Every small business starts with a great “Hey, I can make money doing what I love!” idea. But sorting your vision, paperwork, finances, and insurance can get overwhelming fast. Our guide breaks down the clear, practical steps to start a small business with simple insurance coverage checkpoints along the way so you’re protected as you grow.
Small Biz Pep Talk: You don’t need to do everything at once! Create a 90-day game plan (jump to a FREE launch checklist) and cross off each to-do confidently. Cheers to turning your idea into a real business, the right way.
1. Validate Your Idea
The first step in learning how to start a small business is to confirm your idea is viable. If everything goes according to plan, does your business have a solid chance of succeeding? Of course, there’s no way to definitively forecast your future, but it’s crucial to research the market and envision where your business will fit into it.
What to Do:
- Talk to real people who might buy (not just friends and family)
- Search competitors and note their services, pricing, and any gaps
- Test with a small offer, such as a pop-up or a pilot service
- Run a simple poll on social media to gauge interest
- Create a small business plan, using a template and AI prompts
Say you just earned your Pilates instructor license and notice none of the Pilates studios around you offer niche classes for women over 40. You run a pop-up class, highlighting the benefits of core stability and overall wellness for this demographic. Feedback from your event helps shape your business strategy.
The point here isn’t to prove your idea, but rather to learn how your business might realistically fare — and how you can set yourself apart from the competition from the get-go.
Insurance Checkpoint
At this stage, you usually don’t need to buy insurance yet, but it is the right time to understand what kind of insurance your business needs and note any requirements from venues or clients.
For example, in the Pilates scenario above, if you rent studio space for your pop-up, the owner will likely request proof of liability coverage via a certificate of insurance.
2. Choose a Business Structure
Next step, select your business structure, which is your legal business “type.” There are four common business structures for small businesses: sole proprietorship, limited liability company (LLC), partnership, and S corporation. Here’s a brief overview of how they work:
| Business Structure | Best For | Liability Protection | Setup / Ongoing Effort | Tax Basics | When It Makes Sense |
|---|---|---|---|---|---|
|
Sole Proprietorship
|
Solo business owners testing an idea |
❌ None (your personal assets at risk) |
Very low |
Income reported on personal tax return |
You’re just starting and want to move fast |
|
LLC (Limited Liability Company)
|
Solo owners or small teams wanting protection |
✅ Yes |
Low to moderate |
Pass-through by default (paid through the owner’s personal tax return) |
You want personal asset protection and a professional structure |
|
Partnership |
Two or more owners sharing a business |
⚠️ Varies (General partnerships offer little protection) |
Moderate |
Pass-through (paid through each owner’s personal tax returns) |
You’re starting with a partner and want shared ownership |
|
S Corporation (Tax election) |
Profitable small businesses |
✅ Yes (via an LLC or corporation) |
Higher |
The owner’s salary is taxed, and the remaining profit is taken as distributions (not subject to taxes) |
You’re earning a steady profit and want potential tax savings |
If you’re unsure where to start:
An LLC is often the safest, most flexible structure for new small businesses (especially service-based ones). It’s smart to start an LLC because it separates your personal assets from your business’, meaning if something goes wrong, your home and personal bank account are not on the line.
If you don’t formally form a structure, you’re a sole proprietor by default. For example, if you start offering landscaping services today and receive payment from a client (like a Venmo payment deposited into your personal bank account), your business is a sole proprietorship.
Insurance Checkpoint
Your business structure can affect:
- Whether insurance is required by contracts
- What name appears on your policy
- How claims are handled
Most insurers can update these details later, but it’s easier to manage your policy when everything is set up correctly from the start. Remember, every job involves risks, so insuring a side hustle, LLC, and any other business structure is non-negotiable.
Advice From an Entrepreneur
“I wish I had established the proper business structure and insurance earlier. I worked as a sole owner for two years because it was easy. However, when we hired a consultant who committed a serious error on a client’s project, we faced accountability. The lack of legal separation jeopardized my personal assets.
I quickly filed to create an LLC and obtained errors and omissions insurance. At first, the process felt like bureaucracy, but that incident served as a sobering reminder. Protecting your personal life is not a distraction from your business; rather, it is the cornerstone.” – Joern Meissner, Founder and Chairman of Manhattan Review
3. Register Your Business and Get an EIN
Skip this step if you plan on operating as a sole proprietor.
Now it’s time to make your business “real” on paper: register your business with your state. Then, secure your employer identification number (EIN) from the IRS. The good news is that you typically don’t need a lawyer to complete these steps.
