How to Start a Profitable Online Business

A How-To Guide

If you’ve made the decision to start an online business, you’re probably anxious to begin offering your products or services to potential customers.

However, before jumping in with both feet, take the time to do some pre-planning and establish your business deliberately. Doing so can help you identify and address any potential roadblocks to your success. A well-thought-out strategy can also help you reach more customers and ensure your business is positioned for future growth.

Getting Started

While how you will ultimately interact with your clients in an online business is different from traditional brick-and-mortar stores, the process of getting your business up and running doesn’t look all that different.
Starting an online business or opening an online store involves many of the same steps required to start any business. The good news is that the process is often faster, easier, and less expensive than opening a business with a physical presence. That’s mostly because there is no need to negotiate real estate leases or purchases, pay for things like utilities (other than your existing home utilities), or buy office furniture, equipment, and fixtures.

Choose Products and Services

You probably have a good idea of what you want to offer, but you should go into your new business with a clear focus on what you will be providing your customers now and in the future.

As you plan, try to look ahead to what your business might look like in a year’s time, and after a longer time period (5-10 years). When you’re just starting out, it can be hard to know which products or services will do well and which won’t. To the extent you can, leave your business plan open for modifications or expansion of your initial offerings.

Decide Whether to Own the Business Yourself or Incorporate/Form an LLC

Before you begin operations, you have to decide whether you want to own the business in your own name (which would be a sole proprietorship if you are the only owner or a general partnership if there are co-owners) or if you want to form a corporation or a limited liability company (LLC). If you decide to incorporate or form an LLC it is that corporation or LLC that owns the business. You will own the corporation or LLC.

There are pros and cons associated with owning the business yourself or through a corporation or LLC. And if you decide not to own it yourself, there are also advantages and disadvantages to the choice of a corporation (including whether to apply for S corporation status) or an LLC. The best entity structure for your business will depend on the facts and circumstances at hand. It can be helpful to discuss your options with a tax professional, a business attorney, or both before making a choice.

Name Your Business

You will also need to choose a name for your new business. There are some legal considerations to be aware of. The “legal” or “true” name of a sole proprietorship or a general partnership is the name of its owner or owners. The legal or true name of a corporation or LLC is the name on its formation document. In almost every state, if you want to do business under a name other than the legal or true name you will have to register that “assumed” or “doing business as” (or “d/b/a”) name with the state or county where you are doing business. In addition, if you are forming a corporation or LLC your legal name will have to be available – meaning that no other business entity is already on record with the state business entity filing office as having that name.

There are also marketing considerations. You want your customers to associate your products or services with your business’ name, whether it’s a word you make-up or a descriptive tag. As a general rule, it’s best to stay away from confusing or long names or overly clever names that your target audience isn’t likely to understand.

When you’ve identified the name you want to use, you may be tempted to start marketing yourself right away. However, doing so could be a costly mistake. Before marketing your new business’s name, you should check to make sure another business in your state isn’t already using that name or something very similar as its trademark.

You may also want to hire a trademark attorney to conduct a trademark search on your proposed business name.

Obtain Required Licenses and Permits

Most businesses – even online ones – have to obtain business licenses or permits. Make sure you have registered your business with the appropriate state or local agencies as required in your state or jurisdiction and that you are meeting all licensing and permit requirements.

Most businesses will also need to obtain a federal tax ID number, register with its state taxing authority, and pay state and local sales taxes, and meet unemployment and workers’ compensation requirements.

Understand Your Market

Before you launch your new online business, conducting market research can provide you with valuable insight that can help you get your business off on the right track.

Start by reviewing demographics and economic data provided by government agencies including the U.S. Census Bureau and the Bureau of Labor Statistics.

You can also glean important information by conducting your own research on your competition to see how they are positioning themselves and what tactics they are using to reach their customers. If your business will be international in scope, investigate the market for your products and services in the countries you are considering operating in.

Create a Marketing Plan

Your marketing plan will draw upon much of the work you did earlier, such as defining your business, identifying your customer base, and researching the competition. All of this will help you to determine your sales and marketing goals, and the strategies you will use to achieve them.

When your business is an online venture, your ability to drive visitors to your website is vital for the success of your business. Optimizing your website for SEO is one important way of driving “free” traffic to the site, though you may want to consider online advertising (such as Google AdWords) as another way to attract new customers.

Social media and email marketing can also play a critical role in reaching new customers and maintaining existing ones.

Be sure your online marketing complies with the Federal Trade Commission’s Rules governing communications. Making false or misleading statements about your products or services is not allowed. If you are selling goods online, you’ll need to comply with the FTC’s “30-Day Rule” which says you must have a reasonable basis to believe you can ship your customers’ purchases within 30 days.

Create a Website

Your online presence, including your website design and domain name, will be one of the most important elements to the success of your online business.

You will need to decide on the right domain name, register that domain, select a website host, and design your new website. Remember that your website represents your business, so it is critical that it is designed to aid your customers and potential customers in finding the information they’re looking for. If your site has an e-commerce component, you’ll also need to make sure the checkout process is simple and secure.