Choosing to start an online business is the first step to escaping the rat race and becoming truly financially independent. And it’s easier than you might think! All you need is a marketable skill and a basic understanding of how the web works. With that, you’re ready to go!
But exactly how do you “go?”
In this post, you’ll learn how to start a service business online. That means registering a name, choosing your rates, and selling your services.
Table of Contents
The most important tip: get selling!
The first step to selling services online is simple: start selling!
The mistake I see so often is that people spend months or even years trying to set up their business. They’ll build a website and tweak it to perfection, they’ll write out contracts, they’ll get lawyers, they’ll trademark their business name, and they’ll go through all the legal stuff. I’ve even seen people throw lavish launch parties!
In truth though, none of this needs to happen until you’ve already started selling a service. To start an online business, you just need to start.
If you’re spending months choosing typefaces for your homepage, then, in reality, you’re probably just procrastinating. Perhaps you’re nervous to set up your business because you know you’ll feel exposed once you put yourself out there?
The longer you delay, the more nervous you will become – the more you will have invested, and the more you will have to lose.
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Just do it!
You don’t need any of this stuff to start selling. Chances are that you’ll start by finding clients through freelancing sites like Upwork and Freelancer, meaning that you don’t strictly need a website at all. The same is true if you plan to advertise on forums, or email clients directly.
And seeing as you don’t need to register your business until you start earning money, there’s nothing to stop you finding a client or two first. Get your feet wet, learn on the job, and quit stalling!
With that said, here are the steps you should take right away.
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How to start an online business in easy steps
The good news is that it is much easier than you probably imagined to start an online business. Below, you’ll find a simple blueprint that will get you started, along with links to other resources on this site where you can find more information about each point.
Step 1: Choose a service
Your first step to start an online business as a freelancer is to choose a service that you want to provide. This can be anything, but some of the most popular options for working online include:
- Web design
- Digital marketing
- Video editing
- Data entry
- Personal training
- Digital art
- Music composition
These skills are in-demand, and they are easy to deliver over the web.
Think about which of these skills you would enjoy providing daily, and think which of them you would feel most comfortable offering.
Don’t have the skill to sell online yet? Don’t worry! You can take a course and gain certification in a matter of weeks.
- Resource: How to earn money online: all the main strategies and best tips
- Resource: How to get online certifications and qualifications to supercharge your career
Step 2: Choose your price and workflow
For your online business to be successful you need to get paid! Deciding how much to charge is an important step then, and you also need to decide how to charge. In other words, will you charge per hour? Per word? Or perhaps per completed project? The answer should depend on the kind of work you are providing, as well as the lifestyle that appeals to you.
On top of this, you also need to think about your workflow and work-life balance. How many hours do you want to work? How are you going to deliver the completed work? The industry standard answer to that last question is PayPal, but there are other options available too. Whichever route you pick, you’ll need to calculate any fees and see how this affects your pricing (the same goes for freelance websites described below). Which currency will you be paid in? USD is generally considered “the currency of the web,” which does make things a bit easier for those based in the US.
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Contracts and invoices
Investigate whether you will need to provide invoices when it’s time to bill the client and choose whether you are happy to get paid in arrears or would rather receive remuneration up-front. Should you provide the client with a contract?
You might decide you’d like to take on big complex projects and focus on one at a time, or maybe you’d prefer to handle lots of smaller gigs. Maybe you’re happy to let the client set the brief, or maybe you want to provide your service in the form of a pre-defined “package.” You likely already have an idea of how this is going to work in your head, but now is the time to get a little more concrete about what precisely “writing work” constitutes for you.
The key is to think about how much money you need to maintain your ideal lifestyle, and how much work you are capable of producing. Consider this in the context of whatever is the going rate within your industry, and you should be able to make some concrete decisions.
Step 3: Start advertising
Now you have a service that is neatly packaged and ready to sell, you’re ready to start looking for some buyers!
There are a few ways to do this as an online freelancer. Perhaps the most popular option for many people is to sign up for a freelance website. These sites include the likes of Upwork, Freelancer, and Fiverr, and are designed to connect professionals with clients. The platforms will take a cut of your salary, and may impose some frustrating requirements and restrictions on how you interact with other users. But they also provide a single place where it’s easy to find lots of buyers, along with tools to help you manage those relationships.
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Other alternatives include posting adverts on forums (perhaps webmaster forums like Warrior Forum) or messaging potential clients directly. If you’re a web designer for example, and you notice that a website you frequent regularly could do with a new coat of paint… why not message and ask if they’d like to hire your services?
Depending on your industry, you may even find that there are directories you can use to list your skills! This can make life extremely simple, as many of those directories will be free to use.
You could likewise try to get your business covered by the media. Alternatively, you might use a press release for example and hope that some writers pick it up for a story (this is only likely to happen if the story you release is genuinely interesting and not just a flagrant attempt at self-promotion!).
More marketing options for freelancers
Paid promotions are another option. For example, you might pay for a PPC campaign (Pay Per Click), which is a form of advertising that charges you each time someone clicks on one of your adverts. Popular PPC platforms include Google AdSense and Facebook Ads. Either way, you will likely need a website for this to be effective (otherwise where are you going to send your visitors!) so you should skip ahead to that section before you start.
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Other options for paid marketing include influencer marketing (paying a content creator to mention your business to their followers), or banner advertising on other websites. Of course, all the usual methods for marketing business offline still apply: there’s nothing to stop you from showing ads on the radio or in magazines for example!
