Commonly Asked Questions About Starting a Business

What legal structure should a new business choose?

For most first-time US founders the honest default is a single-member LLC. It gives you personal-liability protection (your house and personal savings sit behind a legal wall separate from the business), it is cheap to form in most states, and by default it is taxed as a "pass-through" — profit lands on your personal return and you avoid the double taxation a C-corporation can face.

• Sole proprietorship — zero paperwork, but zero liability protection. Fine for a side hustle testing an idea; risky once you have customers, contracts, or employees.
• LLC — the workhorse for restaurants, trades, e-commerce, agencies, and most service businesses. Protects personal assets, flexible tax treatment.
• S-corporation election — not a separate entity, it is a tax election an LLC or corporation can make. Once profit is consistently strong (often cited around $40,000-$80,000 of net profit, for example), it can cut self-employment tax. Ask a CPA before electing.
• C-corporation — the right call almost only if you plan to raise venture capital or issue stock to outside investors.

Whatever you choose, the non-negotiable step is opening a dedicated business bank account and running every dollar through it. Lenders, the IRS, and eventually any funder will judge you on that account, and commingling personal and business money can even pierce the liability protection you formed the LLC to get.

How much money do I actually need to start?

Budget in two buckets: one-time startup costs and ongoing operating runway. The mistake that sinks new businesses is funding the first bucket and forgetting the second — they buy the equipment and the sign, then run out of cash in month four before revenue stabilizes.

The table below shows illustrative first-year cash needs for common business types. These are example figures to frame planning, not quotes; your market, city, and scale will move them substantially.

The general rule underwriters use: hold three to six months of operating expenses in reserve on top of setup. Businesses with seasonal or lumpy revenue (landscaping, retail, event work) should sit at the higher end. See our guide to startup costs to build your own line-item estimate.

How do I fund a business that has no track record yet?

This is the question new founders get most wrong, because they apply for the wrong product. A brand-new business with no revenue and no tax returns generally cannot get a traditional bank term loan or an SBA loan — those underwrite on two-plus years of financials. Applying anyway wastes weeks and adds hard credit pulls. Here is the realistic year-one ladder:

• Founder savings & the "friends and family" round — the most common starting capital, and it keeps you out of debt while you validate the idea.
• Business credit card — approves on your personal credit; good for float and building business credit history, but expensive if you carry a balance.
• SBA microloans & nonprofit CDFI lenders — built for startups, amounts often up to $50,000, more paperwork and slower, but patient capital.
• Equipment financing — if the money is for a specific machine, oven, or vehicle, the asset itself secures the deal, so newer businesses qualify.
• Revenue-based financing / MCA marketplace — once real deposits are flowing through your business account, this is the fastest path. Approval rests on your bank deposits and revenue, not your credit score (FICO 500+ is often workable), funding amounts typically start around $10,000, and money can land in 24-48 hours. Repayment flexes with your sales — a share of daily or weekly receipts — so it fits businesses with steady cash flow more than pre-revenue startups. It is never guaranteed, and approval and terms depend entirely on what your bank statements show.

Match the product to your stage. Pre-revenue: savings, cards, microloans. Post-revenue with cash moving: revenue-based financing is usually faster and easier to qualify for than anything a bank offers a young business.

Decision framework: when does revenue-based financing fit — and when should you avoid it?

Revenue-based financing is a cash-flow tool, not startup capital. Use this framework before you apply.

It works best when:

• Your business is already open and depositing revenue — typically several months of consistent bank activity.
• You have a time-sensitive, revenue-generating use for the money: inventory for a big order, a piece of equipment that unlocks more jobs, covering payroll through a known seasonal ramp.
• A bank has already turned you down for being too new, but your deposits tell a healthy story.
• You value speed and approval odds (24-48 hours, FICO 500+) over getting the lowest possible cost of capital.
• Repayment that flexes with daily sales matches your model better than a fixed monthly payment.

Avoid it — or wait — when:

• You are pre-revenue. With no deposits to underwrite, this product does not fit; go back to savings, cards, or a microloan.
• You would use it to cover ongoing losses rather than fund something that generates return. Financing does not fix a business that loses money on every sale.
• Your margins are thin. A daily or weekly remittance can strain a business whose cash flow is already tight.
• You qualify for a bank or SBA loan and can wait — those generally carry a lower cost of capital.
• You are being told an approval is "guaranteed" — no legitimate funder guarantees approval before reviewing your bank statements. Treat that as a red flag.

The through-line: borrow against revenue you can already see, for a use that produces more revenue, and only once the daily remittance clearly fits your cash flow.

What licenses, taxes, and paperwork are actually required?

The exact list depends on your state, county, city, and industry, but nearly every US business touches this checklist:

• EIN (Employer Identification Number) — free from the IRS, takes minutes online. You need it to open a business bank account and hire.
• State entity registration — filing your LLC or corporation with the Secretary of State, plus an annual report or franchise-tax fee in most states.
• Business license / local operating permit — many cities require a general business tax receipt even for home-based work.
• Industry-specific licenses — food service, contracting, childcare, salons, and healthcare all carry their own permits and inspections.
• Sales-tax permit — required if you sell taxable goods or services; you collect and remit to the state.
• Estimated quarterly taxes — as a pass-through owner you generally pay income and self-employment tax four times a year, not once in April.

Two practical habits save new owners the most pain: set aside a fixed percentage of every deposit for taxes in a separate account (25-30% is a common rule of thumb, for example), and keep clean books from day one. Clean bank statements and bookkeeping are also exactly what any future funder — bank or revenue-based — will ask to see first.

What are the most common reasons new businesses fail — and how do you avoid them?

The failure patterns are boringly consistent, which is good news, because they are avoidable.

• Running out of cash — the number-one killer. It usually is not lack of profit on paper; it is a timing gap between paying suppliers and getting paid by customers. Build runway and understand your cash-flow cycle before you scale.
• No real demand — building something customers do not urgently want. Validate with paying customers before you spend heavily.
• Financing the wrong things — using expensive short-term money to cover overhead instead of revenue-generating investments.
• Owner burnout and no systems — the business depends entirely on the founder doing everything. Document and delegate early.
• Ignoring the numbers — not knowing your margins, break-even point, or monthly burn. If you cannot state those three numbers, that is the first thing to fix.

The single best defense is cash-flow discipline: know your break-even, keep a reserve, and only take on financing that a specific, measurable revenue increase can support.

When is the right time to seek outside funding?

The best time to line up financing is before you are desperate for it — when your deposits are healthy and you are funding growth, not plugging a hole. A rough sequence:

• Idea / pre-launch: self-fund and validate. Outside debt is premature.
• Open but early (0-6 months of revenue): cards, microloans, and equipment financing for specific needs.
• Steady revenue, bank turned you down for being too new: this is the classic fit for a revenue-based financing marketplace — approval on deposits and revenue, amounts from about $10,000, funding in 24-48 hours, FICO 500+ often workable. A marketplace shops your bank-statement profile to multiple funders so you see real options rather than one take-it-or-leave-it offer.
• Two-plus years of returns, strong credit: now bank term loans and SBA loans are realistically on the table at a lower cost of capital.

Match the money to the stage, borrow against revenue you can already see, and read our startup costs pillar to size the need before you apply. When you do apply, have three to six months of business bank statements ready — that document, more than your credit score, decides your outcome in the revenue-based world.