How to Start an Online Business

Detailed guide with helpful information on fees, costs, requirements, licenses, formation, marketing, and hiring. Also includes tips, FAQs, and checklist.

Updated on February 18th, 2020

The SMB Guide is reader-supported. When you buy through links on our site, we may earn an affiliate commission. Learn more

It has never been easier to start an online business. The starting equipment can be as minimal as a laptop and an internet connection, allowing an entrepreneur to start a business with minimal investment.

There is an endless variety of niche websites at present. This favors suppliers of specialized equipment or hobby items, but poses a potential risk for business owners entering an incredibly saturated market. According to the website Chris Ducker, 90% of online businesses fail within the first 120 days.

Your online business should fill a need or solve a problem. Small Business Trends reports that 42% of small businesses fail because there is no market need for their product or service. This makes market research an integral part of your business plan as it will reveal how much demand there is for your product or service.

There are several types of online businesses that make significant profits. The online business that you choose should reflect your skills as well as market demand.

How much does it cost to start an online business
How much does it cost to start an online business?
Online Business Plan

Download our free Online Business Plan.

Download Now Instant download. No email required.

1. Decide what kind of online business you would like to start.

Most online businesses either sell products or services. Finding an underserved need in the market is a good way to ensure that your business will have a consumer base.

What are the different types of online businesses
What are the different types of online businesses?
  • SaaS (Software as a Service).
  • Affiliate marketing.
  • E-commerce.
  • Online tutoring.
  • Freelancing.

2. Decide on a suitable name.

The name of your online business should reflect the product or service that you offer. Due to the vast number of other online businesses, it would be wise to compile a list of several possible names, and then do a Google search to see if any of these names are already in use. You will also want to avoid a name that sounds too similar to a popular company or competitor.

Find out if your business name has a domain available. Your preferred domain name may already be taken and alternatives will need to be considered. Our guide to registering a domain name outlines how to do this.

Trademark your business name with the U.S. Patent and Trademark Office as soon as you decide on one. Once your business name has been trademarked, you can register your online business with your state. You can also protect the trademark internationally, in countries that are part of The Madrid Protocol.

Read our guide on how to name a business for more information about trademarking and registering your online business.

3. Write a business plan.

A business plan is required if you plan to seek funding from banks or private investors. This outlines your online business's objectives, growth projections, and plans for expansion.

A business plan for an online business should include the following items:

  • Executive summary.
  • Business description.
  • Market research.
  • Marketing plan.
  • Competition analysis.
  • Financial data.
  • Future goals.

Market research is an integral part of your online business plan because of how saturated the online industry is. There needs to be persuasive data indicating that your online business can operate competitively.

How to Start an Online Business (Checklist)

Download our free "How to Start an Online Business" Checklist in PDF format.

Download Now Instant download. No email required.

Most people recommend forming an LLC or corporation for your online business, as this places less liability on you. Your personal assets will be protected against your online business's financial shortfalls.

Consult a lawyer or accountant before forming a legal entity. Your online business may have specific needs that don't apply to other businesses. It would be wise to discuss your business plan in detail to receive the most accurate advice.

Form Your Business

Use IncFile to Form your Business Today

Easiest way to form an LLC, S-Corp, C-Corp or other business.

Get Started

Preparation & Filing of Articles

Free Business Tax Consultation

Verify Company Name Availability

Registered Agent Service (1st Year FREE)

Tech Tools for Online Businesses:

1. Website Builder Services.

Online businesses need attractive and functional websites to grant clients access to products or services. Most website builders are user-friendly, allowing you to create a professional-looking site without needing to know how to code. We recommend Squarespace or Weebly.

2. Inventory Management Software.

If you plan to sell products, having an inventory management software is essential for keeping track of sales and stock levels. Our top choices are EZOfficeInventory and Loyverse Advanced inventory.

3. Accounting Software.

Accounting software is an excellent tool for keeping track of expenses and paying any staff members you may choose to hire. QuickBooks and Gusto are both good options for accounting services.

Try out a few business podcasts for insightful stories and tips from other business owners.

5. Hire employees.

While you may personally be responsible for most of your online business's operations, some staff members may be required depending on the type of business it is. These are a few potential employees you may need to hire:

6. Create social media accounts.

According to MarketingSherpa, 95% of U.S. Millenials (individuals aged 18-34) use social media and the same percentage of U.S. Millenials follow brands on social media. Individuals who use social media more frequently are female, parents, and/or have an income lower than $50k.

Smart Insights reports that 63% of consumers expect companies to offer customer service through their social media accounts. This shows the importance of a social media presence to maintain customer loyalty and satisfaction.

Social media management tools are a must-have. If you plan to have multiple social media accounts, a social media management tool will help with scheduling posts and formatting these posts correctly for each platform. Unless you have a dedicated staff member to manage your social media, the task can be incredibly time-consuming. Hootsuite is an excellent tool for social media management.

The Most Popular Social Media Platforms for Advertising:

  1. Facebook.
  2. Instagram.
  3. Twitter.
  4. Pinterest.
  5. LinkedIn.

7. Choose a reliable shipping service.

If you plan to sell products online, they will need to be shipped. Decide on which areas you will be shipping to, and choose a courier that offers a competitive fee for their services.

