Business creation is a crucial element of economic growth and adaptability. It involves making key financial decisions and completing a series of legal activities. This article provides a systematic overview of the process, drawing on evidence from representative samples of new ventures in the United States.
People start businesses for a wide range of reasons, from making a living to solving social problems. There is a school of thought that downturns are good times to start a new company: competition might be weak and the cost of inputs (labor, supplies) cheap. Indeed, in the first part of 2021 the rate of business applications from likely nonemployer firms actually increased compared to the preceding period. This may be a reversal of trend or simply a blip.
Regardless of the motives, all new ventures must do market research to determine whether their products or services are sufficiently attractive to sustain a business. This includes analyzing competitors to see what needs they are fulfilling in the marketplace and how well their offerings align with yours.
Once a promising idea is selected, the next step is to formalize the new company. This typically involves filing paperwork with a state agency that administers corporate law. The agency will require the business owner to select a registered agent, who will receive legal documents on behalf of the firm. Then the owner must apply for a federal employer identification number, obtain licenses, open bank accounts and establish other legal aspects of the business.