Starting a service business can be very profitable. With proper planning, execution and hard work, you can enjoy great success. Below you will learn the keys to launching a successful service business.
Importantly, a critical step in starting a service business is to complete your business plan. To help you out, you should download Growthink’s Ultimate Business Plan Template here.
14 Steps To Start a Service Business:
- Choose the Name for Your Service Business
- Determine the Type of Service Business You Will Launch
- Develop Your Service Business Plan
- Choose the Legal Structure for Your Service Business
- Secure Startup Funding for Your Service Business (If Needed)
- Secure a Location for Your Business
- Register Your Service Business with the IRS
- Open a Business Bank Account
- Get a Business Credit Card
- Get the Required Business Licenses and Permits
- Get Business Insurance for Your Service Business
- Buy or Lease the Right Service Business Equipment
- Develop Your Service Business Marketing Materials
- Purchase and Setup the Software Needed to Run Your Service Business
- Open for Business
1. Choose the Name for Your Service Business
The first step to starting a service business is to choose your business’ name.
This is a very important choice since your company name is your brand and will last for the lifetime of your business. Ideally you choose a name that is meaningful and memorable. Here are some tips for choosing a name for your service business:
- Make sure the name is available. Check your desired name against trademark databases and your state’s list of registered business names to see if it’s available. Also check to see if a suitable domain name is available.
- Keep it simple. The best names are usually ones that are easy to remember, pronounce and spell.
- Think about marketing. Come up with a name that reflects the desired brand and/or focus of your service business.
2. Determine the Type of Service Business You Will Launch
The next step is to determine the type of service business you will launch. There are an innumerable amount of service businesses, including salons, daycare centers, cleaning services, repair services, financial services, staffing services, business services and more.
3. Develop Your Service Business Plan
One of the most important steps in starting a service business is to develop your service business plan. The process of creating your plan ensures that you fully understand your market and your business strategy. The plan also provides you with a roadmap to follow and if needed, to present to funding sources to raise capital for your business.
Your business plan should include the following sections:
- Executive Summary – this section should summarize your entire business plan so readers can quickly understand the key details of your service business.
- Company Overview – this section tells the reader about the history of your service business and what type of service business you operate. For example, are you a consumer service business or a business service provider?
- Industry Analysis – here you will document key information about the service industry. Conduct market research and document how big the industry is and what trends are affecting it.
- Customer Analysis – in this section, you will document who your ideal or target customers are and their demographics. For example, how old are they? Where do they live? What do they find important when purchasing products or services like the ones you will offer?
- Competitive Analysis – here you will document the key direct and indirect competitors you will face and how you will build competitive advantage.
- Marketing Plan – your marketing plan should address the 4Ps: Product, Price, Promotions and Place.
- Product: Determine and document what products/services you will offer
- Prices: Document the prices of your products/services
- Place: Where will your business be located and how will that location help you increase sales?
- Promotions: What promotional methods will you use to attract customers to your service business? For example, you might decide to use pay-per-click advertising, public relations, search engine optimization and/or social media marketing.
- Operations Plan – here you will determine the key processes you will need to run your day-to-day operations. You will also determine your staffing needs. Finally, in this section of your plan, you will create a projected growth timeline showing the milestones you hope to achieve in the coming years.
- Management Team – this section details the background of your company’s management team.
- Financial Plan – finally, the financial plan answers questions including the following:
- What startup costs will you incur?
- How will your service business make money?
- What are your projected sales and expenses for the next five years?
- Do you need to raise funding to launch your business?
4. Choose the Legal Structure for Your Service Business
Next you need to choose a legal structure for your service business and register it and your business name with the Secretary of State in each state where you operate your business.
Below are the five most common legal structures:
1) Sole proprietorship
A sole proprietorship is a business entity in which the owner of the service business and the business are the same legal person. The owner of a sole proprietorship is responsible for all debts and obligations of the business. There are no formalities required to establish a sole proprietorship, and it is easy to set up and operate. The main advantage of a sole proprietorship is that it is simple and inexpensive to establish. The main disadvantage is that the owner is liable for all debts and obligations of the business.
