How to start an online business: a step-by-step guide
Learn how to start an online business with clear steps, smart tools, and a plan you can act on today.
Written by Lena Hanna—Trusted CPA Guidance on Accounting and Tax. Read Lena's full bio
Published Monday 30 March 2026
Table of contents
Key takeaways
- Define your target market before developing your product or service, as creating something without market need is a primary reason for startup failure.
- Allocate 40% of your startup budget to digital marketing in the first three months, since online businesses rely entirely on earned traffic rather than foot traffic.
- Avoid underestimating three major costs: website development expenses, digital advertising spend that can spiral quickly with pay-per-click models, and payment processing fees of 2.6-2.9% plus fixed fees per transaction.
- Validate your business idea by talking to five to 10 potential customers before launch to get feedback on pricing, positioning, and whether they would actually buy your product or service.
What goes into starting an online business?
Starting an online business means launching a company that operates primarily through digital channels, from ecommerce stores to service-based consultancies. Compared to traditional brick-and-mortar ventures, online businesses typically cost less to start, reach break-even faster, and offer more flexibility, with one study finding they generate an annual revenue 21% higher than their in-store counterparts.
A survey of 171 accountants and bookkeepers who advise online businesses reveals what works. Their insights, combined with quotes from ecommerce consultants and business owners, form the foundation of this guide.
Here's what you'll learn:
- how online businesses compare to physical stores
- how to plan, budget, and launch step by step
- where to find customers through digital marketing
How to start an online business
Use these links to jump to each section:
Pros and cons of online business
Online businesses outperform brick-and-mortar operations on most financial and lifestyle metrics, according to a Xero survey of small business advisors. Here's how ecommerce stacks up against traditional retail.
Key findings
The accountants and bookkeepers who completed this survey prepare financial statements for 6,000 small businesses across the US, UK, and Australia. Here's what they found when comparing online businesses to brick-and-mortar operations.
Financial performance:
- Higher profit margins: 57% say online businesses earn more per sale
- Lower startup costs: Six in 10 say retail is cheaper to launch online; two-thirds say services are cheaper online
- Lower running costs: Seven in 10 say online businesses cost less to operate
- Faster break-even: Seven in 10 say online retailers reach profitability sooner
Risk and resilience:
- Lower failure rate: 67% say online businesses are less likely to fail. According to the U.S. Bureau of Labor Statistics, about 20.4% of all new businesses fail within their first year.
- Smaller losses: 69% say owners lose less money if the business does fail
Lifestyle benefits:
- Side-hustle friendly: Online owners are twice as likely to hold down a day job
- Less stress: Only 9% say online owners are more stressed, compared to 48% for brick-and-mortar owners
- More innovation: 63% say online businesses more often build on novel concepts
Online businesses come with their own challenges. Here are the most common pitfalls experts identified.
Common pitfalls
- Digital marketing complexity: 35% say figuring out online advertising and search engine optimisation (SEO) is a major hurdle
- Technology learning curve: 32% say owners struggle to understand the technical requirements
- Transaction fee surprises: 33% say payment processing costs catch new owners off guard
- Time demands: 29% say managing social media and reviews takes more hours than expected
- Website quality: 26% say creating a genuinely effective website is harder than anticipated
The online and brick-and-mortar businesses in this study had comparable revenue so these differences were not likely due to scale. 171 accountants and bookkeepers participated in the study, with an average of 35 clients each (equating to a collective clientele of 6,000 businesses).
Online business ideas
Online business ideas fall into four main categories, each with different startup requirements and revenue models:
- Retail and ecommerce: selling physical products through your own store or marketplaces
- Service providers: offering skills like consulting, design, or bookkeeping to remote clients
- Apps and software: building digital products that solve specific problems
- Content creation: monetising expertise through courses, memberships, or advertising
For detailed examples in each category, see the guide to online business ideas.
Making your idea the best it can be
Online businesses cost less to start, but they still require significant time and effort. Before you invest that energy, validate your idea through research. Talking with a few potential customers can help you refine your product or service before launch.
Experts' number one tip for better ideas
Business experts shared their top tips for online startups. The most common answer: define your target market before you do anything else, as a primary reason for startup failure is creating a product with no market need.