Here’s what this typically looks like:
- Register with your state (typically through a Secretary of State office, Business Bureau, or Business Agency)
- File a DBA (“doing business as”) name if your business name differs from the registered name
- Choose a registered agent (this will be you, if you’re a solo business owner)
- Get an EIN from the IRS for tax-filing purposes
Insurance Checkpoint
Your insurance policy must match your legal business name and any DBAs you operate under. It’s a small detail to prep now to avoid paperwork headaches later!
4. Obtain Required Licenses and Permits
Next, ensure you meet the legal requirements to start your business by obtaining any required licenses and permits. These vary depending on your industry and location, but some common requirements include:
- Local or state business licenses
- Professional or industry-specific licenses (such as a cosmetology or teaching license)
- Sales tax (seller’s) permits
Search your industry/services + your city/county/state to find the specific rules that apply to your business. Securing necessary licenses and permits ahead of time prevents fines or last-minute panic down the road.
Insurance Checkpoint
Some licenses and permits require proof of insurance with minimum liability limits. You can submit this to the requesting office after you get a certificate of insurance by purchasing a policy.
Advice From a Small Business Owner
“I realized insurance and contracts actually matter for my business when I started traveling for elopements and working in national parks. In fact, I wasn’t even able to work in state parks until I had the right business insurance. Permits, liability coverage, and clear contracts suddenly weren’t optional; they were essential for protecting both me and my clients.” – Brianna Parks, Brianna Parks Photography
5. Set Up Your Financials
Clean money habits keep your business organized from day one. Start a business checking account to avoid any overlap with your personal finances. Use this account for all of your business income and expenses to keep track of where your money goes.
Don’t forget to:
- Use basic bookkeeping software (like Simple Start from QuickBooks)
- Set aside tax money as you go
- Develop a smart budget to control spending
- Have an emergency fund to cover unexpected costs
- Build insurance premiums into your budget
Insurance Checkpoint
If your business accepts payments online or stores client information (like addresses or credit card details), you’re susceptible to data breaches. Cyber liability insurance is coverage for cyberattacks like these, helping you recover and supporting notification and credit monitoring for affected customers.
6. Start Basic Marketing
People can’t buy from or hire your business if they don’t know it exists! Implement a basic marketing plan to clarify what you offer and attract your ideal customers. Here are the marketing essentials to check off now:
- Secure a website domain (you can do this right through a website builder, like Squarespace)
- Create a Google Business Profile
- Claim social handles (even if you aren’t ready to use them)
- Create a simple one-page site that states what you do, who you help, and how to buy from or book your business
Some online seller platforms or in-person event organizers may require your:
- Business details
- Tax information
- Proof of insurance (often product or general liability coverage)
Insurance Checkpoint
The more progress your business makes, the more risk it takes on! Marketing your business increases your chances of a competitor claiming you copied their branding or a customer saying you posted the wrong promo information.
The coverage you need? Personal and advertising injury, which is often wrapped into your general liability insurance.
7. Attend Events and Rent Space Safely
Take your business live! Once you start operating outside your home, whether at your first in-person event or in a rented business space, you enter into agreements that come with specific rules. Read the fine print of these contracts carefully — they inform what you can do and who’s responsible for what risk.
Some key points to review include:
- What services or products you can offer
- How long you have to commit to, plus penalties for exiting early (pop-ups and markets are usually short-term, but studios and vendor spaces may lock you in for a longer period of time)
- Fees beyond rent or booth costs
- Liability language (such as a clauses that shift all legal responsibility to your business)
- Setup, breakdown, and safety rules (especially for events and markets)
- Required insurance coverage
Insurance Checkpoint
This is one of the most common moments business owners realize they need insurance! Many event organizers or landlords will require general liability coverage (at a minimum), with specific limits (like $2 million aggregate per year). Usually, they ask to be listed as an additional insured on your COI.
Instead of scrambling, review requirements before applying and confirm your policy matches what’s being asked for.
8. Hire the Right Help
As your business takes off, you may need to offload some of your responsibilities to others, so hire the right people as contractors or employees based on your business needs. Hiring changes your legal and insurance needs, so it’s important to know:
- Contractors: Hired to perform specific tasks under a contract (not your employees); more flexibility, but with strict rules
- Employees: More control over when and how they work, with more liability shifting to the employer
Some small business owners start with hiring contractors and then progress to hiring employees once they feel more established — and ready for the extra responsibility of taking care of staff.
Insurance Checkpoint
Once you hire your first W-2 employee, you likely need workers compensation insurance. The exact requirement depends on your state, but this coverage is crucial for covering work-related employee injuries.
You may also need employment practices liability insurance (EPLI) or updated liability limits.
