How to Start a Business from Scratch

Starting a business from scratch feels like standing on the edge of a cliff—equal parts terrifying and exhilarating. You've got an idea, maybe some savings, and definitely a lot of questions.

Should you buy a franchise? Take over an existing business? There's just something about building a company from the ground up that these alternatives can't match.

When you start a business from scratch, you call every shot and keep every dollar of profit. You're creating something that reflects your vision and serves your community exactly how you want.

This guide walks you through each step of turning your dreams into a profitable venture. You'll discover why going from zero to success might be the smartest move you make—and exactly how to pull it off.

‍

{{banner-cta}}

‍

Why Start a Business From Scratch? Key Advantages

Building something from nothing comes with real advantages that buying a franchise or existing business can't match. You get:

Complete Creative Control 

When you start a business from scratch, every decision is yours:

• Choose your brand voice and visual identity.
• Design your customer experience from the ground up.
• Build your company culture exactly how you envision it.
• Pivot quickly when market conditions change.
• Implement new ideas without waiting for corporate approvals.

Higher Profit Potential 

Starting a small business from scratch means keeping 100% of your profits. Choosing to start your own business generally requires lower upfront costs than acquiring an already established one.

With your own business, you avoid:

• Franchise fees eating into revenue.
• Existing debt from previous owners.
• Ongoing royalty payments.
• Restrictive profit-sharing agreements.

Build Around Market Needs 

You solve problems that actually exist instead of inheriting grandfathered procedures. When you’re starting your own business, you have complete control over every part of it, including the products or services offered, pricing, and branding.

This gives you:

• Customer-first product development.
• Competitive edge over legacy businesses.
• Flexibility to adapt to local markets.
• Freedom to pivot based on real customer feedback.

Personal Fulfillment 

There's nothing like seeing your own vision come to life. Starting a business from scratch can be highly rewarding, as you take pride in creating something uniquely yours.

Before You Start: Validating Your Business Idea

Don't fall in love with an idea that customers don't want. Before you invest time and money, make sure real people actually need what you're planning to build. 

Market Research Essentials 

Start by understanding who you're serving and what they're struggling with. Look at your competitors—what are they doing well, and where are they dropping the ball? Check online reviews, social media comments, and industry forums to spot gaps in the market.

Use free tools like Google Trends to see if people are searching for solutions like yours. If search volume is trending up, that's a good sign. If it's declining, you might be chasing yesterday's problem.

Customer Validation Methods 

Here's how you can gauge interest from potential customers about your business concept before opening:

Surveys and Interviews 

Talk to 20-30 people in your target market. Ask about their biggest challenges, not whether they'd buy your product.

MVP Testing 

Build the simplest version of your solution and test it with real users. A basic website, prototype, or even a detailed mockup can show you if people actually engage with your idea.

Pre-sales Validation 

The ultimate test: Will people pay before you've built the full product? Offer pre-orders, crowdfunding campaigns, or early-bird pricing. Money talks louder than surveys.

Red flags to watch for:

• Nobody wants to pay for pre-orders.
• People say "it's interesting" but won't commit to trying it.
• You're solving a problem people don't think they have.
• Market research shows declining demand.

Skip this step at your own risk—it's cheaper to pivot early than to rebuild later.

How to Start a Business from Scratch: Step-by-Step Process

Ready to turn your validated idea into reality? Here's your step-by-step roadmap for opening a business that's built to last. For more details, check out our free startup checklist.

Phase 1: Planning and Preparation

1. Research your market and competition. 

Dig deeper than your initial validation. Study your competitors' pricing, marketing messages, and customer reviews. What complaints keep popping up? Those are your opportunities.

Use tools like Google Keyword Planner to see what people search for in your industry. The goal isn't to copy what exists—it's to find where you can do better.

2. Create a solid business plan. 

Your business plan doesn't need to be 50 pages long, but it should cover the essentials:

• Executive summary (what you do and why it matters)
• Market analysis (who you serve and how big the opportunity is)
• Financial projections (realistic revenue and expense forecasts)
• Marketing strategy (how you'll reach customers)
• Operations plan (how you'll deliver your product or service)

Think of it as your roadmap, not a document that sits on a shelf.

3. Choose your business structure. 

Your business structure affects everything from taxes to liability protection:

• Sole Proprietorship: Simplest setup, but no liability protection
• LLC: Good liability protection with tax flexibility
• S-Corporation: Tax advantages but more paperwork
• C-Corporation: Best for raising investment capital

Most small businesses start with an LLC for protection and simplicity.

