Everybody wants to run their own business. It’s a pillar of the American dream. Well, that dream is being lived more than ever.
In 2021, over 5.4 million applications were submitted to start a new business, and more startups than ever were primarily online.
Well, there’s nothing stopping you from joining them, as long as you know the steps to starting an online business. Luckily, we can help you with that! Here’s everything you need to know about starting an online business in 2022.
Choose a Business Idea
Every great business starts as an idea. Here’s what you need to figure out before taking any initial steps with your new business endeavor.
Products and Services
Of course, the heart of your company will involve the product or service you offer. For an online business, this could involve anything from information (blog, podcast, etc.) to an app or a home delivery service.
We imagine that if you have an idea for an online business, you already have an idea of the products or services you intend to sell.
Moreover, we can still offer some best practices and information on creating your menu.
First, there’s a problem that new businesses run into with choosing their product and service lines: whether to expand or niche down.
Now, there are benefits to both, and it really depends on how much you believe in your products. However, after a test run, if you find which products or services receive the most positive engagement, niching down has some serious benefits in the early days.
For example, the most critical aspect of any new business is funding. Pinching your pennies in the early days is crucial, and choosing to invest in an expansive product line could run a serious bill.
Conversely, if you’re unsure about your products, expanding does have its advantages, especially if they are low-cost. Depending on the nature of your business, offering as many as possible at first could help you generate much-needed revenue.
For example, it may not cost an extra dime to offer a service if nobody pays for it. You may simply need to list that you offer it on your website. If that’s the case, then it’s likely in your best interest to expand.
Mission and Vision
Even if you write this down in your business plan, which we will discuss later, it doesn’t have to be set in stone. However, you want to develop an initial idea of the company’s mission, values, and vision for the future.
Essentially, what do you want this company to be, what do you want it to represent, and where do you see it in ten years? These are the most important questions to answer at the beginning.
The best part about this is that there are no guidelines. The mission, vision, and values of your company are whatever you want them to be, so choose whatever resonates with you.
If you want some ideas to help you start, some common examples of values include:
- Environmental sustainability (sustainable packaging, transportation, etc.)
- Social justice
- Lower consumer prices
- Fairness (in labor, pricing, etc.)
- Customer experience (fast recovery times, great customer service, etc.)
The list goes on, and you can choose anything important to you and your vision of the company.
When it comes to mission and vision, there are no examples to choose from. Whatever you want to achieve with this company beyond a simple profit, write it down.
Your brand will encompass both the products it sells and the mission and values it holds. Developing a unique brand identity early on is the best way to create a recognizable brand down the line.
Let’s use an example. Imagine you open your website browser and see a white page with four colors in the middle. The colors are red, yellow, blue, and green.
Now, we don’t even need to say the company’s name because you already know exactly which brand we’re using in our example. Well, that’s because anybody familiar with the internet has a strong impression of that brand’s identity.
Okay, let’s be fair. Your business probably isn’t going to be the next tech giant dominating the internet, and that’s probably not even your goal.
However, that doesn’t mean you can’t benefit down the line from the same level of brand recognition. There are plenty of niche brands selling cosmetics, musical gear, and other equipment that are every bit as recognizable as Google among their target audiences.
Well, by establishing a clear brand identity and carrying it through your entire online strategy from the start, you can do the same thing.
Over time, this will help you build brand recognition, loyalty, and a repeat customer base. It’s an easy way to establish your brand from the beginning for long-term success.
Beyond a simple logo, work to identify things like tone of voice, color scheme, messaging, font, and more. The more consistent you are, the more recognizable your brand will be.
Research, Research, Research
Long before you launch your business, the best thing you can do is arm yourself with knowledge. Many jobs require degrees, but a successful business relies entirely upon what’s in your head. Here’s how to start.
Conduct Appropriate Market Research
Market research is the foundation upon which you can build your entire strategy. A business can’t survive without customers, and you can only keep customers satisfied if you know what they want.
Fortunately, you have all the information you could possibly need at your fingertips. Almost all market research can be done exclusively online.
Moreover, you want to understand who you are selling to. Who buys these types of products, and what do they say about them on social media? You should know how users search for these products and more.
Analyze the Competition
Competitor research is another pillar you can carry through to the end on your computer. Not only that, but it’s a great place to start your initial market research, as you will share the same target audience.
