Starting an online business: steps, costs and tips
Learn how to start an online business, pick the right tools, and launch fast with less risk.
Written by Lena Hanna—Trusted CPA Guidance on Accounting and Tax. Read Lena's full bio
Published Tuesday 21 April 2026
Table of contents
Key takeaways
- Validate your business idea by defining your target market first and talking directly to potential customers about their needs, preferences, and current purchasing habits before investing time and money into development.
- Budget for common overlooked costs including website development beyond basic templates, digital marketing spend that can quickly accumulate with pay-per-click advertising, and transaction fees of 2-5% that must be factored into your pricing from the start.
- Start with a flexible one-page business plan rather than a lengthy traditional document, as online businesses often lack detailed forecasting data and need to adapt quickly based on experimental marketing results.
- Allocate 40% of your startup budget to digital marketing in the first three months to test multiple channels and identify what works, as online businesses must actively earn every website visit unlike physical stores with foot traffic.
What is an online business?
An online business is any commercial activity conducted primarily over the internet. Unlike traditional brick-and-mortar operations, online businesses serve customers digitally, whether through websites, apps, or online platforms.
Online businesses generally fall into four categories:
- E-commerce and retail: selling physical products through your own website or marketplaces like Amazon
- Online services: delivering professional skills remotely, such as consulting, design, accounting, or marketing
- Digital products: selling downloadable goods like courses, software, ebooks, or templates
- Content and media: generating revenue through advertising, sponsorships, or subscriptions on blogs, podcasts, or video channels
The key difference from traditional businesses is that online operations don't require a physical location to serve customers. This reduces overhead costs and removes geographic limitations on your potential market.
Pros and cons of online business
Online businesses offer distinct advantages over brick-and-mortar operations, including lower startup costs, higher profit margins, and greater flexibility. They also come with unique challenges like digital marketing complexity and technology learning curves.
Xero surveyed small business advisors to see exactly how ecommerce stacks up against traditional businesses.
Key findings
Here's what accountants and bookkeepers say about online business performance compared to brick-and-mortar operations. These insights come from 171 advisors who collectively prepare financial statements for 6,000 small businesses across the US, UK, and Australia.
- Higher profitability: 57% of advisors say online businesses have higher net profit margins.
- Greater resilience: 67% say online businesses are more likely to survive, a significant advantage when data shows only 79.6% of businesses survive their first year. Advisors also say 69% of online business owners retain more of their investment if the business closes.
- More innovation: 63% say online businesses are more likely to be based on a novel idea.
- Better lifestyle flexibility: online business owners are twice as likely to hold down a day job as well.
- Lower stress levels: just 9% say online owners are more stressed, compared to 48% for brick-and-mortar owners.
- Cheaper startup costs: 6 in 10 say retail is cheaper to start online, and two-thirds say services are cheaper online.
- Lower running costs: 7 in 10 say it's cheaper to run a small business online.
Online businesses also come with challenges. Here are the most common pitfalls experts identified.
Common pitfalls
- Digital marketing complexity: 35% say digital marketing is hard to figure out.
- Technology learning curve: 32% say owners struggle to understand the tech.
- Hidden transaction fees: 33% say online transaction fees catch people out.
- Time demands: 29% say the hours spent on social media and reviews are tough.
- Website quality: 26% say businesses struggle to create a genuinely good website.
The businesses compared in this study had similar revenue levels, so these differences reflect the nature of online versus physical operations rather than business size.
Online business ideas
Online business ideas generally fall into four categories:
- Retail and e-commerce: selling physical products, including handmade or manufactured goods
- Online services: offering professional skills like consulting, design, or bookkeeping remotely
- Apps and software: building digital tools or platforms for other users
- Content and media: creating videos, courses, or written content that generates revenue
See our guide to online business ideas for specific examples in each category.
Making your idea the best it can be
Online businesses require just as much energy and effort as physical ones, even though they cost less to start. Validating your idea through research helps you refine your product or service before you invest that effort.
Experts' number one tip for better ideas
The most common tip from business experts: define your target market before you start. This is critical, as research shows that 42% of startups that closed did so because they hadn't validated market demand for their services or products. Work out exactly which people or businesses will buy from you, whether that's local parents, fitness enthusiasts, restaurants, or something else entirely.
