Key takeaways
- An EIN is free and issued in minutes directly from the IRS — never pay a third party for one.
- A registered entity plus a dedicated business bank account is the minimum that makes a business fundable; lenders read the account, not the idea.
- License requirements stack across federal, state, county, and city — check all levels, not just the state.
- The biggest budget line for most launches is the operating runway (3–6 months of expenses), not the one-time buildout.
- Revenue-based / MCA-marketplace funding underwrites bank deposits and revenue over credit: from about $10,000, FICO 500+, decisions in roughly 24–48 hours.
- Revenue-based financing accelerates a business that already has deposits — it is not a way to start from zero revenue.
- No legitimate funder guarantees approval; repayment on revenue-based products flexes with your sales rather than a fixed loan amortization.
The 8 steps in the order that actually works
Founders fail more often on sequence than on effort. Here is the order an underwriter would tell you to follow, and why each step depends on the one before it.
- Validate demand before you spend. Get real signal that people will pay — pre-orders, a waitlist that converts, a signed pilot, a booth that sells out. Idea validation is free; inventory and buildout are not.
- Choose and register your legal structure. Sole proprietorship, LLC, S-corp, or C-corp. For most first businesses an LLC balances liability protection and simplicity. Register with your Secretary of State.
- Get an EIN. Free from the IRS, issued in minutes online. You need it to open a bank account, hire, and file taxes.
- Open a business bank account. This is the spine of everything that follows — clean books, clean tax filing, and later, clean underwriting. Never run the business through your personal account.
- License and permit. General business license, plus any industry-specific permits (food service, contractor, retail resale, professional). Requirements are set at the state, county, and city level, so check all three.
- Set up bookkeeping and sales tax. Pick accounting software, register for a state sales-tax permit if you sell taxable goods, and decide cash vs. accrual with a bookkeeper.
- Insure the business. General liability at minimum; add workers' comp if you hire, professional liability for services, and property coverage if you hold inventory or sign a commercial lease.
- Fund the launch and the runway. Cover one-time startup costs plus enough operating cash to reach the point where revenue covers expenses. Underfunding the runway, not the launch, is what kills most new businesses.
For a deeper walkthrough of financing options at the end of this list, see our small business funding guide.
Choosing a legal structure without overthinking it
The entity decision drives your taxes, your paperwork, and your personal liability — but it is reversible, so do not let it stall your launch. Here is the practical read most operators land on.
- Sole proprietorship: zero setup, but no liability separation. Fine for a low-risk test; risky the moment you sign a lease or hire.
- LLC: the default for most new small businesses. Liability protection, pass-through taxes, low maintenance. You can elect S-corp tax treatment later once profit justifies it.
- S-corp (election, not entity): can reduce self-employment tax once net profit is consistently strong — typically worth the extra payroll and filing burden past roughly the mid five figures of owner profit.
- C-corp: the structure venture investors expect. Overkill for a Main Street business; correct if you plan to raise institutional equity.
One rule from the underwriting side: whatever you pick, register it properly and get the EIN. A funder can work with any structure, but they cannot underwrite a business that is legally indistinguishable from your personal finances.
What it costs to open — a realistic example budget
Startup costs vary enormously by industry, but the categories are consistent. The figures below are illustrative only — use them to see the shape of a budget, not as a quote for your specific business.
| Cost category | Service business (for example) | Small retail / food (for example) |
|---|---|---|
| Registration, EIN, licenses | $300 – $800 | $500 – $2,000 |
| Insurance (first period) | $600 – $1,500 | $1,500 – $4,000 |
| Equipment / buildout | $1,000 – $6,000 | $15,000 – $80,000 |
| Initial inventory | Minimal | $8,000 – $40,000 |
| Website, branding, software | $800 – $4,000 | $1,500 – $6,000 |
| Working-capital runway (3–6 mo) | $6,000 – $20,000 | $20,000 – $75,000 |
Notice that the largest line for most founders is not the launch — it is the runway. A business that opens with a beautiful buildout and no cash cushion is more fragile than one that opens lean with several months of operating expenses in the bank.
How to fund the launch and the first months
New founders reach for funding in a rough order of cost. Personal savings and revenue are the cheapest capital you will ever use. Beyond that, the realistic ladder looks like this:
- Self-funding and early revenue: no dilution, no debt, full control. Stretch this as far as it goes.
- SBA and bank term loans: the lowest-cost outside money, but they want time in business, strong personal credit, a business plan, and often collateral. Most true startups (under a year old, thin credit file) do not clear the bar on day one.
- Business credit cards and a line of credit: useful for smoothing timing, expensive if carried.
- Revenue-based financing / MCA marketplace: once the business is actually depositing money, this becomes the fastest realistic option. Instead of underwriting your credit score, these funders underwrite your bank deposits and revenue. Typical parameters: funding from about $10,000, personal FICO from 500+, and decisions in roughly 24–48 hours. Repayment flexes with your sales rather than a fixed loan amortization, which fits a business whose cash flow is still finding its rhythm.
