The correct order to do things when starting a business is: (1) validate that people will pay, (2) pick a business structure, (3) register your entity with the state, (4) get a free EIN from the IRS, (5) open a business bank account, (6) get local licenses and permits, then (7) add tools, insurance, and marketing once money is actually coming in. The single most important rule is that money-spending steps (registration, bank accounts, software, payroll) should come after you have proof someone will buy, not before.

Most "10 steps to start a business" lists get the steps roughly right but skip what actually trips people up: the dependencies. You can't get an EIN until your entity exists, and you can't open a business bank account until you have an EIN. Do these out of order and you'll spend a Tuesday on hold restarting forms. This guide maps the hard dependencies so you do each thing exactly once.

The dependency map (do this before that)

Here's the chain of "X requires Y first." Memorize these arrows and you'll never get stuck:

  • Customer validation → before spending real money on anything legal.
  • Business structure decision → before you register.
  • Registered agent + business name → before you file the entity.
  • State entity formed → before you apply for an EIN.
  • EIN issued → before you open a business bank account.
  • Business bank account → before you accept payments or set up accounting.
  • First paying customer → before payroll, premium software, and paid ads.

Validation sits at the very top and "infrastructure" (tools, payroll, ads) sits at the bottom. That ordering is the whole game.

The exact sequence, step by step

Step 1: Validate the idea before you spend a dollar

This is the step beginners skip, and it's the most expensive mistake you can make. Before registering anything, prove that strangers will pay you — real signals, not encouragement from friends:

  • Pre-sell to 3-5 people, take deposits, or get signed letters of intent.
  • Run a small offer (a landing page, a manual "concierge" version of the service, a single product listing) and see if anyone buys.
  • For a service, book and complete 1-2 paid jobs under your own name as a sole proprietor. You're legally allowed to do this in most states.

You do not need an LLC, an EIN, or a bank account to test whether your idea has a pulse. Many first-timers form an LLC, buy a logo, and subscribe to five tools before a single customer says yes. To keep early costs near zero, see starting a business with minimal investment.

The one exception: in a regulated industry (food, childcare, finance, healthcare — anything that needs a license to legally operate or take money), you may have to set up the legal structure earlier.

Step 2: Choose your business structure

Once you have evidence people will pay, decide how the business is owned. This decision drives every step after it, so make it before you file anything.

Structure Best for Liability protection Typical setup cost
Sole proprietorship Solo side hustle, testing phase None $0 (no filing)
LLC Most bootstrapped small businesses Yes $50-$500 state fee
S-Corp (LLC taxed as) Profitable owner-operators saving on self-employment tax Yes LLC fee + accountant
C-Corp (usually Delaware) Startups raising venture capital Yes $300-$800+

For most bootstrapping first-timers, an LLC in your home state is the default sweet spot: liability protection, simple pass-through taxes, minimal paperwork. Only choose a Delaware C-Corp if you plan to raise outside investment — it's what investors expect, but it adds cost and tax complexity you don't need yet. Unsure whether you even need to register? See do I need an LLC to start a business.

Step 3: Register your entity with the state

This is the first step that costs money, which is why validation came first. To file, you'll need three things ready before you start the form:

  1. A business name that's available (search your Secretary of State's database).
  2. A registered agent (you, or a service for ~$100-$300/year) with a physical address in the state.
  3. The filing fee (most states $50-$200; a few like California add an annual franchise tax).

You file Articles of Organization (LLC) or Articles of Incorporation (corporation) with your Secretary of State. This is the moment your business legally exists; processing ranges from same-day to a few weeks. Don't skip ahead to the EIN until you have your approved formation document, because the IRS form asks for your exact legal name and formation date.

Step 4: Get your EIN from the IRS (free, do not pay)

An EIN (Employer Identification Number) is your business's federal tax ID. You need it before you can open a business bank account, hire employees, or file business taxes. Get it directly and free at irs.gov — it takes about 10 minutes online and you get the number instantly. Never pay a third-party site that charges $50-$300 for this; they're just filling in the same free form.

You're required to have an EIN if you form a multi-member LLC, form a corporation, or hire employees. A single-member LLC or sole proprietor can use a Social Security number, but getting an EIN anyway keeps your SSN off invoices and is required by most banks to open a business account.

Step 5: Open a business bank account

Now that you have your formation documents and EIN, open a dedicated business checking account. Do this before you accept a single payment. Mixing personal and business money ("commingling") can pierce your LLC's liability protection and turns tax time into a nightmare.

Bring (or upload) your EIN confirmation letter, filed Articles, and a photo ID. Many online business banks charge $0/month with no minimum, so there's no reason to delay. Then point every payment processor (Stripe, Square, PayPal) at this account.