Once you know your target customer, make everything about them. Design your product or service for that specific user, and aim your marketing directly at them.
To validate your idea, talk to potential customers and ask about:
- whether they like your concept, packaging, and price point
- who they currently buy from
- what they wish existing options did better
These conversations reveal competitor strengths and weaknesses while testing your assumptions.
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How to start an online business: step-by-step
Starting an online business follows a logical sequence from idea to launch. Here are the essential steps:
- Choose your business idea: identify a product or service that meets a market need and fits your skills
- Validate demand: talk to potential customers and research competitors before committing
- Write a business plan: document your strategy, even if it's just one page
- Register your business: choose a legal structure and complete required registrations
- Set up your budget: calculate startup costs, ongoing expenses, and funding needs
- Build your online presence: create your website, online shop, or platform
- Set up essential tools: implement accounting software, payment processing, and other systems
- Launch your marketing: start driving traffic and converting visitors to customers
The sections below cover each step in detail, with expert insights and practical guidance.
Writing an ecommerce business plan
An ecommerce business plan can be shorter and more flexible than a traditional business plan. Online startups often lack the detailed forecasting data that brick-and-mortar plans require, and they're less likely to need outside funding that demands formal documentation.
Why a shorter plan works better
Traditional 20-page business plans exist mainly to pitch investors and lenders. Online startups typically cost less to launch, so you're less likely to need outside funding. Institutional investors typically focus on later-stage ecommerce ventures.
This frees you to write a plan that works for you. It might be 20 pages or just one, depending on your needs.
Why you may only need a 1-page plan
Nearly 60% of new online business owners find it challenging to forecast revenue for their first few months, according to Xero's Global eCommerce report. That's because early-stage digital marketing is experimental. You'll test multiple tactics across different platforms before finding what works.
Since online startups launch with evolving information and learn as they go, shorter and more flexible plans make sense. A one-page plan that's easy to update beats a detailed document based on guesswork.
Shorter plans still require planning
Planning still matters, even if your document is shorter. Working through the steps of a business plan forces you to examine your startup from multiple angles. That process strengthens your idea and helps you spot gaps before you launch.
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Legal requirements and business registration
Registering your online business establishes it as a legitimate legal entity and ensures you meet tax and compliance obligations. Requirements vary by location, but most online businesses need to complete these steps.
Choose a business structure:
- Sole proprietorship: simplest option with minimal paperwork, though personal and business liability remain combined
- Partnership: shared ownership with another person, requiring a partnership agreement
- Limited liability company (LLC): separates personal assets from business liability with moderate setup requirements
- Corporation: most complex structure, typically suited for businesses planning to raise investment
Complete essential registrations:
- Register your business name with relevant authorities
- Obtain a tax identification number or business number
- Apply for any required licenses or permits for your industry
- Register for GST/VAT if your revenue exceeds the threshold
Set up business banking and insurance:
- Open a separate business bank account to keep finances organised
- Consider professional indemnity or public liability insurance depending on your services
Check your local government's business registration portal for specific requirements in your area. An accountant can help you choose the right structure and ensure you meet all obligations.
Creating a budget for a digital business
A digital business budget tracks your startup costs, ongoing expenses, and projected timeline to profitability. Even though online businesses cost less to run than physical ones, you still need to know what you'll spend and when you might break even.
Accountants and bookkeepers say beginners often overlook significant costs. Here are the most common budgeting mistakes.
3 common ecommerce budgeting mistakes
- Website costs (35% of experts): off-the-shelf templates are affordable, but creating a great user experience often requires freelance help that adds to your budget.
- Digital marketing spend (37% of experts): cost-per-click advertising charges you for every visitor, and with only about 2% converting to buyers, costs add up quickly.
- Transaction fees (33% of experts): payment processing fees vary by provider and payment method; many mainstream processors charge roughly 2.6% to 3.5% plus a fixed fee for standard online card payments; this is especially true for smaller companies, as data shows small businesses often pay higher fees, which you need to factor into your pricing from the start.
How to do a budget
To create your budget:
- List all business costs and plot them on a calendar
- Add modest sales projections to the same timeline
- Plan how you'll cover expenses while revenue builds
Plan for expenses to exceed revenue in the early months. Shahemen Farid of Boobooks Accountants recommends starting with three months of working capital. "Base your forecasts on that first quarter," he says, "then adjust as real data comes in."
