There’s a common misconception that starting an online business doesn’t require the same level of care as launching a business with a physical storefront. While an online business provides some advantages and is easier to start than a brick-and-mortar company, you still need to pay close attention when forming your business.
With that being said, starting an online business shouldn’t be intimidating. The ability to host a business without needing a dedicated physical location has been a huge asset for entrepreneurs who don’t yet have the capital to make major investments in their businesses.
To ensure that you start your company off on the right foot, we’ve created this guide to show you how to start an online business. In this article we’ll cover the steps you need to take when starting your business, provide you with reasons an online model works, give you some tips for market research, and answer some frequently asked questions:
Reasons to Start an Online Business
To avoid mistakes when starting a business, you should spend a significant amount of time considering the right format for your company. Online businesses have advantages and disadvantages, just like brick-and-mortar businesses. Being aware of these factors will help you make the right choice to help your company achieve its goals.
Here are a few of the reasons people choose to start an online business instead of a more traditional brick-and-mortar business:
An online business is always open. Even if you don’t offer 24/7 support, customers can always find and visit your website. This constant presence combined with customers being able to find your business from the comfort of their home can be a huge asset for you.
Lower startup costs
Compared to other types of businesses, starting an online company is cheap. Companies with a physical location need to pay for office equipment, building leases, and other costly features. An online business only needs to pay to host their website and register the business with their state. This low-cost approach makes online businesses particularly appealing to young entrepreneurs and anyone who is risk averse.
High growth potential
Online businesses have no true ceiling on their growth potential. While physical businesses are limited by real estate costs and local demand, an online business is limited only by your willingness and ability to grow.
With an online company, you can sell products or offer services to just about anyone in the world. Retail websites and other forms of online businesses already represent a massive portion of the world economy, and experts expect that growth to continue well into the future.
How to Form Your Online Business
The actual process of setting up an online business doesn’t meaningfully differ from setting up a physical location. In fact, whether the company has a physical office or is online makes less of a difference than the chosen business structure.
When you choose to start an online business, you’ll need to follow these steps to make sure your company conforms properly to your state regulations. For this example, we will be setting up an online LLC.
1. Choose a company name
When you create a company, you need to ensure that its name is unique. States do not allow for two companies of the same name to exist in the state, though if you manage to vary the name and have it sound similar that may be acceptable. If you are forming an LLC, you will often need to include LLC, L.L.C., L.C., LC, Limited liability company, limited or some other form of these terms as part of the name.
When searching for a unique name, you can check the business name database provided by your state. This can often be found on the Secretary of State’s website. To hold a name, most states allow you to file a statement of reservation of name. There is usually a fee associated with reserving a name, and it holds the name for a limited time.
2. Appoint a registered agent
A registered agent represents the company and serves as the primary point of contact for official communications. Any legal notices will go to the registered agent. The registered agent can be you, another employee, a resident of the state, or a company based in the state. These rules are generally true, but check your secretary of state’s website to ensure your state does not have different rules.
3. Create and file articles of organization
The articles of organization is the form that you file to start your online business. This form can usually be found on the secretary of state’s website. There is typically a small filing fee associated with this document, and it must include the following information:
- Verification that the LLC has at least one member
- The name and address of the individual filing the articles of organization
- Name of the LLC
- Street address of the LLC
- Name and address of the registered agent
- Name and address of the LLC creator
- How the LLC will be run
4. Develop an operating agreement
While it is not strictly necessary to have an operating agreement in most states, it is very useful to have one in place. An operating agreement outlines how your company is run. It details job functions, management rules, and managers. The operating agreement also dictates important responsibilities and rules such as who will pay the bills, how the company will handle liability concerns and profit sharing, and how to carry out buy/sell agreements.
5. Obtain an EIN
If you are the sole employee of your company, an EIN is not necessary as you can use your Social Security Number. However, even if you are the sole employee of your company, obtaining an EIN is a good way to protect your privacy. An EIN can be requested from the IRS website.