Your target market is the specific group of people or businesses who will buy from you. They might be local parents, fitness enthusiasts, restaurants, or hairdressers. Once you know who they are, build everything around their needs.
Here's how to validate your idea with potential customers:
- Talk to five to 10 people in your target market
- Ask if they would buy your product or service
- Get feedback on your pricing, packaging, and positioning
- Find out who they currently buy from and why
- Use their answers to refine your offering before launch
Related articles
Explore these resources for more guidance:
How to start an online business: your step-by-step guide
Starting an online business becomes manageable when you break it into clear steps. Here's your roadmap from idea to launch.
- Choose your business idea and validate demand: pick a model that matches your skills and interests, then confirm people will pay for it
- Research your market and competitors: understand who else serves your target customers and how you'll differentiate
- Plan your business and finances: write a simple plan and create a realistic budget
- Register your business and handle legal requirements: choose a structure, register your name, and get necessary permits
- Set up your accounting and bookkeeping: track income and expenses from day one
- Build your website or choose your selling platform: create your online presence using marketplaces or your own store
- Set up payment processing: enable customers to pay you securely online
- Create your marketing strategy: plan how you'll attract your first customers
- Launch and refine based on results: start selling, measure what works, and adjust
Each step is covered in detail in the sections below.
Legal requirements and business registration
Getting the legal side of your business right from the start saves you headaches later. Requirements vary by location and industry, but here's what most online businesses need to address.
Choosing your business structure
Your business structure affects how you're taxed and your personal liability. Common options include:
- Sole proprietorship: simplest to set up, but you're personally liable for business debts
- Partnership: shared ownership with one or more partners, with shared liability
- Private company (proprietary limited or Pty Ltd): separate legal entity that protects personal assets, but requires more administration
Consider how much risk you can tolerate, your growth plans, and your tax situation when choosing. An accountant can help you decide which structure suits your circumstances.
Registering your business
Most online businesses need to complete these registration steps:
- Register your business name with the relevant government authority
- Apply for a tax number to report income and claim deductions
- Register for value-added tax (VAT) if your turnover exceeds the threshold
- Obtain any required licences for your industry or location
Requirements vary by country and business type. Check with your local business registration authority for specific guidance.
When to get professional help
Consider working with professionals for:
- Tax planning: an accountant can help you structure your business efficiently
- Legal compliance: a lawyer can review contracts and advise on regulations
- Business strategy: an advisor can help you avoid common mistakes
Find an accountant or bookkeeper who understands online businesses in the advisor directory.
Writing an ecommerce business plan
An ecommerce business plan can be shorter and simpler than traditional plans. Because online startups cost less and rarely need outside investors, you have more flexibility in how you document your strategy.
Why you don't need a 20-page plan
Traditional 20-page business plans exist mainly to impress investors and lenders. Since online startups cost less to launch and rarely attract institutional funding, you probably don't need one.
Instead, 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
Almost 60% of new online business owners struggle to forecast revenue for their first few months, according to Xero's Global Ecommerce Report. That's because early-stage digital marketing involves constant experimentation across multiple platforms.
Since you won't have reliable sales data until after launch, keep your plan short and flexible. A one-page plan that you update monthly is more useful than a detailed forecast based on guesswork.
Shorter plans doesn't mean no plans
Planning still matters, even if your document is shorter. Working through each section forces you to think about your startup from multiple angles, which helps you spot gaps and strengthen your idea before launch.
Related articles and templates
These resources can help you create your plan:
Creating a budget for a digital business
A digital business budget tracks your expected costs and estimates when you'll reach profitability. While online businesses cost less to run than physical stores, beginners often underestimate three major expenses.
3 common ecommerce budgeting mistakes
Website costs
35% of experts say startups underestimate website expenses. Off-the-shelf templates are affordable, but creating a genuinely effective user experience often requires hiring freelancers, especially since research shows that three-quarters of consumers judge a company's credibility based on its website design.
Digital marketing spend
37% say digital advertising costs catch new owners off guard. Most online ads charge per click, and conversion rates vary widely across industries and traffic sources. At those rates, costs add up quickly without careful budget planning.