Phase 2: Legal and Financial Setup

4. Register your business and get licenses. 

Register your business name with your state and check if it's available as a domain name. You'll need an Employer Identification Number (EIN) from the IRS. It’s free and takes minutes online.

Research required licenses and permits:

• General business license
• Professional licenses (if applicable)
• Sales tax permit
• Health department permits (food businesses)

5. Secure funding and open business accounts. 

Open a business checking account separate from your personal finances. This isn't just good practice—it's essential for tax purposes and building business credit. It’s a simple decision, but choosing the right business bank gets a little more complicated.

For funding, consider your options:

• Personal savings (maintains full control)
• Small business loans (SBA loans often have favorable terms)
• Business credit cards (for short-term needs)
• Angel investors or venture capital (if you're scaling fast)

6. Set up accounting and tax systems. 

Don't wait until tax season to organize your finances. Set up a system from day one using accounting software.

Track these essentials: income and expenses, mileage and travel costs, equipment purchases, and business meals. Consider hiring a bookkeeper if numbers aren't your strength.

And when small business bookkeeping and payroll taxes start keeping you up at night, Homebase is ready to put your life (and sleep schedule) back on track. 

With Homebase Payroll, we take taxes off your plate by filing them for you. Automatically calculating hours, breaks, overtime, wages, and taxes based on your city, state, and federal labor laws in just a few clicks.

Phase 3: Build and Launch

7. Build your team and operational systems. 

Even if you're starting solo, plan for growth. Document your processes so you can train others later.

When you're ready to hire, set up operational systems that'll keep your team running smoothly. This includes scheduling, time tracking, payroll, and communication tools—all the behind-the-scenes work that lets you focus on customers instead of administrative headaches.

Psst…Homebase handles the team management basics so you can spend time growing your business instead of juggling spreadsheets. From scheduling your first employee to running payroll as you scale, having these systems ready means you're prepared for success.

8. Create your brand and online presence. 

Your brand is more than a logo—it's how customers feel about your business. Keep it simple and authentic.

Build your online presence:

• Professional website with clear messaging
• Google Business Profile
• Social media profiles (focus on 1-2 platforms where your customers hang out)
• Email marketing setup

But your website is just the starting point. You need to drive traffic to it.

Marketing basics that actually work:

• Search engine optimization: Make sure people can find you on Google.
• Social media presence: Pick 1-2 platforms where your customers spend time.
• Email marketing: Stay in touch with customers and prospects.
• Online reviews: Encourage happy customers to leave reviews on Google and Yelp.

Don't try to master everything at once. Pick one channel, do it well, then expand.

9. Launch and start acquiring customers. 

Your launch doesn't need to be perfect—it needs to happen. Start with a soft launch to friends and family, then gradually expand your reach.

Just remember that getting new customers costs a lot more than keeping existing ones happy.

Retention strategies that work:

• Follow up after purchase: Check if they're satisfied and address any issues.
• Loyalty programs: Reward repeat customers with discounts or perks.
• Regular communication: Send helpful tips, updates, or exclusive offers.
• Ask for feedback: Show you care about their experience and act on suggestions.

Happy customers become your best salespeople through referrals and positive reviews.

Remember: Starting a business from scratch is a marathon, not a sprint. Take it one step at a time, and celebrate the small wins along the way.

Building Your Team: From Solo to Squad

Going from doing everything yourself to leading a team is one of the biggest shifts you'll make as a business owner. Here's how to make that transition without losing your mind.

When to Make Your First Hire 

You know it's time to hire when you're turning down customers or working 80-hour weeks just to keep up. But don't wait until you're completely overwhelmed—that leads to rushed hiring decisions. And besides, hiring your first employee can be a lot easier than you think.

Look for these signs:

• You're spending time on tasks that don't directly grow your business.
• Customer service is suffering because you can't respond quickly.
• You have consistent revenue that can support a salary for at least 6 months.
• You're saying no to opportunities because you don't have bandwidth.

The sweet spot? Hire when you're at about 80% capacity. This gives you room to train properly without drowning in work.

Essential Early Roles 

Your first hire should solve your biggest bottleneck. Common first hires include:

• Customer service rep: If you're spending hours answering emails and phone calls, free up your time to focus on growth.
• Operations assistant: Someone to handle scheduling, inventory, basic admin tasks—the stuff that has to get done but doesn't need your expertise.
• Sales associate: If you're turning away customers, hiring someone who can serve more people directly impacts revenue.
• Specialist in your core service: A skilled technician, cook, or consultant who can deliver your service while you focus on running the business.

Don't hire based on what you think you need—hire based on what's actually holding you back.