Develop an understanding of their product lines, tone of voice, keyword usage, prices, promotional material, marketing strategies, and more. This will give you the best insight into the standards of your industry, which will help you make more informed decisions.
Learn About the Industry
If you’re starting an online business about a topic you’re an expert in, then you’ll have to learn a lot less. For example, if you were a professional website developer for the last ten years and you’re starting your own services, then you will only need to learn the business side of it.
However, if it’s a niche that’s relatively new to you, then it’s time to do some top-to-bottom research on the industry.
You want to understand its projections for the next decade, the newest trends, best practices, and more. Read as much as you can online, consult with experts in the industry, and take courses on the topic if necessary.
Understand Online Business Law
Business law is essential for business owners, especially for sole proprietorships, which account for the vast majority of businesses. Remember, as a sole proprietor, you are liable for all business operations.
One of the most important issues to learn right away is business tax laws, especially for e-commerce businesses and others. If you’ve never paid self-employment taxes, then this is essential to learn right away to prepare for tax deadlines.
Also, there may be specific laws in the locations where you operate that will affect your business. If you plan on selling products or services in multiple counties, states, or countries, then we suggest looking into each of their laws about your industry.
Of course, a lot of this information is available online, but speaking with a business attorney or similar authority will help answer any of your specific questions.
Steps to Starting an Online Business
Now that we’ve laid the groundwork, it’s time to talk about the actual process. If you’ve done the work and believe your business idea is going to be successful, then it’s time to get started!
First, you will need to decide the structure of your business. Most businesses are considered sole proprietorships, but there are also partnerships, limited liability companies, and corporations.
Remember, all of this comes after the initial research and groundwork. Once that is complete, here are the steps to starting an online business.
1. Build a Website
Now, you don’t have to launch a website right away, but getting one ready isn’t a bad idea, even while you’re still in the planning stage.
If your business is entirely online, then a website is essential. Give yourself as much time as possible to build a proper site.
Your website is the best place to showcase your brand, as everything is under your control. The only limits are your imagination and the web design services you use.
Ideally, your website will use a consistent font, keywords, aesthetic, color scheme, tone of voice, and layout. This will help improve your user experience (UX), user interface (UI), and brand identity.
Every page of your website should follow a similar layout and template, offer a clean and easy navigation system, and offer value to your user.
Buy a domain that’s easy to read, isn’t open for misinterpretation, and matches the title of your brand without underscores or anything else.
We recommend building this with as much time as possible before the deadline launch. Ideally, you don’t want to launch your website until it’s completely ready.
2. Crunch the Numbers
Before any business practice can begin, you need to know your startup costs. There’s no point in projecting revenue before you begin, as there’s no guarantee you will receive any.
However, you do need an idea of how much you will spend in the first six months, which are the most critical to success.
Luckily, an online business won’t cost too much in the way of equipment, unless you need special recording equipment, a better computer, or anything else.
Unfortunately, we can’t offer too many examples beyond a website, domain, employee salaries (if applicable), and marketing costs, as every business will have different needs.
Also, don’t just factor in business expenses. How much money will you need during the first six months?
If you aren’t working and you aren’t generating revenue, you will need to factor in living expenses during this period. Once you add it all up, determine how much you will need for the first six (or twelve) months.
3. Write a Business Plan
Writing a business plan is often a foreign concept to first-time business owners, and that’s okay. However, it is essential to learn how to write a business plan.
This plan will include the type of business you are starting (sole proprietorship, LLC, etc.), your marketing plan, funding plan, mission, values, and all operative plans for the near future.
You will need to use it as a reference in the future and to have a solid idea of what you’re doing. Business operations are overwhelming, especially at the start, so following along with a guide will offer a sense of direction.
You may need to display this when filing for licensure (if applicable) or acquiring funding, so try to write a stellar business plan right off the bat.
4. Determine Funding Sources
Which came first, the chicken or the egg? Well, that’s an apt comparison when it comes to determining your funding source and writing a business plan.
See, it’s much easier to write a concrete business plan once you have funding, but it’s also a lot easier to acquire funding once you have a concrete business plan.
Generally speaking, you will need to write your business plan first, as you need every opportunity possible for initial funding.
Once it’s written, your top priority should be figuring out where the money is coming from. Lack of funding is the primary reason why 90% of startups fail, so determining your funding sources as soon as possible is critical.
Also, you should take out more funding than you believe you need, if possible. Let’s say you determine you need $100,000 to stay afloat for six months. Well, unexpected expenses are almost guaranteed in business.
