How to start your own business in the US

Steps to start a business

Establish your business’s legal footing

Before you race ahead with your business, you need to get set up! Here are the essential first steps:

1. Choose a business structure

Are you creating an LLC, sole proprietorship or corporation? Your choice of business structure affects how you pay tax and handle financial risk. Read more info from the IRS on business structures.

2. Register your company name

You need to register a unique business name for both marketing and legal purposes. Here’s more info from the government on registering your business name

3. Get an EIN (employer identification number) from the IRS

This is effectively a Social Security number for your business. You need an EIN to open a business bank account. Apply on the IRS website.

4. Get business licenses and permits

Each state has its own rules for business licensing and permits, so discover which you need for your industry and location. You can find local permit requirements on your city or county government website.

5. Research local zoning laws

Zoning laws control how land is used – for example, local laws may restrict a business’s size and opening hours if it’s in a residential area. Check your local planning department’s website to find your area’s zoning designation and rules.

Know your tax obligations

The taxes your business pays depend on its business structure. Possible taxes include federal income tax, employment tax, self-employment tax, excise tax, and state and local taxes, including sales tax.

The Internal Revenue Service (IRS) and state tax agencies require businesses to keep accurate records of their income and taxes. There are usually financial penalties for businesses that don’t pay their taxes on time.

If this sounds daunting, remember:

• Small businesses are often eligible for tax deductions and credits that can lower their tax bills
• An accountant or bookkeeper can give you great advice on your situation
• Accounting software like Xero is a big help in tracking your finances and reporting to the IRS

Major industries in the US

When starting a new business, take a look at the dominant industries and their potential growth areas.

Healthcare

With a revenue of $1.331.8B in 2024, healthcare is one of the biggest industries. People will always need access to hospitals and care, although unpredictable factors such as pandemics can make for unique challenges. Most likely there’ll be a growing demand for preventative healthcare and ways to enhance people’s wellbeing. No doubt technology will play an ever-growing role, too.

Here’s what McKinsey expects from the US healthcare market.

Technology

The rise of AI in the workplace continues to put technology experts and businesses in the spotlight. All industries will be affected with early adopters likely to see great benefits. Check out the Xero guide to AI for small businesses.

Retail

Retail is another huge industry in the US. An area that’s expected to grow quickly is sustainable consumption, as customers and investors look for businesses that can prove their low carbon output. Because consumers are now doing much of their shopping online, retailers – whatever their brand or product – are keen to integrate consumers’ digital and physical shopping experiences. Here are more insights from the National Retail Federation.

Regional differences

Another crucial decision when starting a small business is your location. States vary in their business climates, tax rates, infrastructure, availability of talent, and access to funding. Wyoming and South Dakota, for instance, don’t charge any state corporate tax while Alaska, Illinois, Minnesota, and New Jersey all charge more than 9%. And when it comes to renting office space, New York City prices might make your eyes water while Dallas is much more affordable.

Consumer behavior

Your business strategy should consider your target consumer and how they will behave when faced with different prices, levels of quality, shopping experiences, and so on. Some businesses, for example, focus on high sales volumes at a low price in response to their consumers’ preferences. Other business models try to deliver great customer service for high-paying consumers.

Market research is invaluable when starting a business. US consumers can be complex in their tastes and preferences, so go out and gather data to strengthen your business plan.

Check out these insights into recent business trends.

What business ownership is really like in the US

Let’s look at some real business owners and how they found success:

Amanda Nguyen had the idea for her online cake-making business, Butter&, while working in the tech industry. She started by making cakes for friends and family, but recognized a business opportunity when she got her first order from a stranger. Part of her business mission is to pay her employees a liveable salary and to give them full benefits and equity in the company. Her business has since featured in the press, including USA Today. Read more about Amanda’s business insights.

Mark Windsor, founder of Full Windsor, specializes in sustainable outdoor gear. He designs products to last a lifetime and which appeal to consumers who care about the environment. His business model is to be a one-man band and outsource any extra work. Read more about Mark’s business insights.

Another designer of sustainable products is Amy. She left the corporate world of fashion to make one-of-a-kind upcycled clothing for her Navajo-owned brand 4Kinship. Amy hires designers and makers from around the world, including indigenous people. Read more about Amy’s business insights.