When selecting a business idea, it’s not only important to think about making money. It is also important to consider what skills and resources you have, along with whether you have the necessary experience and knowledge for the particular industry. Aligning your business idea with your strengths and passions will make the entrepreneurial journey more fulfilling and increase your chances of success.

To learn more about the different types of businesses, check out our business library to get detailed industry information, trends, costs to start, tips, and lots more.

Starting a business without a well thought-out plan is like going on a trip without a map – it might eventually lead you to your destination, but it’s likely to take longer, cost more money and effort, and leave room for missteps along the way.

Writing a thorough business plan gives you clarity on all aspects of your business, from finance to sales strategies, while also serving as a tool to attract investors or secure loans. It also helps entrepreneurs identify weaknesses and uncertainties on paper to address them before they develop into bigger problems.

While statistics vary slightly depending on sources, studies indicate that creating a formal written plan significantly increases the odds of success compared to those who don’t bother to put pen to paper.

Related: How to write a business plan

The next step to starting a business in Virginia is selecting a business entity.

A business entity is a legal structure that defines how a company operates, its ownership, taxation, and liability. Selecting the appropriate entity is crucial as it impacts the way your business is taxed, the owner’s personal liability, and the ability to raise capital.

In Virginia, there are four common types of business entities: sole proprietorship, general partnership, corporation, and Limited Liability Company (LLC). Let’s examine their unique characteristics, along with their pros and cons.

Sole Proprietorship: This is the simplest business structure, where the owner and the business are considered a single legal entity. It’s easy to establish and requires minimal paperwork.
Pros: Easy to set up, low start-up costs, and complete control over the business.
Cons: Unlimited personal liability for the small business owner, difficulty raising capital, and higher self-employment taxes.

General Partnership: A partnership is formed when two or more individuals agree to share the ownership, management, and profits of a business. Each partner is personally responsible for the company’s debts and obligations.
Pros: Easy to set up, shared responsibilities, and pooled resources.
Cons: Unlimited personal liability for all partners, potential disagreements, and difficulty raising capital.

Corporation: A corporation is a separate legal entity from its owners (shareholders). It provides limited liability protection and can issue shares of stock to raise capital. There are two common types of corporations: C Corporations and S Corporations, each with different tax implications.
Pros: Limited liability protection, easier access to capital, and increased credibility.
Cons: More complex and costly to set up, double taxation for C Corporations, and increased regulatory requirements.

Related: How to form a Virginia corporation

Limited Liability Company (LLC): An LLC is a hybrid business structure that combines the limited liability protection of a corporation with the tax benefits and flexibility of a partnership. Owners, referred to as members, are not personally liable for the company’s debts or liabilities.
Pros: Limited liability protection, pass-through taxation, and flexibility in management.
Cons: More complex and costly to set up than sole proprietorship or partnership, and potential challenges when raising capital.

Related: How to form a Virginia LLC 

Understanding the unique characteristics of each business entity is essential for making an informed decision when starting your new business in Virginia.

Starting a business in Virginia requires registering with the state and obtaining the necessary licenses and permits. Depending on the type of business, you may need to register with multiple agencies. Some common registrations include:

Business Licenses: The state of Virginia doesn’t have a general business license; however, many cities in Virginia have their own licensing requirements that must be met before operating a business within their jurisdiction.

Employer Identification Number (EIN): An Employer Identification Number (EIN) is used for many types of businesses for identification purposes, similar to how Social Security Numbers (SSNs) would be used for individuals. Most businesses, including partnerships, corporations and multi-member LLCs, or any entity with employees, are required to obtain an EIN. You can apply for an EIN online for free at the IRS website.

Business Name Registration: Sole proprietors and general partnerships in Virginia that operate under a fictitious business name or DBA (Doing Business As) will need to file a Fictitious Trade Name, sometimes known as a DBA (Doing Business As) with the office of the Clerk of the Circuit Court in each county or city where business is to be conducted.

Sales Tax Certificate: The most common license is a sales tax certificate, also known as a seller’s permit. This is required by the Virginia Department of Taxation for businesses that sell goods or services in Virginia and collect sales tax from customers.

Professional Licensing: Some occupations, such as home inspectors, landscapers, nail technicians, and tattooists, require licensing through the Virginia Department of Professional and Occupational Regulation.  While this isn’t a license on the business, licensing is required in order to operate.

Zoning: Before starting to operate a business (even if it’s home-based), be sure to check local zoning regulations before starting to operate out of a location.

Related: What business licenses and permits are needed in Virginia?