2) Partnerships
A partnership is a legal structure that is popular among small businesses. It is an agreement between two or more people who want to start a service business together. The partners share in the profits and losses of the business.
The advantages of a partnership are that it is easy to set up, and the partners share in the profits and losses of the business. The disadvantages of a partnership are that the partners are jointly liable for the debts of the business, and disagreements between partners can be difficult to resolve.
3) Limited Liability Company (LLC)
A limited liability company, or LLC, is a type of business entity that provides limited liability to its owners. This means that the owners of an LLC are not personally responsible for the debts and liabilities of the business. The advantages of an LLC for a service business include flexibility in management, pass-through taxation (avoids double taxation as explained below), and limited personal liability. The disadvantages of an LLC include lack of availability in some states and self-employment taxes.
4) C Corporation
A C Corporation is a business entity that is separate from its owners. It has its own tax ID and can have shareholders. The main advantage of a C Corporation for a service business is that it offers limited liability to its owners. This means that the owners are not personally responsible for the debts and liabilities of the business. The disadvantage is that C Corporations are subject to double taxation. This means that the corporation pays taxes on its profits, and the shareholders also pay taxes on their dividends.
5) S Corporation
An S Corporation is a type of corporation that provides its owners with limited liability protection and allows them to pass their business income through to their personal income tax returns, thus avoiding double taxation. There are several limitations on S Corporations including the number of shareholders they can have among others.
Once you register your service business, your state will send you your official “Articles of Incorporation.” You will need this among other documentation when establishing your banking account (see below). We recommend that you consult an attorney in determining which legal structure is best suited for your company.
5. Secure Startup Funding for Your Service Business (If Needed)
In developing your service business plan, you might have determined that you need to raise funding to launch your business.
If so, the main sources of funding for a service business to consider are personal savings, family and friends, credit card financing, bank loans, crowdfunding and angel investors. Angel investors are individuals who provide capital to early-stage businesses. Angel investors typically will invest in a service business that they believe has high potential for growth.
6. Secure a Location for Your Business
Having the right space can be important for your service business, particularly if you’d like to meet clients there.
To find the right space, consider:
- Driving around to find the right areas while looking for “for lease” signs
- Contacting a commercial real estate agent
- Doing commercial real estate searches online
- Telling others about your needs and seeing if someone in your network has a connection that can help you find the right space
7. Register Your Service Business with the IRS
Next, you need to register your business with the Internal Revenue Service (IRS) which will result in the IRS issuing you an Employer Identification Number (EIN).
Most banks will require you to have an EIN in order to open up an account. In addition, in order to hire employees, you will need an EIN since that is how the IRS tracks your payroll tax payments.
Note that if you are a sole proprietor without employees, you generally do not need to get an EIN. Rather, you would use your social security number (instead of your EIN) as your taxpayer identification number.
8. Open a Business Bank Account
It is important to establish a bank account in your service business’s name. This process is fairly simple and involves the following steps:
- Identify and contact the bank you want to use
- Gather and present the required documents (generally include your company’s Articles of Incorporation, driver’s license or passport, and proof of address)
- Complete the bank’s application form and provide all relevant information
- Meet with a banker to discuss your business needs and establish a relationship with them
9. Get a Business Credit Card
You should get a business credit card for your service business to help you separate personal and business expenses.
You can either apply for a business credit card through your bank or apply for one through a credit card company.
When you’re applying for a business credit card, you’ll need to provide some information about your business. This includes the name of your business, the address of your business, and the type of business you’re running. You’ll also need to provide some information about yourself, including your name, Social Security number, and date of birth.
Once you’ve been approved for a business credit card, you’ll be able to use it to make purchases for your business. You can also use it to build your credit history which could be very important in securing loans and getting credit lines for your business in the future.
10. Get the Required Business Licenses and Permits
Every state, county and city has different business license and permit requirements.