Budgeting for an online business? See the SBA's guide to calculating startup costs for a breakdown of typical expenses.
Experts' pricing tip for online businesses
Online businesses can price competitively with brick-and-mortar rivals while keeping more margin. Lower operating costs create room for expenses like free shipping, which can improve conversion rates, while still maintaining higher net profit margins than physical stores.
Sources of funding for your online business
Most online businesses self-finance because traditional bank financing typically requires revenue history, collateral, or guarantees that early-stage startups are still building. The lower costs of online ventures make self-financing more achievable than with physical businesses.
Funding needs vary by business type:
- Service businesses: can start with a laptop and software subscriptions, often paid from personal savings
- Retail businesses: require more upfront investment but can soft-launch with limited inventory to test demand before scaling
"Startup costs for online retail vary widely depending on inventory, platform, fulfillment, and marketing," says Shahemen Farid of Boobooks Accountants. "Some lean models can start with relatively modest capital, while others require substantially more. People are increasingly able to self-finance."
If you need additional funding, consider these options:
- Credit cards: provide quick access to capital but carry high interest rates
- Personal loans: may be secured or unsecured depending on the lender and your credit profile
- Friends and family: may lend money or invest as equity partners
- Angel investors: industry contacts who back promising early-stage businesses
- Crowdfunding: works best for ideas with viral potential that excite a broad audience
- Grants: available for cause-driven or innovation-focused businesses
Get help from an ecommerce pro
Accountants and bookkeepers help online businesses launch every day. They can guide you through planning, registration, budgeting, and financial setup.
Find an advisor who specialises in ecommerce in the advisor directory.
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Building your online presence
Building your online presence means creating the digital infrastructure where customers find you, learn about your offerings, and make purchases. Unlike physical businesses, online businesses can reach customers well beyond your local area, though geography still matters for taxes, shipping, legal compliance, and market access. This is why 63% of advisors say online businesses are more likely to be based on niche or novel ideas, with some of the most profitable digital small businesses including podcast production and software companies.
Here's how to set up different types of online operations.
Creating an online shop
You have two main options for selling products online.
Existing marketplaces (Amazon, Alibaba, Facebook):
- Pros: fast setup, built-in payment processing, access to existing customer traffic
- Considerations: branding control is shared with the marketplace, and fees apply on each sale
Your own online shop (Shopify, Square, BigCommerce):
- Pros: full control over branding and customer experience, more flexibility
- Considerations: monthly subscription fees, transaction fees, and more setup effort required
Marketplaces get you selling faster. Your own shop gives you more control but requires careful planning to avoid costly mistakes.
Setting up an online office
An online office runs on software for creating, sharing, and collaborating on projects. Service businesses can operate entirely remotely with the right tools, and many online businesses maintain strong profit margins using these setups.
Even complex collaboration works well online. Michael Yared's app development agency, Echobind, has used remote tools for years. "Digital brainstorming boards allow you to capture ideas from everyone, not just the loudest or highest-paid people in the room," he says. "Plus remote working encourages better documentation because so much information is exchanged in writing."
Creating an online studio
An online studio delivers expertise through digital content, courses, and virtual sessions. This model works well for coaches, trainers, and educators who can package their knowledge into scalable products.
Olivia Park Coaching delivers physical and wellbeing training to clients across Asia using this approach. She attracts customers with free content on social platforms, then converts them to paid self-serve courses and one-to-one calls. "It's enabled me to create more products with different tiers of service," she says. The digital approach lets her help more clients than in-person work would allow.
Building an app
Building an app requires turning your idea into working software, which involves design, development, testing, and launch. Costs and timelines vary widely depending on complexity.
See the SBA's guide on launching your business for detailed insights on what the process involves and what you should budget.
Setting up payment processing
Once your online presence is built, you need a way to get paid. Setting up payment processing involves choosing a payment gateway like Stripe or PayPal that integrates with your website or ecommerce platform. These services allow you to securely accept credit card payments and other forms of digital payment, making it easy for customers to buy from you.
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Essential tools and technology for your online business
The right tools help you run your online business efficiently from day one. Here are the key categories to consider.