One of the best practices when running a small business is keeping your personal and business separate. While this may seem obvious to many, failure to do so could lead to significant headaches down the line. A few reasons include:

Tax Planning: By having separate personal and business accounts, you make it easier to plan and track deductions. Failure to maintain accurate records might result in missed opportunities for taking advantage of write-offs that are only applicable to business expenditures. Proper recordkeeping could also reduce the likelihood of errors or omissions during tax preparation. Keeping receipts for business-related expenses will save you money during tax season.

Auditing: During tax audits, organized books simplify matters as auditors don’t have to sort out which purchases were made in connection with business activities versus those for household spending, resulting in fewer mistakes and misunderstandings being made throughout the audit.

Accurate financial records: Separating your business and personal finances ensures that you have a clear record of all business transactions. This simplifies bookkeeping and makes it easier to monitor your business’s financial health. Accurate financial records are crucial for making informed business decisions and planning for growth.

As we get through the steps of setting up a business, we now take a look at getting the money needed to start. There are a number of sources, each with its pros and cons, and the best choice will depend on your specific business needs, the amount being requested, your financial situation, and your goals. Here are some funding options to consider:

Personal funds: If the startup costs are low enough, many entrepreneurs choose to self-fund by using their personal savings, retirement funds, or tapping into home equity. This option allows you to maintain control of your business but could put your personal finances at risk. It’s crucial to weigh the potential risks as not having enough of a cash cushion is risky should it take longer to generate sales than expected.

Conventional bank loans: Traditional banks and credit unions provide small business loans to borrowers with a solid credit history, collateral, and a strong business plan. These loans usually have competitive interest rates and terms but can be challenging to qualify for, especially for borrowers without a positive credit history.

SBA loan guarantees: The U.S. Small Business Administration (SBA) offers loan guarantee programs to help small businesses secure funding from participating lenders. The most popular program is the 7(a) loan program, which guarantees up to 85% of loans up to $150,000 and 75% of loans over $150,000. These loans can be used for working capital, equipment purchases, real estate, and more. Keep in mind that you’ll still need to meet the lender’s requirements to qualify.

Microloan programs: Microloans are smaller loans, usually up to $50,000, though some go higher, and are designed to help businesses with limited credit history or collateral. These loans can be obtained through local nonprofit organizations and community development financial institutions (CDFIs).

Microloans typically have higher interest rates compared to conventional loans but offer more flexibility, are easier to qualify for and often have business advising resources.

Investors: Raising capital from investors is another option for startups. This can be done through equity financing, where you sell shares of your company to investors. Some common types of investors include angel investors, venture capitalists, and crowdfunding platforms. Keep in mind that seeking investments can be time-consuming, and you’ll likely need to give up some ownership and control of your business.

Related: Understanding the different types of business funding

Hiring employees is a complex and often overwhelming process as, in addition to finding the right employees, there are labor laws to follow and multiple agencies to register with, such as the Internal Revenue Service, Virginia Employment Commission, and Virginia Department of Taxation.

Employers are also responsible for reporting new hires, verifying employees are eligible to work in the U.S., income tax withholding, unemployment insurance, unemployment taxes, and payroll withholding taxes, including Social Security and Medicare.

Related: Steps to hiring your first employee in Virginia

Business insurance is never at the top of anyone’s list of things they want to do when starting their business; however, insurance provides a safety net that can help your business recover from unforeseen events such as accidents, lawsuits, and natural disasters.

Each business has different needs, but there are several types of insurance policies that are commonly recommended. These include general liability insurance, workers’ compensation insurance (required for businesses with two or more employees), professional liability/errors & omissions (E&O) insurance, business owner’s policy (BOP) insurance, and commercial property insurance.

Even if insurance isn’t required, and there is a fire, theft, or personal injury lawsuit, the business owner may have to pay out-of-pocket damages and legal fees. Home-based businesses and side businesses may want to consider business insurance, too, as personal home and vehicle policies may not cover a business-related loss.

Related: Types of insurance your business may need

Properly tracking the income and expenses of a business is an important step as it provides an accurate record of financial transactions and helps to ensure that the business is compliant with tax regulations.

To maintain and organize your financial records efficiently, it’s crucial to keep track of various types of records, including:

Sales receipts: Keep records of all sales transactions, including invoices, cash register tapes, and credit card transaction slips.

Accounts payable: Maintain a record of all bills and expenses you need to pay, such as rent, utilities, and supplier invoices.

Accounts receivable: Keep track of all amounts owed to your business by customers for goods and services provided.

Payroll records: Record all payroll-related expenses, including employee wages, taxes, and benefits.

Bank statements: Regularly reconcile your bank statements with your bookkeeping records to ensure accuracy and identify any discrepancies.

Tax records: Store all tax-related documents, including tax returns, W-9 forms, and 1099 forms, for the required retention period.

Related: Setting up accounting for a business