You could also make use of an order fulfillment service like the one provided by Amazon Seller Central. This service allows merchants to store their inventory in an Amazon warehouse and have Amazon manage deliveries when items are purchased online. Amazon Seller Central charges $0.99 per item or $39.99 per month with their Pro service.

An alternative to the above process is dropshipping, which refers to when sellers order their stock directly from suppliers, and the suppliers deliver to the client's door. This minimizes delivery fees for online business owners and ensures that there is no surplus of unpurchased stock. Ordoro is a company that offers dropshipping services with positive reviews from clients.

Books You Should Read Before Starting an Online Business:

  • The Lean Startup by Eric Reis.
  • Will It Fly? by Thomas K. McKnight.
  • The E-Myth Revisited by Michael E. Gerber.
  • The Barefoot Executive by Carrie Wilkerson.
  • Lucky or Smart? by Bo Peabody.
  • The Art of the Start by Guy Kawasaki.
  • The Six-Figure Second Income by David Lindahl and Jonathan Rozek.

8. Launch your business.

Unlike brick and mortar stores, an online business needs to be launched on multiple online platforms to gain exposure.

Make your website go live. Once you have designed your website, you will be able to make it 'live', meaning that it will become visible through internet searches.

Advertise through social media. Platforms including Facebook, Twitter, and Instagram have paid advertisement services that may be useful for reaching a wider audience.

Reach out to niche forums, social media groups and/or newsletters. If your target market is a specific group of hobbyists or professionals, there should be several dedicated news hubs and social media groups that you can approach for advertising opportunities.

Encourage new followers to join your mailing list. This provides your online business with a network of consumers that you can reach through email marketing.

Final Thoughts:

Anyone with a stable internet connection can potentially start an online business. By following these steps, you will be able to establish an online business with true income potential.

To learn more about forming your own business, read our article How to Start a Business.

More Resources:

FAQs:

How do you legally start an online business?

You can legally start an online business by forming an LLC or corporation, depending on your specific needs.

Do you need a business license to start an online store?

You may need a business license, depending on which state or city your business will be in. Despite this, you will need an employer identification number.

How do I start an online business with no money?

You can start an online business with no money by offering services like copywriting, consulting, coding, or design. These services don't typically require additional equipment or inventory to be purchased.

There are also a host of free services for your business to make use of.

Can you legally run a business from home?

Yes, you can legally run a business from home, depending on the type of business that it is. Some residential properties have restrictions on the kind of business that can be conducted, so check with your landlord or local authorities.

How do I get a business license to sell online?

If the city or state your business is located in requires one, you may need to take the following steps:

  • Register your business.
  • Apply for an Employer Identification Number.
  • Register with your state labor agency.
  • Apply for a sales tax permit.
  • Apply for any permits your business may need.

What business can I do from home?

There are a few online businesses that you can run from home, like consulting, selling products, or providing freelance services.

What is the easiest business to start with no money?

The easiest online business to start with no money is one that offers a service. This requires minimal equipment and no inventory.

Do I need an LLC for a home based business?

No, you don't need to form an LLC for a home-based business, but you might want to do so to protect your personal assets.

Can you run an LLC out of your home?

Yes, you can run an LLC out of your home.

How do I legally start an online store?

To legally start an online store, you may need to register your business.

Do I need a business license to sell online?

Yes, you need a business license to sell products online.

Do I need a tax ID number to sell online?

Yes, you need a tax ID number if you plan to sell products online.

How much does it cost to start online store?

An online store will have the following estimated expenses:

  • A domain registration.
  • Ownership of a website.
  • Inventory.
  • Accounting services.
  • Business Internet services.
  • An eCommerce software solution.
  • A business license.

We have provided a cost estimate for these expenses here.

Do you need a business license to sell homemade products?

Yes, any business that sells products requires a business license.

Can dropshipping be profitable?

Yes, dropshipping can be profitable with the right strategy. magenticians.com suggests maintaining a small inventory to offer 'premium' shipping services that are delivered faster for a higher price, offering items that are non-essential (as customers will be less inclined to wait long periods for essential items to be shipped), and ensuring that your refund service is efficient.

What can I sell from home to make money?

A few things you can sell from home to make money are:

  • Handmade crafts.
  • Old household items.
  • Books.
  • Services such as hair styling, professional advice, copywriting, design, or coding.

Can you use your home address for an LLC?

Yes, you can use your home address for an LLC.

What type of business license do I need for an online business?

The type of business license required may depend on your specific business model and state laws. A legal professional should be contacted for the most accurate advice.

Which online business is profitable?

Online businesses that address a gap in the market are reported to be more successful. Local business opportunities may vary, but the following online businesses are considered widely popular:

  • Consulting.
  • Freelance services (copywriting, coding, graphic design, etc.).
  • Selling niche items.
  • Affiliate marketing.
  • Social media marketing.
  • Dropshipping.

What is the best online business to start in 2019?

  • Consulting.
  • Freelance services (copywriting, coding, graphic design, etc.).
  • Selling niche items.
  • Affiliate marketing.
  • Social media marketing.
  • Dropshipping.

What is the first thing to do when starting a business?

The first step in starting a business should be to develop your business idea. From there, you can begin to decide on a name and register your business.

Read our steps for starting an online business.