Steps to Start an Online Business
Once you’ve decided that you want to start an online business, you need to set it up properly. Follow these nine steps to form an effective online company:
1. Evaluate your business idea and strategy
Starting an online business may be easier than setting up a brick-and-mortar company, but that doesn’t mean it’s risk-free. When creating a company, you need to make sure that you have realistic goals and a plan to achieve them.
Consider the product or service that your company will offer and compare it to other competitors in the same market. Think about what sets you apart and how you can market that differentiator to capture customers. If your idea is something that already exists and is satisfying customers well, then it’s worth reconsidering your idea in favor of something with greater potential.
2. Create a business plan
A business plan is essential for success. Even if you don’t plan on gathering funding or have very modest growth goals, a business plan will help you. Taking the time to sit down and envision the future of your business can help you avoid obstacles before they derail your efforts. Plus, it’s often easier (and cheaper) to plan ahead than it is to adjust to unexpected difficulties.
Good business includes marketing strategies. You can use this planning phase to identify your target audience and create a roadmap that can guide your company through turbulent early stages.
3. Research naming options
Choosing a business name may sound simple, but more goes into it than you might think. You need to find a name that describes your business, differentiates you from the competition, and is unique.
Remember, as an online company, your name is extra important. That’s because people need to be able to use a search engine to find the company. You should choose something easy to remember and easy to spell. This will maximize the chances that a prospective buyer who already knows about your company will find it.
4. Choose a formation type
Your business structure influences every aspect of your company. It determines how your business can operate and the way that it is taxed. Some structures you might consider are:
- Limited liability company (LLC): An LLC is a business structure that is designed to limit the liability of the company owner. An LLC can consist of one member (a single-member LLC) or multiple members, and it is governed by a self-created set of laws known as an operating agreement.
- Corporation: Corporations provide liability protection, but they are more complex to start and maintain than many other business structures. A corporation setup best suits growth-focused companies that expect to achieve high revenues quickly.
- Sole proprietorship: This business structure is easy to create but offers no liability protection. It’s best for very small businesses where the owner needs a professional name to operate.
- Partnership: Partnerships are similar to sole proprietorships in that they offer no liability protection. The primary difference is that partnerships are owned by at least two people while sole proprietorships have only one owner.
Once you’ve chosen your business structure, it’s time to actually form the company. Each state has different laws regarding the formation of each business structure, so check with your local governance. Generally, this information will be on your state’s secretary of state website.
5. Hire legal counsel
While not strictly necessary, it’s always a good idea for a company to have legal counsel. Business law attorneys not only protect you during legal issues but also prevent them from happening in the first place. When creating and running your business, an attorney can provide advice and help you avoid mistakes that could open you up to personal liability.
6. Establish and maintain an online presence
As you might have guessed, an online presence is essential for any online business. It’s helpful to think of it as your storefront. Your online locations need to be appealing, easy to locate, brand-aware, and approachable.
Some of the things you need to consider when establishing your online presence include:
Website: Your website needs to be clean and easy to
navigate. Choose a hosting platform with a good reputation. Even
if you hire the greatest web designer on the planet, it won’t
matter if your website operates slowly due to poor server
performance from your hosting platform.
On the website itself, you should include your products and services, your contact information, address, and a page about the company. It’s also useful to have a blog for SEO purposes.
- SEO: People can’t buy your products or sign up for your services if they can’t find you. Stay aware of relevant keywords in your industry and ensure that you are including them on your website in a natural way. Maintaining a blog that provides helpful, expert information is an excellent way to establish authority in a field, and can also help attract potential customers to your website.
- Social media: We live in an age of social media, so having a presence on major social media platforms is essential. These spaces allow you to interact directly with customers and answer their questions in a timely manner. They also further increase the legitimacy of your brand in the eyes of potential customers.
- Reviews: Though you don’t control who posts reviews, you can respond to those reviews. Stay on top of the criticisms that people have of your company by addressing them or offering to rectify the issue when customers leave a negative review. You should also encourage customers to leave reviews whenever possible. The wealth of information on the internet has turned people into discerning customers who regularly search for the best products and services. Do what you can to keep your company near the top of the review score averages on major platforms.
7. Identify sourcing and fulfillment methods
This step only applies if you are planning to run a retail business. You do not usually need sourcing and fulfillment methods for a service-oriented company.