Setting Up Payroll and Scheduling Systems 

Before your first employee starts, get your payroll systems ready. Nobody wants to see their boss scrambling to figure out payroll on their first day.

You'll need:

• A reliable way to track hours worked.
• Payroll processing that handles taxes automatically.
• A system for creating and sharing schedules.
• Clear communication channels for your team.

Instead of spending Sunday nights building schedules from scratch, smart systems let your team coordinate coverage themselves while you maintain oversight. Set this up early, even if you only have one employee. 

As Kathleen Smith from Smiling Tree Toys puts it: "Before Homebase I was manually tallying up my team's work hours and entering them into payroll, crossing my fingers I hadn't made any mistakes. Now our entire team logs in and out quickly and easily with the Homebase app, and all I have to do is send their hours to my payroll program with the click of a button."

Creating Company Culture Early 

Your company culture starts with hire number one, not hire number ten. Be intentional about the environment you're creating.

Set clear expectations:

• How you communicate (email, text, in-person?)
• What good work looks like
• How decisions get made
• What behavior is unacceptable

Lead by example. If you want punctual employees, be on time yourself. If you want honest communication, admit when you make mistakes.

Remember: People don't quit jobs, they quit managers. Treat your early employees well. Their success becomes your success.

Funding Your Business: Options and Strategy

Money talks, but it doesn't have to shout. Here's how to fund your business without giving up your firstborn or your control.

Self-Funding vs. External Investment 

Self-funding means you keep 100% control but shoulder 100% of the risk. External investment gets you more capital but means sharing decisions (and profits) with others.

Bootstrap benefits:

• Complete creative control
• Keep all profits
• No debt payments or investor expectations
• Forces you to be lean and efficient

External funding perks:

• Access to larger amounts of capital
• Expert guidance from investors or lenders
• Shared risk
• Potential for faster growth

Most successful small businesses start with a mix. Use personal savings to prove the concept, then seek external funding to scale.

Small Business Loans and SBA Options 

Traditional bank loans require solid credit and collateral, but they offer competitive rates. SBA loans are government-backed, making banks more willing to lend to small businesses.

Popular SBA loan types:

• 7(a) loans: Most common, up to $5 million for working capital or equipment
• Microloans: Up to $50,000 for startups and small businesses
• Express loans: Faster approval, up to $500,000

The catch? Expect 30-90 days for approval and mountains of paperwork. Start the process early—you'll need financial statements, tax returns, and a solid business plan.

Alternative Funding Sources 

Can't wait for bank approval? Consider these options:

• Business credit cards: Quick access to capital, but high interest rates if you carry a balance.
• Equipment financing: Borrow against the equipment you're buying—the equipment serves as collateral.
• Invoice factoring: Sell your unpaid invoices for immediate cash at a discount.
• Crowdfunding: Platforms like Kickstarter let customers pre-order your product, funding production.
• Revenue-based financing: Get funding in exchange for a percentage of future sales—no equity required.

How Much Capital You Actually Need 

Don't guess—calculate. Add up:

• One-time startup costs (equipment, licenses, initial inventory)
• 6-12 months of operating expenses (rent, utilities, insurance, salaries)
• Marketing budget to acquire your first customers
• Emergency buffer (at least 10-20% of total costs)

Most small businesses need between $10,000-$50,000 to start, but service businesses often require less while retail and manufacturing need more. Build your budget from real numbers, not wishful thinking.

Common Challenges and How to Overcome Them

Starting a business from scratch comes with predictable hurdles. The good news? Every challenge has a solution if you know where to look.

Limited Resources and Budget Constraints 

Cash flow problems kill more businesses than bad ideas. Track every dollar in and out, and build a buffer for unexpected expenses.

Smart moves:

• Start lean—buy only what you absolutely need.
• Negotiate payment terms with suppliers.
• Consider bartering services with other small businesses.
• Use free tools and templates whenever possible.

Building Credibility Without Brand Recognition 

Nobody knows your name yet, but that doesn't mean you can't build trust fast.

Credibility boosters:

• Collect testimonials from early customers immediately.
• Create professional-looking materials (website, business cards, uniforms).
• Partner with established businesses in your area.
• Get involved in local business organizations and networking groups.

Avoiding Burnout While Wearing Multiple Hats 

You're the CEO, janitor, accountant, and everything in between. That's normal, but not sustainable long-term.

Stay sane strategies:

• Focus on revenue-generating activities first.
• Get small business management tools for repetitive tasks (scheduling, payroll,).
• Set boundaries—work has to end somewhere.
• Delegate or outsource as soon as you can afford it.