Step 6: Get local licenses, permits, and a DBA if needed

State registration does not automatically cover local rules. Depending on your city, county, and industry you may need:

  • A general business license from your city or county ($15-$400+).
  • Industry permits (health department, contractor's or professional license).
  • A DBA ("doing business as") if you operate under a name different from your entity name.
  • A sales tax permit if you sell taxable goods.

Check your city/county clerk and state department of revenue; the U.S. Small Business Administration has a license lookup by state and industry. For most low-risk online or home businesses this layer is light; for food, childcare, or trades it can be the longest part.

Step 7: Add infrastructure only as you grow (the money trap)

Here's the step nobody puts last but should: tools, payroll, insurance, and paid marketing. New founders routinely burn $200-$500/month on infrastructure before they have customers to justify it. Activate these when the need arrives:

  • Accounting software ($0-$30/mo): use a free tier or a spreadsheet until transactions are steady.
  • Payroll service: only when you actually hire a W-2 employee; until then a contractor (1099) is simpler.
  • Premium CRM, email, and SaaS: start on free tiers; upgrade when a limit truly blocks you.
  • Business insurance (general liability ~$30-$60/mo): get it before your first client engagement if you work on others' property or give professional advice; otherwise soon after revenue starts.
  • Paid ads: only after the offer has proven it converts organically or through warm outreach.

This "validate first, infrastructure last" sequencing matters most for low-cost ventures run from home. Our home business guide covers keeping overhead near zero.

Like this kind of straight-talk sequencing? Subscribe to the newsletter for one practical founder playbook in your inbox each week.

The minimum-viable-legal fast path for side hustles

If you're testing a low-risk side hustle (freelance writing, tutoring, a small Etsy shop), you can compress the whole thing. You're legally a sole proprietor the moment you do paid work, so the fast path is:

  1. Do the work and get your first few paying customers under your own legal name.
  2. Track income and expenses in a simple spreadsheet (you'll report on a Schedule C).
  3. Check for a local business license — many home-based side hustles still need one.
  4. Formalize later: form an LLC and get an EIN once revenue is consistent or you take on liability risk.

This skips registration, EIN, and a bank account until they earn their cost. For more on the no-frills beginning, see how to start a business: everything you need to know to get going.

Bootstrapped vs. funded: where the order changes

The sequence above is the bootstrapper's path, and it fits most first-timers. The order shifts only if you're raising outside money:

  • Bootstrapped (self-funded): validate first, form an LLC in your home state, keep legal setup cheap and late. Spend nothing until customers pay.
  • Funded (raising from investors): you'll typically form a Delaware C-Corp early, sometimes before validation is complete, because investors won't wire money into a sole proprietorship. Equity structure (a clean cap table, founder vesting) moves up the list.

Not sure which you are? Assume bootstrapped. You can convert an LLC to a C-Corp later when a real investor is at the table.

Quick-reference startup order checklist

Copy this and check off in order:

  • [ ] Validated demand (pre-sales, deposits, or 1-2 paid jobs)
  • [ ] Chose a business structure (LLC for most bootstrappers)
  • [ ] Checked name availability and lined up a registered agent
  • [ ] Filed Articles with the Secretary of State
  • [ ] Got a free EIN from irs.gov
  • [ ] Opened a business bank account, then connected a payment processor
  • [ ] Obtained local license(s) / permits / DBA / sales tax permit
  • [ ] Added insurance before first client work; set up lightweight accounting
  • [ ] Deferred payroll, premium tools, and paid ads until revenue justifies them

Frequently Asked Questions

Do I need to register my business before opening a bank account?

Yes. Banks require your EIN and (for LLCs and corporations) your filed formation documents, and you can't get an EIN until your entity is registered with the state. The order is: register entity → get EIN → open bank account.

Should I write a business plan before or after validating my idea?

Validate first, then write the plan. A 20-page plan built on untested assumptions is mostly fiction. Prove people will pay, then write a lean one- to two-page plan (who you serve, your offer, pricing, basic numbers). Lenders want a fuller plan, but even they care more about traction than prose.

When do I need to get an EIN?

You're required to have one if you form a multi-member LLC, form any corporation, or hire employees. Solo owners can technically use an SSN, but most banks require an EIN to open a business account, so get one anyway. It's free at irs.gov once your entity is registered.

Do I need a business license before making my first sale?

It depends on your location and industry. Many cities require a general business license even for home-based businesses, and regulated fields (food, childcare, trades, finance) require permits before you can legally take money. Low-risk online and freelance work often needs little or nothing. Check your city/county clerk and state revenue department before your first sale.

How do I know when my idea is ready to move from testing to legal setup?

Move to registration when you have repeatable, paid demand, not just interest: several completed paid transactions, you're turning away work, you're taking on liability, or revenue makes the $50-$300 setup cost trivial. Until then, stay a sole proprietor and keep your money in validation.