For that reason, you should never plan on generating revenue. Anything can happen at the start, so you need to be prepared. If you believe you need $100,000, aim for at least $120,000 with options on the table to take more if needed.
Fortunately, there are plenty of funding sources available for new businesses, and once again, they are all available online.
Bank loans are certainly ideal for your initial start for a number of reasons. Most importantly, they don’t cut into your equity.
It’s important to remember that your interest rates and loan limit will be influenced by your financial and credit history, along with your experience in the field and business plan.
However, paying your loan back in installments over time offers predictability and security. Unlike investors, a bank can’t simply pull its funding out at will.
Once the loan is paid off, you own the business. Everything falls onto you.
For these reasons, we recommend sourcing as much of your funding as possible from bank loans. It’s the best option for long-term savings, predictability, and maintaining control over your company.
If you’re hurting for cash, you can always reach out to private investors. However, you will need to show a concrete business plan and create a financial arrangement with them, most likely involving their purchasing of equity.
Some investors may prefer to be paid in dividends, some may want equity, and others may offer peer-to-peer loans. Finding the right investments for your needs is your responsibility as a business owner.
Alternatively, you can crowdsource private investments from various online platforms. These investments will be smaller, but with enough of them, they will add up.
Now, this isn’t recommended at the beginning in most cases, but it is an option if you’re having trouble. Some companies choose to incorporate and allow for public trading of shares.
However, this comes with a much more complicated business structure, less control over the operations of your business, a more complex tax structure, and far more legal obligations.
5. Apply for Necessary Licensure
Not all online websites will require any permits or specialized licenses. However, many new businesses will.
If you are starting a blog or review website as your primary revenue source, then it’s unlikely you will need any licensure to operate. Conversely, an e-commerce business selling niche products may need multiple licenses before operation.
Depending on the state or area where you are operating, especially if you will require a warehouse or any physical building space, look into your needs before launching your business.
Don’t Forget About Marketing
Once you know that your business will be up and running soon, it’s time to start worrying about marketing. Marketing ranks with funding as the make-or-break feature of a startup, so it has to be done right.
Well, the key to any digital marketing strategy is diversity. You want to give yourself every opportunity possible to ensure that your efforts will reach the right audience.
Build a Strong Website for Marketing
Yes, we already discussed building a website for business operations, but we now need to discuss how you can turn it into your greatest marketing asset.
If you take anything away from our marketing advice, let it be this: your website is the center of your entire online business strategy, especially for marketing.
Remember, your ads land here, your social media and email efforts direct traffic here, and it’s the primary factor for building organic traffic. Also, it’s the best possible place to showcase your brand.
For an online business, your website will make up for the vast majority of your customer journey, from click to sale and beyond.
Consequently, your website can’t offer any roadblocks to this journey. The average user spends most of their online time on sites like YouTube, Facebook, and Instagram, so they are accustomed to a certain level of quality.
Well, if your website doesn’t live up to those expectations, they are unlikely to stay for the entire journey you’ve laid out for them.
Because of this, take the time to build a strong foundation that showcases your brand, stays on message, and creates a sales funnel for potential customers.
Search Engine Optimization
In all honesty, there’s no such thing as a proper marketing strategy that doesn’t involve SEO anymore, especially if your business relies on online traffic. 68% of all web traffic comes from organic results and not paid advertisements, making SEO critical for expanding your reach.
Not only that, but it doesn’t require the same amount of ongoing resources as other marketing campaigns. Essentially, setting yourself up for success early on will yield free ongoing traffic in the future when your strategy comes to fruition.
The most important aspects of an SEO strategy are the quality of your website and content marketing strategy.
Conversely, you will need to develop a strong, user-friendly website to lay the foundation for your strategy. From there, you will need to create quality content that users will seek out, and upload new content consistently utilizing the right keywords. This can be in the form of a blog, podcast, or anything you want.
Also, while conducting competitor research, it wouldn’t hurt to compile a list of keywords your competitors use on their websites. This will give you a headstart on your SEO strategy.
Now, this isn’t to suggest that other marketing strategies aren’t worth the time, as that’s simply not the case. SEO takes time to develop, so use as many opportunities as you can in the meantime to expand your reach.
Similar to your website, this is something you can work on even before launch. Developing a social media strategy early on can help you engage with your target audience, build a quality initial following, and get users excited about what’s to come.