The honest sequencing point: revenue-based funding is not a way to start from zero — it is a way to accelerate once you have a few months of deposits. If you are pre-revenue, your capital comes from savings, friends and family, or an SBA microloan. Once the account is moving, a revenue-based advance can fund inventory, a second location, equipment, or a growth push far faster than a bank. No legitimate funder guarantees approval, and you should walk away from anyone who does.
Decision framework: when each funding path fits
Match the money to the stage. Here is the framework we use when a founder asks what to pursue.
Bank / SBA loan works best when:
- You have at least a year or two in business, or strong personal credit and collateral.
- The use of funds is a large, long-lived asset (real estate, major equipment).
- You can wait weeks for approval and want the lowest possible cost of capital.
Avoid a bank loan when: you are pre-revenue with a thin file, you need the money this week, or the paperwork burden exceeds the size of what you are borrowing.
Revenue-based financing / MCA marketplace works best when:
- The business is already depositing revenue — even a few months of consistent bank activity.
- You need at least ~$10,000 and want a decision in 24–48 hours.
- Your credit is imperfect (FICO 500+) but your sales are real.
- You want repayment that moves with cash flow rather than a fixed monthly note.
Avoid revenue-based financing when: you have no revenue yet, your margins are too thin to absorb any cost of capital, or you can qualify for and afford to wait on a bank product. It is a tool for momentum, not a substitute for a viable model.
Licenses, permits, and the compliance you can't skip
The paperwork most likely to bite a new owner is the layered, local kind. Requirements stack across three levels of government:
- Federal: EIN always; special federal licenses only for regulated industries (alcohol, firearms, transportation, agriculture, broadcasting).
- State: business registration, sales-tax permit, professional licenses (contractors, cosmetology, real estate, health), and workers' comp registration once you hire.
- Local (county and city): general business license, zoning and use permits, signage permits, health department permits for food, and a home-occupation permit if you operate from home.
Two compliance items founders forget until it is expensive: registering for sales tax before your first taxable sale, and — for most LLCs and corporations formed in recent years — filing the required federal beneficial ownership information. Build a simple compliance calendar so annual report fees, license renewals, and tax deadlines never surprise you.
The first 90 days: turning 'open' into 'operating'
Opening is a checklist. Operating is a habit. The businesses that survive their first year get a few things running in the first 90 days:
- Clean books from day one. Every dollar in and out through the business account, categorized weekly. This is what makes you fundable and audit-proof later.
- A pricing model that clears margin, not just covers cost. Underpricing is the most common self-inflicted wound in a new business.
- A repeatable way to get customers. One channel that reliably produces sales beats five you dabble in.
- A cash-flow forecast, not just a P&L. Profit on paper and cash in the account are different things; new businesses die of the gap between them.
- A funding relationship before you need it. Knowing what a revenue-based funder would offer once your deposits mature means you can move on inventory or a hire without a scramble.
For how financing decisions change as you scale past launch, see our funding guide for growing businesses.
Frequently asked questions
What is the very first step to opening a small business?
Validating that people will actually pay for what you plan to sell — through pre-orders, a converting waitlist, a signed pilot, or real sales at a test event. Validation is free, while inventory, buildout, and marketing are not, so proving demand before you spend is the step that protects every dollar after it.
Do I need an LLC to open a business?
No. You can legally operate as a sole proprietor with no formation at all, but you get no liability separation and it is harder to fund. For most first-time owners an LLC is the practical default: it protects personal assets, keeps taxes simple, and can elect S-corp tax treatment later once profit justifies it.
How much money do I need to open a small business?
It depends entirely on the model — a home-based service business can open for a few thousand dollars, while retail or food service often needs tens of thousands for buildout and inventory. The figure founders underestimate most is the operating runway: plan for three to six months of expenses on top of one-time startup costs.
Can I get funding to open a business with bad credit?
Startup funding tied to credit is hard pre-revenue, but once your business is depositing money, revenue-based financing underwrites your bank deposits and revenue rather than your score — typically accepting FICO from 500+, funding from about $10,000, with decisions in roughly 24–48 hours. Before you have revenue, look to savings, friends and family, or an SBA microloan.
How fast can I actually open a business?
The legal pieces move fast: forming an entity and getting an EIN can happen within a day or two, and a business bank account the same week. Licenses and permits are the variable — some are instant, others take weeks of local review — so start those early and build them into your timeline.
What licenses do I need to open a small business?
At minimum an EIN and, in most cities, a general business license. On top of that you may need a state sales-tax permit, industry-specific professional or health permits, local zoning or signage permits, and workers' comp registration once you hire. Requirements stack across federal, state, county, and city, so check every level.
When does revenue-based financing make sense versus a bank loan?
A bank or SBA loan fits when you have time in business, solid credit or collateral, a long-lived asset to finance, and weeks to wait — it is the cheapest capital. Revenue-based financing fits when the business is already depositing revenue, credit is imperfect, and you need speed (24–48 hours) with repayment that flexes with sales. It accelerates momentum rather than replacing a viable model.
Should I open a business bank account before or after registering?
After. You register the entity and get your EIN first, because the bank needs both to open a business account. Do not delay past that point — running the business through a personal account muddies your books, weakens liability protection, and makes you far harder to underwrite when you later seek funding.