Transaction fees
33% say businesses don't budget correctly for payment processing. Online payment processors typically charge around 2.6%–2.9% plus a fixed fee for standard online card payments, with North American average rates ranging between 2.3% and 2.9%, though total costs can be higher in some cases such as cross-border sales or additional platform fees. Factor this into your pricing from the start.
How to do a budget
Here's how to create your first budget:
- List all expected business costs
- Plot each expense on a calendar by month
- Add modest sales projections to the same timeline
- Ensure you have enough cash to cover early losses
"We suggest clients go in with three months of working capital and base their forecasts on that first quarter," says Shahemen Farid, online business consultant at Boobooks Accountants.
Budgeting for an online business? See the guide to startup business costs for a breakdown of typical expenses.
Experts' pricing tip for online businesses
Price your products at market rates, not based on your lower costs. Online businesses can charge similar prices to brick-and-mortar competitors while keeping higher margins. Some of that extra margin covers shipping costs, since free shipping is often a strong customer preference in ecommerce. The rest goes straight to your bottom line.
Related articles and templates
These resources can help you plan your budget:
Finance options for an online business
Most online startups are self-financed. Early-stage online startups may find traditional bank financing difficult, especially without revenue history, collateral, or a strong credit profile. While lower startup costs can make outside funding less necessary, data shows that online businesses are 36% more likely to actively use financing than their in-store counterparts, suggesting a strong focus on growth.
Service businesses often start with minimal investment:
- a laptop and internet connection
- a few software subscriptions
- skills you already have
Retail businesses require more upfront capital but can manage risk through:
- soft launches with limited inventory
- scaling up only after proving demand
- starting with as little as R20,000 (South African rand), according to Shahemen Farid of Boobooks Accountants
Sources of extra cash
If you need additional funding, consider these options:
- Credit cards: quick access to cash, but interest rates are high
- Personal loans: may be unsecured or secured, depending on the lender and borrower profile
- Friends and family: may lend money or invest as equity partners
- Angel investors: industry contacts who believe in your idea and want a stake
- Crowdfunding: works best for products with strong public interest and marketing reach
- Grants: available to some businesses depending on the specific programme's criteria
Related articles
Learn more about funding options:
How to set up an online shop, office or app
Online businesses can reach customers anywhere in the world, which makes even niche ideas viable. The internet can help niche businesses reach dispersed audiences, which may explain why experts say digital businesses more often build on novel concepts.
Your technical setup depends on your business type. Here's how to get started.
Creating an online shop
You have two main options for selling products online:
Marketplaces (Amazon, Facebook, Alibaba):
- Pros: fast setup, built-in payment processing, existing customer traffic
- Cons: limited branding control, commission fees on each sale
Your own online store (Shopify, Square, BigCommerce):
- Pros: full control over branding and customer experience
- Cons: monthly subscription fees, transaction fees, more setup complexity
If you choose your own store, invest time in getting the design and user experience right. Mistakes are harder to fix once you've launched.
Setting up payment processing
Payment processing enables customers to pay you securely online. You'll need a payment gateway to accept credit cards, debit cards, and digital wallets.
Popular options include:
- Stripe: developer-friendly with competitive fees
- PayPal: widely recognised and trusted by customers
- Square: good for businesses that also sell in person
When choosing a processor, consider:
- Transaction fees: typically 2–5% per sale, plus a fixed fee
- Supported payment methods: credit cards, debit cards, digital wallets
- Integration options: compatibility with your website platform and accounting software
- Payout timing: how quickly funds reach your bank account
Connect your payment processor to your accounting software to automatically record transactions. Xero integrates with major payment gateways to keep your books up to date without manual data entry.
Setting up an online office
Service businesses can launch with minimal infrastructure. You need reliable software for:
- Project management: tracking tasks and deadlines
- File sharing: collaborating on documents and deliverables
- Video conferencing: meeting with clients and team members
- Digital whiteboards: brainstorming and planning sessions
"Digital brainstorming boards allow you to capture ideas from everyone, not just the loudest people in the room," says Michael Yared of app development agency Echobind. "Plus remote working encourages better documentation because so much information is exchanged in writing."
