Considerations When Starting an Online Business in 2021

It goes without saying that starting a business in 2021 is fundamentally different than any other year. The challenges of a pandemic that hasn’t yet subsided has shaped consumer demands and put up unique hurdles for new business founders.

But the market is adapting. Several months after the pandemic started, the Census Bureau reported a 77.4% increase in business applications quarter-over-quarter, a sign that the business landscape is more resilient than we thought.

And as industries have eased into a virtual mindset, so too have consumers. The world is growing more accepting of digital experiences when it comes to communicating, interacting, shopping, and so on, which present more opportunities to launch and grow businesses that don’t require a physical space.

In this blog, we’ll outline some of the fundamentals of online businesses, plus offer a few suggestions on getting them off the ground.

What Is an Online Business vs “Ecommerce”?

There’s sometimes confusion around these two terms. Having a clear understanding can help cut out unnecessary research as you determine the steps to launching your business. So let’s clear this up.

What Is an Online Business?

An online business can be defined as a company that conducts any business activities, well... online. Online business isn’t restricted to one singular business activity, nor is it an all-encompassing business model.

A few examples are inventory management facilitated through online software, digital marketing or social media marketing, and conducting sales through a website instead of or in addition to a brick-and-mortar physical location.

So when gaining a sense of the steps you need to take when setting up an online business, you should start with a rough idea of which of your business activities will take place online.

During COVID-19, a business that’s almost entirely online may face less pandemic-related hurdles as a business that requires a physical location.

What Is Ecommerce?

Ecommerce specifically relates to how sales are conducted, but doesn’t necessarily describe your overall business model. Ecommerce is simply the online transactions where customers place orders and pay online.

So if we quickly return to the question of which business activities you will manage online, ecommerce refers to only one part of your business: sales.

For example, your business might have a physical location where you sell merchandise, but you might also have an ecommerce side where you sell some merchandise through a website.

While this blog post will focus primarily on jumpstarting all aspects of an online business, we’ll make sure to touch on the ecommerce component, too.

How to Start an Online Business

There is not a one-size-fits-all approach to starting an online business, but it never hurts to follow a few rules of thumb when launching, growing, and scaling your new business.

1. Ensure your new business fills a real need

Evaluate your business idea and your potential customer base. While new founders are showing it’s more than possible to launch a business during a pandemic, it pays to be judicious about the usefulness of your idea.

2. Apply for your Employer Identification Number (EIN), if necessary

To prepare your business for filing taxes, you may need to set up an EIN. An EIN is used by businesses to file federal tax returns. According to the IRS, you need an EIN if you:

• Have employees

• Operate your business as a partnership or corporation

• File tax returns on employment

• Withhold taxes on income, other than wages, to a non-resident alien

• Have a Keogh plan

• Are involved in certain types of organizations, such as trusts, estates, or non-profit organizations

In addition to obtaining a federal EIN (FEIN), you will need to identify state registration requirements in any state where your business intends to operate. Be sure to review any applicable state and local laws regarding income taxes and employment taxes, as you should determine if you also need a state or local tax ID.

Read more about what identification numbers are needed for tax filing purposes here.

3. Keep a Growth Mindset

What’s a growth mindset? Essentially, it’s keeping the scaling of your business in mind at all times. Even if you're a one-person operation now, it's good to think a step ahead and plan to scale. Who will be your first hire? How will you get them on board? Do you have the necessary resources to onboard this new person?

It’s helpful to also consider how you plan to retain your employees, even if you’re still in the hiring phase. One of the foremost retention tips that HR resources will tell you is to offer quality benefits and perks to your team.

And just because your business is new doesn’t preclude you from being able to make quick and accurate payments to your employees, offer quality benefits like health insurance and mental health support, and provide perks like 401(k) plans.

(At the outset, your business will also require insurance, such as workers comp, statutory disability, and more.)

With a Professional Employer Organization (PEO) like Justworks, you can grow your business with confidence with access to big-company benefits, automated payroll, HR tools, and compliance support — all in one place.

Learn more about how PEOs help small businesses here.

4. Maintain an online presence

Chances are, your online business will need a website to promote your business, facilitate sales, or simply provide prospective customers with information they need before they purchase from your business.

Plenty of inexpensive website tools can get your online business where it needs to be. For instance, you could try Shopify to build an ecommerce website, or utilize third-party sellers like Amazon or eBay for selling straight to consumers.

Additionally, you’ll want to grow and maintain a social media outreach if you want your business to reach a larger audience, especially in our virtual landscape.

5. Analyze Your Business Performance and Areas of Success

It might seem impossible to accurately compare yourself to peers and industry standards when so much of what we know has been upended by the pandemic.

But benchmarking your business isn’t as difficult as you think. Check out our guide to benchmarking during COVID-19.

As a New Founder, You’re Not Alone

Even as we face a recession and pandemic, as a new business founder, the cards aren’t stacked against you. Online businesses have the perfect environment to thrive, and a growing community of entrepreneurs.

If you want to join entrepreneurs who are making waves during these challenging times, or simply find more resources on how to navigate running your business, check Justworks webinars and virtual events, plus our Resource Center for ebooks, articles, and videos on your biggest business questions.