Note: While 90% of freelancers are safe to simply start trading like this, there are some exceptions. If you are providing financial or health advice for example, then you might need to get liability insurance before you start taking on clients. Use your common sense, and if you’re unsure, a quick Google will usually tell you what you need to know.
Step 4: The legal stuff – start an online business officially
Once you start accepting clients and getting paid, it’s time to register your business with the government. The way you do this will depend on your country, but there are some common themes, no matter where you’re based.
First, you will need to register your business. That means you need to decide whether you are a sole proprietor or business entity.
Business entities include limited/incorporated businesses, as well as corporations (which likely won’t apply to those reading this!). If you are running an agency with multiple members of staff, then there is a possibility that you will benefit from creating an incorporated business. However, for the vast majority of people reading this post, becoming a sole proprietor will be the best fit.
The difference is whether you want your business to be considered a separate legal entity. In other words, are you going to pay yourself a “wage” from your business, or will the money you receive from clients be going straight into your account and staying there?
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Limited business or sole trader?
There are some advantages to having a separate business entity. This will usually give you more tax breaks, for instance, allowing you to keep more of your income. Likewise, it will make it easier to expand later on by taking on employees. Some clients also assume that this makes you a more “serious” business, and therefore one they’d rather work with.
But by the same token, it is also much simpler to be a sole trader. Becoming a business entity will likely require the involvement of a lawyer, which will mean it also costs you significantly more upfront. And as we will see, there is very little you can’t do as a sole proprietor. More to the point, you can always choose to become a limited business later on – so my advice is to take the easier option, to begin with, and then go from there.
Step 5: Accounting
As you begin taking on clients and preparing to pay tax for the first time, you are going to need to keep track of how much you are earning, and how much you are spending. I recommend doing this with a spreadsheet, or a tool like Quickbooks. That said, if you are providing a service such as building websites, it’s likely you will have very few overheads and that most of your revenue will be profit. In that case, you may not need to keep extensive books at all – just a log of what you earned and a note of any one-off expenses such as laptops or trips to visit clients.
If you have no idea how to start an online business, then you may not be familiar with precisely how tax works and there is some widespread misunderstanding about this process.
Essentially, you will be taxed on all your income just as you would be if you were employed. The only differences are that:
- You will be reporting on this income yourself
- You will need to separate your turnover from your profit
Turnover vs profit
Turnover is precisely how much money you earned in a year; the amount of money that “passed through” your business. Profit, on the other hand, is the amount that you have been able to pocket.
So, for example, if you are selling portraits for $50 and the canvas and paints cost you around $6 per item, then your profit is $44. In this scenario, you would be taxed on that $44 and not on the initial $50. That is because you have been able to “write off” the canvas and the paint as a business expense.
Some people are under the false impression that you get money back when they purchase a computer. The truth is rather that you simply don’t pay tax on that amount.
It’s important to do some research into what is eligible to be considered an expense. You can write off any business expense ranging from hardware and software, to travel, to bills like electricity and ISP. Sometimes the line can get fuzzy when considering what was a personal expense versus a business expense, however: such as when buying a new phone. Make sure to read about the laws in your country thoroughly, and consider hiring an accountant if you are unsure.
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How much will you pay?
The precise amount of tax you pay will vary slightly depending on where you live in the world. It also changes depending on your income bracket – income above certain thresholds is normally taxed at a higher rate.
Here in the UK, we have a “personal allowance” of tax-free income valued at £12,500. Beyond that, we are taxed at 20% up to the first £50,000. This is known as the “basic rate.” However, the amount I pay each year is significantly more than that, as this is also when I’m required to pay National Insurance contributions and student loan repayments.
Again, research to find out what applies to you. If you are based in the US, then you can find the information you need at the IRS Small-Business Tax Centers page. Also useful is the Small Business Administration, and SCORE.
If you are looking to start an online business in the UK meanwhile, try this useful resource from Gov.uk explaining how to set up as a sole trader.
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Setting up a separate bank account for your business can sometimes make this process easier. This avoids confusion between personal and business costs. It also means that a bank statement will provide most of the information you need for taxes. Most banks will let you set up a business account, even if you are a sole proprietor.
Step 6: Business name and website
We’re at the last step in this guide and we’re only now discussing something as seemingly fundamental as the business name! That’s because you don’t need a business name or a website to know how to start an online business. As we’ve seen, you can market yourself from a directory or a freelancing site, and trade under your name.
For a sole proprietor, choosing a business name or “trading name” is therefore entirely optional. However, this can be useful for marketing purposes, and may also build confidence in your services. It’s also fun!
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To get started, you’ll need to do some quick research to make sure that the trading name you’re planning on using isn’t already taken. You can do this over at the US Patent and Trademark Office if you’re in the US, or the Intellectual Property Office if you’re UK-based.
Trademarks and web design
If the name you’re thinking of using is available, then you can choose to buy the trademark yourself. This will usually cost you a few hundred dollars and will protect the name for 10 years. You will also need to file an affidavit between the 5th and 6th year, to demonstrate that your patent is still in use.
Keep in mind that the name you choose for your business should likely also be the name you use for your website. This name also needs to work from a marketing perspective: is it “Google-able?” A logo can also be a valuable asset, but that’s a discussion for another time!
You may also wish to design a website from which to promote your services. You can do this relatively easily using WordPress (a tool that powers over ¼ of all websites on the net). Or you could hire the services of a web designer. Use this to sell yourself and showcase your portfolio, and it can act as a great way to capture new leads and convert them into buying customers.
So now you know how to start an online business! The next step is to increase your profits by attracting more clients, doing great work, and reinvesting in your operations. Stick at it, have fun, and enjoy the journey!