Creating an online studio
Content creators and coaches can monetise expertise through tiered offerings:
- Free content: social media posts and videos to attract an audience
- Self-serve courses: pre-recorded training that customers access on demand
- One-to-one sessions: premium personalised coaching
Olivia Park of Olivia Park Coaching uses this model to deliver wellbeing training across Asia. "The digital approach allows me to help more clients," she says. "It's enabled me to create more products with different tiers of service."
Building an app
Building an app requires turning your idea into working software, which involves designing, developing, and testing it. Costs vary widely depending on complexity.
For a detailed breakdown of how apps are made and what they cost, see the guide: How to make money from an app.
Related articles
Explore these guides for more details:
Digital marketing 101
Digital marketing is how you attract visitors to your website and convert them into customers. Unlike physical stores, online businesses don't get foot traffic. Every visitor must be earned through advertising, content, or search visibility.
The challenge is significant: conversion rates vary widely across industries and traffic sources, and if you rely entirely on pay-per-click ads, costs can spiral quickly. Shahemen Farid of Boobooks Accountants has seen failed campaigns burn through thousands of dollars without a single sale.
More than a third of experts in the study say digital marketing is the biggest challenge for new online businesses. Here's how to approach it strategically.
The unsatisfying secret to digital marketing
No single marketing strategy works for every business. You'll need to experiment across multiple channels to find what resonates with your audience.
Common channels to test include:
- Search marketing: Google Ads and SEO
- Social media: LinkedIn articles, Instagram stories, YouTube videos
- Content marketing: blog posts, podcasts, newsletters
"There's no telling what will work and what won't," says Ben Charlton of Air8 Digital. "You have to experiment. But you can do that without spending a fortune."
For low-cost tactics to try first, see the guide to digital marketing.
How much to budget for digital marketing
Set aside 40% of your startup budget for marketing, recommends ecommerce consultant Marc McKeown of FortBrave. "We'd spend that in the first three months to see what works and make a plan from there."
Allocating this amount makes sense because digital marketing is often your only source of customers, and research shows that neglecting organic search can lead to heavier reliance on paid ads, potentially increasing ad spend by around 400%.
Related articles
These resources offer more marketing guidance:
Managing your online business finances with Xero
You now have a roadmap for launching your online business. Here's a quick recap:
- Online businesses cost less to start and run than physical stores
- Break-even comes faster with lower overheads and higher margins
- Failure risk is lower, and losses are smaller if things don't work out
- Planning can be simpler, but validation and budgeting still matter
Next, manage your finances from day one. Xero helps you track expenses, send invoices, and monitor cash flow so you can focus on growing your business.
Xero helps you:
- send invoices and get paid faster by creating professional invoices and accepting online payments
- track expenses automatically by connecting your bank account and categorising transactions
- see your cash flow in real time and know exactly where your money is at any moment
- forecast your finances and plan ahead with cash flow projections
- connect your tools and integrate with payment processors, ecommerce platforms, and other apps
- spend less time on bookkeeping by automating routine tasks so you can focus on your business
Ready to get started? Get one month free and see how simple online business accounting can be.
FAQs on starting an online business
Here are answers to some common questions about starting an online business.
What is the easiest online business to start?
Service-based businesses like freelance writing, virtual assistance, or consulting are typically easiest because they require minimal upfront investment. You can start with skills you already have and a laptop.
What do I need to start an online business?
You need a viable business idea, a way to reach customers (website or marketplace), a payment processing method, and basic accounting systems. Legal requirements include registering your business name and obtaining a tax number.
Can I start an online business while working full-time?
Yes. Online business owners are more likely to hold down a day job compared to brick-and-mortar owners. Start small, automate where possible, and scale up as revenue grows.
How long does it take to start making money from an online business?
There's no fixed timeline. Some businesses can become profitable in a few months, while others might take a year or more. It depends on your business model, marketing efforts, and market demand.
Do I need technical skills to start an online business?
Not necessarily. Many platforms like Shopify, Wix, and WordPress offer user-friendly interfaces that don't require coding knowledge. You can also hire freelancers for technical tasks while you focus on running your business.
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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