Nearly all states, counties and/or cities have license requirements including:
- General Business License: getting your Articles of Incorporation as discussed above
- Sales Tax License or Seller’s Permit: for selling products
- Zoning Approval: typically at the city or county level, this provides authorization for construction or use of a building or land for a particular purpose
- Food Service, Processing and/or Warehouse Licensing: to ensure safe food preparation
- Health Facility Licensing & Certification: to ensure safe rendering of healthcare services
- Fire Department Approval: a process by which the local fire department reviews and approves the installation of a fire alarm system.
Depending on the type of service business you launch, you will have to obtain the necessary state, county and/or city licenses.
11. Get Business Insurance for Your Service Business
Business insurance is an important part of running any business, and it’s especially important for service businesses. Some of the most common types of business insurance for service businesses include:
- General liability insurance: This covers accidents and injuries that occur on your property. It also covers damages caused by your employees or products.
- Auto insurance: If a vehicle is used in your business, this type of insurance will cover if a vehicle is damaged or stolen.
- Workers’ compensation insurance: If you have employees, this type of policy works with your general liability policy to protect against workplace injuries and accidents. It also covers medical expenses and lost wages.
- Commercial property insurance: This covers damage to your property caused by fire, theft, or vandalism.
- Business interruption insurance: This covers lost income and expenses if your business is forced to close due to a covered event.
- Professional liability insurance: This protects your business against claims of professional negligence.
Find an insurance agent, tell them about your business and its needs, and they will recommend policies that fit those needs.
12. Buy or Lease the Right Service Business Equipment
When starting a service business, you will need to purchase or lease the appropriate equipment. This equipment will allow you to provide your services to your customers.
Some of the most common types of equipment for service businesses include:
- Office equipment: computer, printer, desk, chair
- Medical equipment: exam table, stretcher, medical supplies
- Industrial equipment: power tools, welding machines, saws
You should speak with suppliers and/or vendors to get an idea of what type of equipment you will need for your service business. You can also browse through catalogs or online stores to find the right equipment.
Once you have purchased or leased the appropriate equipment, make sure you have the proper training on how to use it. You don’t want to damage any equipment or injure yourself or a customer due to lack of knowledge.
13. Develop Your Service Business Marketing Materials
Marketing materials will be required to attract and retain customers to your service business.
The key marketing materials you will need are as follows:
- Logo: Spend some time developing a good logo for your service business. Your logo will be printed on company stationery, business cards, marketing materials and so forth. The right logo can increase customer trust and awareness of your brand.
- Website: Likewise, a professional service business website provides potential customers with information about the products and/or services you offer, your company’s history, and contact information. Importantly, remember that the look and feel of your website will affect how customers perceive you.
- Social Media Accounts: establish social media accounts in your company’s name. Accounts on Facebook, Twitter, LinkedIn and/or other social media networks will help customers and others find and interact with your service business.
14. Purchase and Setup the Software Needed to Run Your Service Business
The software you will need to run your service business depends on the type of service you offer. However, some of the most common types of software for service businesses include:
Accounting software: This software helps you track your expenses, income and profits. It is important to have good accounting software in order to make smart business decisions.
Customer Relationship Management (CRM) software: This software helps you keep track of your customers’ information (contact info, purchase history, etc.). This can be helpful in developing customer profiles and providing better service.
Project management software: This software helps you manage projects from start to finish. It can be helpful in organizing tasks, setting deadlines and tracking progress.
There are many other types of software that may be useful for your service business. Speak with other businesses in your industry or consult with a technology consultant to get an idea of what type of software would be best for you.
Once you have purchased the appropriate software, make sure you are familiar with how to use it. You don’t want to miss any important deadlines or lose money because you don’t know how to use the software properly.
Research the software that best suits your needs, purchase it, and set it up.
15. Open for Business
You are now ready to open your service business. If you followed the steps above, you should be in a great position to build a successful business. Below are answers to frequently asked questions that might further help you.
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How to Start a Service Business FAQs
Is it hard to start a service business?
There is no one-size-fits-all answer to this question, as the ease or difficulty of starting a service business will vary depending on your skills, experience, and resources.
However, if you follow the steps above, you should be able to start your service business without too much difficulty.
