Starting a business with little or no money can be challenging, but it is not impossible. There are many low-cost and free resources available, such as online courses and small business financing options, that can help you launch a business without a significant financial investment.
Many business owners are also starting side hustles while holding a full-time job.
If you’re looking to start a business on a budget, here are some things to consider.
Consider business ventures with low startup costs
If you lack financing, the best businesses to consider are those with minimal startup costs, such as those that can be run with just a laptop and your skills and experience.
Here are some business ideas with low startup costs:
- Consultant (marketing, business, etc.)
- Social media manager
- Influencer
- Bookkeeper
- Photographer
- Drop shipper
- Tutor
- Affiliate marketing
- Writer
- Application developer
- Graphic designer
- Virtual assistant
- Dog walker
Perform market research
Before making the leap, research your target market, customer needs, and the competitive landscape. Assess the industry or sector in which you want to compete. Who are your potential customers? What are their demographics, motivations, and challenges? What is the market size and potential for a purchase?
Market research will also provide insight into your strengths and weaknesses and the opportunities and obstacles to success.
Write a business plan
An essential step in starting a new business is creating a business plan that will serve as a foundation for your venture. A business plan clearly defines your business, products, and services and outlines how your company will operate and grow. Additionally, a business plan is typically required to secure funding from traditional loans or investors.
Here’s a suggested template for your business plan:
- Executive summary: A brief overview of your business and why it will be successful.
- Company description: Provide comprehensive information about your business and highlight your competitive advantages.
- Service and product offerings: List the products and services you will offer.
- Organization and management: Outline how your company will be structured and who will run it. For instance, will it be a partnership, LLC, or S-Corporation? Who will be responsible for day-to-day management?
- Market analysis: What is the industry outlook? Who are your target customers? What competition are you up against?
- Financing plan: Provide a detailed description of your funding needs, including your financial statements and an analysis of these statements.
- Marketing strategy: What is your strategy for attracting and converting potential consumers? How will you highlight your competitive advantages?
Don't forget that business plans should be treated as living documents. They need to be updated and adjusted constantly as your business grows. Change is necessary as initial plans get course-corrected and external factors like market pressure, investor demands, and economic swings can derail your initial strategy.
Choosing the right business structure: Pros and cons
Your business structure choice affects daily operations, taxes, and personal liability risk.
A sole proprietorship is the simplest business to form since it doesn’t require a state filing with your state government. However, it is also the riskiest since there is no legal distinction between the owner and the business, exposing you to liability for the debts and obligations of your business.
An LLC and S corporation are popular business structures since they provide limited liability protection by separating the assets of your business from your personal assets as the owner. A disadvantage of these structures is the costs involved in establishing and maintaining them, plus compliance responsibilities.
There’s no specific “right time” to incorporate or form an LLC, but it’s a good idea to do it before signing a contract to minimize liability or to help raise capital.
For more information, see When to incorporate or form an LLC.
Explore financing options
There are several options available for financing your business at minimal cost. Consider the following options:
- Microloans: Qualifying for the best business loans without proven revenue can be challenging. However, the Small Business Administration (SBA) has a microloan program specifically designed to assist small businesses and certain nonprofits start or expand their operations. This program provides loans of up to $50,000, funded by the SBA and administered through designated nonprofit community lenders.
- Equipment loans: Equipment financing is a loan that helps small businesses buy the tools and machinery they need. Lenders usually use the equipment itself as collateral. Some even offer financing for the whole purchase, so you might not be required to make a down payment.
- Peer-to-peer loan: Peer-to-peer (P2P) loans allow you to borrow money directly from individual investors rather than traditional banks or financial institutions. However, P2P loans may be more expensive than other types of loans.
- Grants: Grants for small businesses can be challenging to find and secure, but they are available. To locate them, explore resources from federal and state government entities and community development corporations. The U.S. Economic Development Administration provides a directory that can direct you to your state’s entrepreneurship and business development offices. While these offices may not have immediate funding, they are valuable sources of information on how and where to apply for grants.
- Crowdfunding: This option enables individuals to contribute small amounts of money to campaigns so entrepreneurs can launch their businesses. If you have created a product, crowdfunding platforms like Kickstarter and Indiegogo make it easy to support your project. Other options include subscription sites like Patreon and GoFundMe, where supporters can subscribe or donate to access creative content.
Don’t neglect the legal requirements for your business
Depending on your business structure and location, your business may be subject to various legal requirements. These include general registration, licensing, and other requirements.
- Business licenses and permits: Most businesses must obtain licenses and registrations regardless of the business entity type. This may involve obtaining a general business license at the local or state level. In some jurisdictions, even if you operate your business from home, you may still need to obtain a home occupation permit.
- Register with the Department of Revenue: Your business may need to register with your state’s revenue department and other states where you have a nexus.
- DBA filing: If you do business under an assumed name, fictitious name, or trade name, you must make a DBA filing with your state or local jurisdiction.
- Hiring employees: There are various requirements if you plan to hire employees, such as obtaining an EIN, registering with your state’s Department of Labor, and handling payroll. You must also obtain an EIN to form an LLC or corporation.
You may need to fulfill other requirements, such as getting a registered agent and filing a Beneficial Ownership Information Report with FinCEN.
Also make a plan to separate your business and personal finances. This is required by law for corporations and LLCs but is a good idea for all business structures since it helps you maintain good financial records and build good business credit (essential for obtaining external funding). The best way to do this is by opening a bank account and obtaining a business credit card.
Related article: When to incorporate or start an LLC.