However, there are some best practices to follow with a social media marketing strategy.
First, choose a platform that suits your business well. Base this on the nature of your products or services as well as your intended audience, as certain demographics use certain platforms more often than others.
Next, create a business account on that platform. Upload a clear and legible picture of your logo or brand name as the profile picture, and make sure it’s easy to read even on a mobile device.
From there, choose a quality handle and name. Try to avoid using underscores, periods, and special characters. Make the name as clear and concise as possible.
After that, make a short and sweet bio that ends with a link to your website. This should only be one to two sentences to prevent the link from getting cut off.
Once you start uploading content, try to create content in advance, upload it at the right times, use trends and hashtags when applicable (don’t overuse them), and interact with your audience as much as possible.
If you are consistent with these tips over time, you will eventually build a quality, organic following. If you want to boost your following, post promotional content like “like, share, and follow for a chance to win,” as this will help you expand your reach and generate hype early on.
Right at the beginning, you should try to launch a solid email campaign. Getting customers is half the battle; keeping them is the other.
If you’re able to start building an email list at the start of your business, you will be well-positioned to build loyal customers that will keep coming back for more.
Throughout your website, leave plenty of prompts for people to sign up for your newsletter, including at checkout (for an e-commerce company). Email marketing has an average ROI of $42 for every $1 spent, so don’t neglect this gem of a marketing tool.
Organic traffic and other digital marketing tools are free to start and build, and they can yield lasting results, but they have one fatal flaw: they take time to build.
For that reason, utilizing paid advertisements early on is a great way to start generating initial revenue.
Small businesses should allocate around 7% to 8% of their revenue toward marketing. However, without revenue, 8% of your budget should be about the minimum amount spent.
In the early days, the vast majority of this funding should go to web development and paid advertisements. Essentially, starting the foundation for your entire digital marketing strategy and bridging the gap should be your first priorities.
Fortunately, there are plenty of options to choose from, and some may offer deals to newcomers. Also, many advertising platforms offer ways to target certain demographics. In the early days, you want to target these as closely as possible based on your previous market research.
Depending on the nature of your business, you may benefit more from different types of ads.
For example, a gaming company will need to use video ads to showcase the nature of its game. Conversely, a blog would likely benefit most from search ads.
Determine what type of ads will best suit your business’s needs and try to develop a quality ad campaign around that.
Prepare for Tax Time
If you’re brand new to business taxes, consulting with a tax attorney is likely in your best interest. However, following some simple principles will get you pretty far.
Tax time doesn’t have to be a pain if you are prepared for it. Knowing that you will owe taxes instead of receiving a refund is critical for preparation.
Of course, there are plenty of deductions for business owners, and there’s a good chance you won’t generate any profit within the first year. However, you still need to be prepared.
The last thing you want to do is come unprepared to tax time and have to pay more than you owe. Let’s talk about how to avoid that.
Keep Track of Everything
Tracking financial statements of all kinds is the most important habit you can develop as a new business owner. It will help you find future investors, acquire new loans, and save big at tax time.
Anything classified as a business expense needs to be kept safe so you can deduct it at tax time. Without it, you will inevitably end up paying more than you owe when your tax bill is due.
Because of this, every single receipt, whether digital or physical, should be saved. There are plenty of apps that allow you to take pictures or screenshots of receipts, as well as track your credit card activity, to help you better keep track of these purchases.
Also, in the event of an audit, a clear record of every transaction will help prevent accusations of tax crimes or neglect. Remember, you’re the only one liable in a sole proprietorship.
Understand Self-Employment Tax
If you’re used to paying regular income tax, then self-employment tax may come as a surprise to you. However, there are ways to make it easier.
First, you can pay yourself a salary out of the company funds. This way, you won’t owe any personal tax at the end of the year, as it will have come out of your paycheck.
From there, you will only have to pay self-employment tax out of the company money while covering your living expenses with the money from your salary. Although, if you don’t have employees, that would involve unnecessarily adding a payroll system.
Alternatively, you can learn the differences between self-employment and income tax and prepare for it in advance. Start developing the habit of putting away a portion of revenue for tax time consistently throughout the year.
Launch Your Business
Now that you know the most important steps to starting an online business, there’s no time like the present to get started. The sooner you do, the sooner you can start living the new American dream.
Stay up to date with our latest financial advice by continue to visit us at www.taxsaversonline.com!