How can I start a service business with no experience?
The best way to start a service business with no experience is to start small. You can offer your services to friends and family members, or to local businesses. Once you have a few clients, you can then start marketing your business more aggressively.
What type of service business is most profitable?
The type of service business that is most profitable depends on a variety of factors, such as the services you offer and how much demand there is. For example, businesses in the IT industry, such as software development, web design, and IT consulting tend to be some of the most profitable. Additionally, businesses that offer services such as marketing, accounting, and bookkeeping can also be profitable.
How much does it cost to start a service business?
The cost of starting a service business can vary depending on the type of business, the amount of marketing required, and the software needed to run the business. For example, the startup costs for a software development business would likely be higher than the startup costs for a bookkeeping business. It costs between $500-$3000 to start a service business, although this can vary depending on how much marketing is needed and how many tools or software licenses you need.
What are the ongoing expenses for a service business?
The ongoing expenses for a service business can vary depending on the type of business, the amount of marketing required, and the software needed to run the business. However, in general, the ongoing expenses for a service business are relatively low when compared to other types of businesses.
Some of the expenses you may incur when running a service business include:
- Website updates: $100-$500 per year
- Social media updates: $500-$2,000 per year
- Software updates: $50-$200 per year
- Advertising: Varies depending on your target market
How does a service business make money?
A service business makes money by charging clients for the services it provides. The amount you charge will vary depending on the type of business, the skills and experience of your staff, and the market demand for your services. However, you should aim to charge enough to cover your costs and generate a profit.
Many service businesses also offer add-on services or products to their clients, which can help boost profits. For example, a computer repair business might sell new computers, software, or other related products to their clients. A marketing firm might sell advertising space or marketing materials to their clients.
Is owning a service business profitable?
Yes, owning a service business can be very profitable.
In order to be profitable, a service business must be able to attract and retain customers. This typically involves investing in marketing and advertising efforts, as well as providing high-quality services that meet or exceed client expectations. If you can't keep clients coming back, your business will likely struggle to make a profit.
However, there are a few things you can do to increase your chances of profitability:
- Research your target market and understand what they want and need
- Offer a unique service that isn't easily replicated
- Invest in training and certification courses to improve your skills and knowledge
- Stay up to date with the latest trends and technologies in your industry
- Offer add-on services or products to increase your profits
- Offering add-on services that complement your main offering.
- Optimizing your website for SEO to increase online visibility.
- Providing outstanding client service
Why do service businesses fail?
There are a number of reasons why service businesses fail:
- Lack of marketing and advertising efforts
- Poor customer service
- Offering low-quality services that do not meet client expectations
- Not staying up to date with industry trends and technologies
- Lack of focus on a specific niche market
- Trying to do too many things at once
- Underestimating how much time and effort is needed to make the business successful
One of the main reasons that service businesses fail is a lack of planning. This can include not having a detailed business plan, not doing research on the industry, and not targeting the right customers.
Another reason is a lack of marketing and sales skills. This can include not creating a sales process and not have a clear and strong value proposition.
The last main reason is a lack of financial management skills. This can include not having a realistic budget, not tracking expenses, and not investing in the business.
Who are key players in the service market?
The service market is made up of a variety of different players, including small businesses, large enterprises, and even individuals.
Some of the key players in the market include:
- Netflix
- Amazon
- Microsoft
- Uber
- AirBnB
However, there are many other players in your specific target market, and it is important to research the market to identify the key players that may have the most direct influence on the success of your business.
How much should I charge for my service services?
Service fees can vary depending on the type of service services being offered, as well as the size and scope of the project.
However, some common service fees include:
- Hourly rate – This type of fee is based on how many hours you will be spending on the project.
- Project-based fee – This type of fee is based on how much work needs to be completed and how long it will take you to complete it.
- Retainer fees – This type of fee is paid upfront in exchange for a certain amount of hours or work.
- Subscription fees - This type of fee is based on how often a client will be using your services.
The best way to determine the right fee for your service business is to research the rates of similar businesses in your industry, and to also consider the value that you will be providing to the client.
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