningful difference.

• Clear calls to action: make it obvious what you want visitors to do next, whether that is adding to cart, booking a call, or signing up.
• Social proof: display customer reviews, testimonials, or case studies to build confidence.
• Simple checkout: reduce the number of steps between "add to cart" and "purchase complete."

Collect feedback and iterate

Ask early customers what they liked and what could be better. A short follow-up email after purchase is an easy way to gather insights. Pay attention to patterns in feedback rather than reacting to every individual comment.

Use your analytics to track which pages get the most traffic, where visitors drop off, and which marketing channels bring the highest-quality leads. Let the data guide your decisions about where to invest your time and budget next.

Common challenges to prepare for

Growing an online business comes with ongoing hurdles. Knowing what to expect helps you respond calmly and stay on track.

• Market competition: new competitors appear constantly online. Stay focused on your niche and keep improving your offering.
• Cash flow management: revenue can be unpredictable in the early months. Track your cash flow closely and keep a buffer for slow periods.
• Work-life balance: running a business from home makes it tempting to work around the clock. Set boundaries early to avoid burnout.

Start your online business with confidence using Xero

Starting an online business in Canada takes planning, persistence, and the right tools. From registering with the CRA to tracking your first sales, staying on top of your finances is one of the most important habits you can build early. For a complete walkthrough, see the starting a business checklist.

Xero's cloud-based accounting software helps you automate invoicing, track expenses, manage cash flow, and stay GST/HST-ready. More than four million small businesses around the world use Xero. It helps you spend less time on the books and more time growing your business. Try Xero today and get one month free.

FAQs on starting an online business in Canada

Here are answers to some frequently asked questions about launching an online business in Canada.

Do you need to register an online business in Canada?

Yes, most online businesses in Canada need to register a business name with their province or territory. You will also need a Business Number from the CRA to collect GST/HST or hire employees.

How much does it cost to start an online business?

Costs vary widely depending on your model. A service-based business can launch for under $500, while an e-commerce store with inventory might need $5,000 to $20,000.

Do you need to charge GST/HST on online sales?

You must register for and charge GST/HST once your business earns more than $30,000 in revenue over four consecutive calendar quarters. Below that threshold, registration is voluntary but can be worthwhile because it lets you claim input tax credits on business expenses.

What is the best platform to sell online in Canada?

Shopify is popular with Canadian retailers for its ease of use. WooCommerce suits those comfortable with WordPress, while Etsy works well for handmade goods.

Can you run an online business from home in Canada?

Yes, running an online business from home is common in Canada. Check your local zoning bylaws, as some municipalities restrict certain types of activity.