Navigating Legal Requirements 

Legal stuff feels overwhelming because it's not your expertise. You don't need to become a lawyer, but you do need the basics covered.

Legal protection priorities:

• Business license and proper registration
• General liability insurance
• Clear contracts for customers and employees
• Proper tax setup and record-keeping

When in doubt, spend a few hundred on professional advice. It's cheaper than fixing mistakes later.

Essential Business Insurance 

Don't skip insurance. It's cheaper than paying for disasters out of pocket. Cover all your bases with our small business insurance checklist.

Must-have coverage:

• General liability: Protects against customer injuries or property damage
• Professional liability: Covers mistakes in your service delivery
• Workers' compensation: Required once you hire employees (varies by state)
• Commercial property: Protects your equipment, inventory, and workspace

Start with general liability insurance before you serve your first customer. Many clients won't work with uninsured businesses, and one lawsuit could wipe out everything you've built.

Your First 90 Days: Setting Up for Success

The first three months make or break your business. Here's your roadmap to get from "nervous entrepreneur" to "confident business owner."

Week 1-30: Foundation Building 

Don't try to do everything at once. Focus on the essentials that let you legally operate and serve your first customer.

Foundation priorities:

• Complete business registration and get required licenses.
• Open a business bank account and set up basic accounting.
• Create a simple website and social media profiles.
• Secure your first location or workspace.
• Order essential equipment and supplies.

Week 31-60: Systems and Team Setup 

Now you're building the systems that'll let you scale without losing your sanity.

System setup essentials:

• Document your core processes (how you deliver your service).
• Set up scheduling and time tracking for when you hire.
• Create customer communication workflows.
• Build inventory or project management systems.

This is when smart business owners get their employee onboarding process ready—before they actually need it. With Homebase, you have scheduling, team communication, and onboarding systems all in one easy-to-use app so your first hire can hit the ground running.

Week 61-90: Launch and Optimization 

Time to open your doors and start fine-tuning based on real customer feedback.

Launch and optimize:

• Soft launch with friends and family first.
• Gather customer feedback and adjust quickly.
• Track what's working and what isn't.
• Scale up marketing that brings in customers.

Don't expect perfection—expect progress. Your business at day 90 should look different than day 1, and that's exactly what you want.

Free Tools to Get Started

Nobody starts a small business alone—and you need all the help you can get. When both time and finances are limited, free tools can help you launch without breaking the bank.

Homebase for Team Management, Scheduling, Payroll, and More 

Homebase handles the admin work so you can focus on growing your business. From scheduling your first employee to running payroll as you scale, it's built for small businesses with hourly teams. Everything from timesheets and team communication to HR compliance—all in one place.

‍

{{banner-cta}}

‍

Other essential free business tools

• Google Workspace: Email, documents, and cloud storage
• Canva: Design logos, social media posts, and marketing materials
• Mailchimp: Email marketing and customer communication
• Wave: Basic accounting and invoicing
• Hootsuite: Social media scheduling and management

Ready to get started? Join the 100,000+ small businesses using Homebase to make work easier. Handle scheduling, time tracking, payroll, and team communication without the headache. 

Sign up today and take your business to the next level—because you've got better things to do than wrestle with spreadsheets.

FAQs

How much money do I need to start a business from scratch? 

Most small businesses need between $10,000-$50,000 to start, but it varies wildly by industry. Service businesses (consulting, cleaning, tutoring) often start with under $5,000, while retail or manufacturing can require over $25,000. 

The key is calculating your actual needs: one-time startup costs plus 6-12 months of operating expenses, plus a 20% buffer for surprises.

What is the benefit of starting a new business from scratch? 

The biggest benefit is complete creative control—you build exactly what you envision without inheriting someone else's problems or outdated systems. You keep 100% of profits, can pivot quickly when market conditions change, and have the flexibility to adapt to customer needs without waiting for corporate approvals. 

Plus, there's unmatched personal fulfillment in seeing your vision come to life.

Which of the following is an advantage to owning your own business? 

Key advantages include being your own boss, unlimited income potential, flexible work schedule, and the ability to pursue your passion. You can make decisions quickly, keep all profits, build something meaningful in your community, and create jobs for others. 

The financial rewards and personal satisfaction often outweigh the risks for committed entrepreneurs.

How could you gauge interest from potential customers about your business concept prior to opening? 

Test demand through surveys and interviews with 20-30 target customers, create a simple MVP or prototype to see if people engage, and try pre-sales or crowdfunding campaigns. Social media polls, landing page sign-ups, and competitor analysis also reveal market interest. 

The key is getting real feedback before investing heavily—people vote with their wallets, not their words.