Accounting and financial management:
- Track income, expenses, and profitability in real time
- Automate invoicing and payment reminders
- Prepare for tax time with organised records
- Connect with over 1,000 apps to streamline your financial workflows
E-commerce platforms:
- Shopify, WooCommerce, and BigCommerce for your own online store
- Amazon, eBay, and Etsy for marketplace selling
- Square and Stripe for simple payment pages
Payment processing:
- Stripe and PayPal for online transactions
- Square for in-person and online payments
- Expect transaction fees of 2% to 5% depending on the provider
Marketing and customer communication:
- Email marketing tools like Mailchimp or ConvertKit
- Social media scheduling with Buffer or Hootsuite
- Customer relationship management (CRM) systems like HubSpot
Productivity and collaboration:
- Project management with Asana, Trello, or Monday
- Document collaboration through Google Workspace or Microsoft 365
- Video conferencing via Zoom or Google Meet
Start with the essentials: accounting software, a way to accept payments, and basic communication tools. Add more as your business grows and your needs become clearer.
Digital marketing 101
Digital marketing is how online businesses attract visitors and convert them into customers. Unlike physical stores, every website visit must be actively earned. With cart abandonment averages 70.19% globally, only about 2% of visitors typically make a purchase.
This makes marketing both critical and risky. Pay-per-click campaigns can consume thousands of dollars without a single sale if poorly managed. More than a third of accountants and bookkeepers in the study say digital marketing is a major challenge for online startups.
The honest truth about digital marketing
"You have to experiment to discover what works," says Ben Charlton of Air8 Digital, an agency that helps small businesses with digital marketing. "But you can do that affordably."
Every business needs to find its own marketing approach. You might succeed with Google search ads, LinkedIn articles, YouTube videos, or Instagram stories, and testing helps you find which tactics deliver the best results.
Plan for trial and error. Test several channels early, track what performs, and shift your budget toward what works. See the SBA's guide to marketing and sales for low-cost tactics to try.
How much to budget for digital marketing
Marc McKeown of FortBrave recommends keeping 40% of your startup budget for marketing. "We'd spend that in the first three months to see what works and make a plan from there."
Digital marketing may be your only source of customers, which justifies the investment. The savings from skipping a physical location offset much of this spend.
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Start your online business with the right foundation
Online businesses cost less to start, reach break-even faster, and carry lower risk than brick-and-mortar operations. The expert survey confirms they're more likely to succeed, and owners retain more of their investment if they close.
Here's how to move forward:
- Write down your plan, even if it's just one page
- Test your idea with potential customers
- Build your online presence and start marketing
- Track your finances from day one
Xero helps you manage your online business finances with automated invoicing, expense tracking, and real-time cash flow visibility. Get one month free and see how simple financial management can be.
FAQs on starting an online business
Here are answers to some common questions about starting an online business.
What is the best online business for beginners?
Service-based businesses like freelance writing, virtual assistance, or consulting are often easiest to start because they require minimal upfront investment. E-commerce businesses selling products through marketplaces like Amazon or Etsy are also beginner-friendly since the platforms handle much of the technical setup.
How long does it take to start making money from an online business?
Most online businesses take three to six months to generate consistent revenue. Service businesses can earn income faster since you're selling time immediately. Product-based businesses typically take longer due to inventory, marketing, and customer acquisition costs.
Can I start an online business while working full-time?
Yes. Many online business owners start as a side project while employed. Service businesses and digital products work well for this because you can set your own hours. Expect to invest 10 to 20 hours per week initially, scaling up as the business grows.
Do I need technical skills to run an online business?
Not necessarily, as modern platforms like Shopify, Squarespace, and Wix make website creation accessible without coding knowledge. You can outsource technical tasks to freelancers as needed.
How much does it cost to maintain an online business each month?
Monthly costs vary widely but typically range from $50 to $500 for small online businesses. Common ongoing expenses include website hosting ($10 to $50), accounting software ($25 to $75), email marketing tools ($0 to $50), and payment processing fees (2% to 5% of sales).
Disclaimer
Xero does not provide accounting, tax, business or legal advice. This guide has been provided for information purposes only. You should consult your own professional advisors for advice directly relating to your business or before taking action in relation to any of the content provided.
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