How to Start an Online Business

Here are the key initial steps to set up your online business for long term success.

Protect Your Business

Create your LLC with Nolo

Like many things in life, putting your online business idea into action is 10% inspiration and 90% perspiration. Now that you've got the 10% (the idea) squared away, and you've done your due diligence on feasibility, it's time to get to work.

Make a Business Plan

A business plan is essential if you are going to seek funding from outside investors or a lender. Even if you are going to bootstrap your online business with your own funds though, you should have a business plan. It will help you iron out the details of your business, estimate when your business will be profitable, and help you set milestones and goals so you can track your progress. At a minimum, your business plan should include what products or services you'll offer, your target market, your expense and revenue projections, and timelines for meeting your goals.

Decide on a Business Structure

How you structure your business will depend on how much personal liability protection you need, what tax opportunities you are looking for, and what type of investor opportunities you want to create. The most commonly used business structures are a sole proprietorship, partnership, limited liability corporation (LLC), and corporation.

If you are the only owner, a sole proprietorship is the simplest way to go but this won't provide you with personal liability protection from your business's debts and obligations. That's why many business owners choose to form a limited liability corporation or corporation instead. For more information on small business entity choices, see Nolo's article on business ownership structures.

Choose a Business Name

The best advice for choosing a business name is to keep it short and simple, and make sure it describes your business or product. For example, if you are selling shoes, steer clear of a name like "Walking on Clouds," no matter how comfortable your shoes are. People searching online for your product will use the product name as a keyword in their search so be sure to include it in your business name. Companies like Nike and Red Bull can afford to spend millions of dollars branding their companies; you can let your name do the advertising work for you.

Register a Domain Name

As an online business, your website is your store and, like a bricks and mortar shop, it needs a name so customers can find it. The name you give your website is known as a domain name. Ideally, your business name and domain name will be the same. You can register your name through a domain registrar such as GoDaddy as long as the name isn't already taken. If the name you want to use is held by someone else, consider adding the state or city where you are located or adding your name to the business name to make it unique.

Domain names end with an extension such as ".com" or ".biz," or ".org" if you're a school or nonprofit. For an online business, it's generally best to stick with ".com" because it is the most familiar.

Obtain an EIN

You can obtain a federal tax identification number, or Employer Identification Number (EIN), for your business through the IRS website. While sole proprietors and single-member LLCs are not required to have an EIN (as long as they don't have employees), it's usually a good idea for all businesses to get one. That way you don't have to use your Social Security number, and most banks require an EIN to open a business bank account anyway.

Check for Permits and Licenses

States, counties, and cities all have their own permit and license requirements for different types of businesses. You will need to check with the appropriate agencies for your business location to see what is required. For 50-state information on business licensing requirements, see How to Get a Business License.

You should also see if you are required to register a fictitious business name for your business. Depending on the nature of your online business and what type of business entity you choose, you might want to look into buying business insurance.

Trademarks, Patents, and Copyrights

If you have a product, logo, artistic work, or other intellectual property that you want to protect, you might want to apply for a trademark, patent, or copyright. Having these protections in place gives you legal recourse should you need it. You can apply for a trademark or patent through the U.S. Patent and Trademark Office or a copyright license through the U.S. Copyright Office.

You can also do a search through these offices to make sure your logo, authored work, invention, or other intellectual property isn't already owned by someone else. If you infringe on an existing copyright or trademark, you can be liable for damages, so it's a good idea to do this before you get started selling online. Conducting a search will help you avoid potential legal pitfalls like selling t-shirts or other items with trademarked or copyrighted logos or pictures without permission from the owner of the trademark or copyright.

Select a Platform for Your Online Business

Choosing to develop your own website allows you to have total control over your business. But development and maintenance costs are high and you will likely have to hire a number of experts to set up and maintain all the required functions.

Third party platforms or marketplaces like Shopify or BigCommerce do much of the work for you. Most offer the option of building a website within their platform or allow you to use their website to sell your wares. Many provide templates for creating a website and professional designers for an additional fee.

The platform you choose will depend on your business and budget. In deciding what is best for you, be sure to compare the customer support offered, security protocols utilized, payment options offered, and general services provided. You should also check what platforms your competitors use to make sure the platform you choose fits with the needs of your industry. Your website design will be key to your success.

PCI Compliance

Payment Card Industry (PCI) compliance is mandated by the credit card industry. Online businesses are not only responsible for providing secure payment options, they must also protect the customer data collected and stored. The PCI Standards Council sets the guidelines and rules your online business must follow to ensure compliance.

If you use a third party to sell your products, it is likely that these protections are built into their platform. Third party platforms, also known as SaaS-based ecommerce stores, typically retain all access to credit card data so your obligations as the business owner are greatly reduced. If you set up your own website, you will need to build PCI compliance into your system.

Collecting Sales Tax

Online businesses are no longer simply responsible for collecting sales tax from customers in the state where the business is located. Many states require that online businesses selling to customers in their state register with the state and collect sales taxes from customers located in that state. Here too, if you use a third-party platform, it is likely to have sales tax requirements configured into the platform.

Start Your LLC Today

Protect Your Business With Nolo.