If you are running a retail operation, spend some time thinking about how you will get your goods into the hands of your customers. You also need to consider how you will create the products if they aren’t being made by you.
8. Create marketing materials before the launch
With the company launch imminent, it’s time to create marketing materials. You should develop customer profiles and target audiences based on their needs and how your products or services address those needs. Remember, the likelihood that your business offerings appeal to everyone is low, so focus your attention where it will have the greatest impact.
Once your materials are in hand, consider how you will deploy them. If your audience leans younger, consider advertising on social media platforms with a lower average user age. If your audience leans older, consider the opposite. Targeted media campaigns take a bit more time on your end but are ultimately more effective than broad campaigns, with a few exceptions.
9. Launch the business
Now that you are ready to deploy your marketing strategies and have the logistics of your business handled, it’s time to launch. You can announce your company through social media, an email blast, and/or advertising.
How to Conduct Market Research
Market research is essential for any company, but its importance is even greater for online businesses. Without a proper understanding of your market, you could end up advertising to people who just don’t care about what you’re offering, which wastes your money and produces almost no results.
Fortunately, there are lots of ways to research potential markets before you spend money on a costly advertising campaign. Here are some of the ways you can conduct market research:
Identify a target audience
Advertising to the right group of people is a must. Take a look at the groups that most frequently use your products. If you haven’t started your company just yet, you can see who is buying from your competition. With the correct target audience identified, you can develop targeted marketing materials that are more effective at capturing the attention of your target group.
Check search engines
This free method of market research is used by companies of all sizes, and for good reason. Looking at a search engine can steer you away from ineffective strategies and put you on the path toward success, provided you know how to read them.
To start your search engine research, run searches in Google for your product or service category and look at what appears first. The pages that appear near the top are your primary search competition. You can learn even more by looking at the type of information that is on those pages. For example, determine if your keywords tend to produce informational or sales content in the search engine results page. Once you have that information, write the appropriate page types for the keyword.
Observe your established competition
When you know who your competitors are, you can learn from them without having to go through the whole process of making mistakes and finding out what works. You don’t want to copy them, but you can observe what is most effective about their marketing strategies and integrate what works. For example, you can observe who they target, and either target the same audience or target an underserved audience who you believe would benefit from your company’s products or services.
Setup keyword tracking
Keyword tracking allows you to see how audiences perform searches. Based on this information, you can revise existing webpages on your site to better reflect searcher intention or add blog articles that aim to capture search terms that you haven’t yet integrated into your website.
Online Business Formation FAQs
How do I start an online business? ✕
Starting an online business is very similar to starting a brick-and-mortar business. You need to follow the guidelines laid out by your state to create your chosen business structure. Beyond that, you must establish an online presence and focus on standing out online rather than capturing the attention of people as they walk by your business.
Do you need a special license to sell online internationally? ✕
Generally, you do not need a special license to sell online internationally, though that can depend on the product and the country in question. You should always be aware of the laws in each country that involve your product and its sale. If a country prohibits the product you sell, or otherwise makes it difficult to sell the product effectively, consider adding a disclaimer on your website that you do not ship to those countries.
Which online business is most profitable? ✕
The most profitable online businesses tend to include affiliate marketing, drop shipping, web design, and freelance writing. This is because these industries have little to no startup and maintenance costs, so most of the money you bring in would be profit.
What is the cheapest online business to start? ✕
The cheapest type of business to start is usually a sole proprietorship, though this can vary from state to state. As for the cheapest industry, any service-based industry where you are the sole employee and you do not need to invest in equipment or materials up front to perform the service will generally be cheaper than a retail or service business that requires tools and employees.
Call Wyoming LLC Attorney for Help Forming Your Business
The advent of online business has made it easier than ever to start a company, but there are still plenty of pitfalls if you aren’t looking out. At Wyoming LLC Attorney, we’ve been helping people like you start online businesses for years.
Our experienced business law attorneys can guide you through the process of company formation and help you choose the business structure that makes the most sense for you. We also offer registered agent, virtual office, and mail forwarding and scanning services that can help you maintain your privacy and start your company faster.
Looking to start your online business soon?