9. Purchase Starter Small Business Insurance
Congrats! Now that you know the steps to start a small business, it’s the right time to preview the insurance coverages you need!
We won’t lie: shopping for a policy isn’t as fun as designing your new business logo or making your first sale, but here at Insurance Canopy, we make it as easy and stress-free as possible. Here are some common small business insurance coverages you might need.
Starter Insurance Coverage at a Glance
| Coverage Type | What It Covers | Who Usually Needs It | When You Need It |
|---|---|---|---|
|
General Liability
|
Injuries, property damage, or accidents involving customers or the public |
Almost every small business |
Signing a lease, attending events, or working with clients in person |
|
Professional Liability / Errors & Omissions
|
Claims related to mistakes, errors, or advice you provide |
Service-based businesses, like consultants, coaches, or personal trainers |
Client contracts, paid advice, or service disputes |
|
Product Liability |
Injury or damage caused by products you sell or make |
Product-based businesses, like food trucks or craft vendors |
Selling on Etsy, Amazon, Shopify, or at markets |
|
Cyber Liability |
Data breaches, hacked accounts, or payment fraud |
Online businesses or anyone collecting customer info
|
Using online payments, email lists, or customer portals
|
|
Commercial Auto / Hired & Non-Owned
|
Accidents involving vehicles used for business (even personal cars)
|
Businesses that drive for work
|
Deliveries, events, or client visits
|
Some helpful coverage add-ons worth knowing about include:
- Inland marine coverage: Pays to replace your movable business tools, supplies, and inventory in case of theft or damage
- Liquor liability insurance: Required coverage for any business that serves or sells alcohol
- Workers compensation insurance: Typically required coverage for businesses with employees, for injuries sustained on the job
- Sexual abuse and molestation (SAM) insurance: Protects your business if you’re wrongly accused of sexual misconduct
At a minimum, all small businesses need general liability insurance from their very first day in business. Accidents can happen at any time, but this coverage protects your business if it accidentally harms another person! Learn more with our Small Business General Liability Guide.
Small Biz Pep Talk: Starting your small business, and all the hard work that goes into it, will be worth it! And to encourage you a bit more, you’re joining the ranks of other small business owners, 74% of whom are optimistic about company growth in 2026 despite changing economic factors.
Advice From a Small Business Owner
“Running a business is a lot, and it doesn’t magically get easier overnight. You’ll have ups, downs, slow seasons, and a lot of learning along the way. Make sure to breathe, do your best with what you know today, and keep moving forward. Owning a business is such a roller coaster ride, but it’s also incredibly rewarding. Try not to harp on the little things, because you’re going to make mistakes — no one gets it perfect the first time.” – Olivia Parks, Nola Organizers
Free 90-Day Small Business Launch Checklist
Keep Growing With Insurance Canopy
Every small business is a big deal and worth protecting. That’s why Insurance Canopy offers top-rated coverage that’s easy to buy and affordably priced for self-starters in dozens of industries. Protect your new venture and your future sales with a policy today!
FAQs About How to Set Up a Small Business
Do I Need Business Insurance Before I Register My Business?
You typically don’t need business insurance before you officially register your business with your state office. However, you do need liability coverage as soon as you start interacting with the public, whether that’s attending an event or making a sale through your website online.
What Insurance Do Landlords or Events Usually Require?
Landlords and event organizers typically require:
- General liability insurance (the type of insurance)
- Minimum coverage limits (how much they need you to be covered for)
- A certificate of insurance (proof of your active coverage)
- Their name listed as an additional insured (to protect themselves against claims related to your business)
How Much Does Small Business Insurance Cost for a Startup?
Your small business insurance costs vary based on factors like the services you offer and where you operate. However, the average cost small business owners pay for general liability insurance with Insurance Canopy is $20/month!
Do I Need an LLC to Start a Small Business?
Do Online Sellers Need Product Liability Insurance?
Product liability insurance is highly recommended for online sellers because it protects your business in case a customer claims your product has “harmed” them. Some platforms require it before approving you as a seller.
Kyle Jude | Program Manager
Kyle Jude is a Program Manager at Insurance Canopy, where he helps design and maintain liability coverage for small business owners. With 10+ years of experience in the insurance industry, he works closely with carriers, underwriters, and compliance teams to ensure coverage remains accurate, responsive, and aligned with real-world risks.
Kyle Jude is a Program Manager at Insurance Canopy, where he helps design and maintain liability coverage for small business owners. With 10+ years of experience in the insurance industry, he works closely with carriers, underwriters, and compliance teams to ensure coverage remains accurate, responsive, and aligned with real-world risks.
