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A strong customer base is key to building a sustainable business. But in order to attract one, you have to get the word out to build brand awareness. Often, the best way to do that is to promote your products and services through a mix of free and paid advertising.

Here, we’re exploring proven advertising strategies — both online and offline — that can help you increase visibility, attract more customers, and build a stronger brand.

Why Small Business Advertising Matters

Advertising can be a critical business growth strategy. Whether you’re a brick and mortar or growing an ecommerce business, advertising helps you connect your offerings to the people who need them. Ideally, this will eventually build a customer base.

Advertisements continually remind people about your business, helping ensure that it stays top of mind, and they alert customers to new products, services, and promotions. Your advertisements could also help establish your brand’ story, including how you are different from your competitors.

A marketing strategy can also play a key role in a small business loan application, demonstrating to lenders that you have a plan for attracting customers and generating revenue.

Recommended: Business Line of Credit

Set Clear Advertising Goals

Your advertising goals are what you hope to achieve through your ads, such as increased sales and revenue. These targets help you understand the best ways to advertise and whether your ads have been effective.

Consider setting SMART goals, which stands for specific, measurable, attainable, relevant, and time-bound. Founded by George T. Doran, SMART goals may help improve your chances of reaching that goal.

Your goals should be unambiguous about what you want to achieve and why. Make sure that there are quantifiable outcomes that allow you to measure progress and success. Be sure it’s possible to achieve these goals and that they are related to your overall business strategy. Finally, be sure that there is a start and end date, which is a timeframe over which you’d like to see your goals accomplished.

For example, a SMART goal might be to increase online sales by 15% over the next year through targeted online ads.

Recommended: How to Improve Business Performance

Know Your Target Audience

Knowing who is most likely to buy your products or services helps you target your advertising more effectively. Pinpoint this group through market research, such as trend analysis, surveys, and one-on-one interviews with customers. You may also take a look at who competitors are targeting to get a general idea of the demographics you should consider.

Analyze existing customers and traffic to your website to understand who’s coming and what they’re buying.

Build a Strong Brand Message

Your brand message helps consumers understand what a company offers and why it matters to them. It should demonstrate where a brand fits in the market and how it’s different from its competitors. A brand voice can establish a tone for these communications.

Recommended: What Is Equipment Financing?

Best Ways to Advertise Your Business Online

There are several online strategies you may consider for your ad campaign, such as:

•   Search engine advertising: With this strategy, advertisers bid for the right to display an ad on a search engine result page. The ads are typically pay-per-click, so you’re paying by the click rather than for ad space.

•   Display ads: These appear on websites such as online magazines, newspapers, or blogs. Typically you purchase ad space directly from the website owners or an ad network, such as Google Ads.

•   Social media advertising: When using this strategy, you purchase ad space on a social media platform. Each platform may have different display types and different ways to target audiences.

•   Native advertising: A native ad is designed to look like the content surrounding it. For example, the ad might look like an article on a news media site.

•   Retargeting: Ever wonder why the brand of couch you once considered now shows up as an ad everywhere you go online? That’s thanks to retargeting strategies, which serve ads to people who have already looked at a product. These ads may help convert customers who have already demonstrated some interest in your product.

How to Advertise Your Business Locally

To advertise your business locally, consider a mix of digital and more traditional options. Use local keywords in your website and blog, and you can use location targeting for paid ads, such as on social media. You can also take advantage of online directories, especially if they are free.

More traditional methods of advertising in your home area might be advertising with local media, such as radio, newspapers, or local television stations. You may also consider sponsoring local events, such as little league games or holiday parades.

Recommended: Small Business Credit Card

Low-Cost and Free Ways to Advertise Your Business

Some low cost or free ways to advertise your business include:

•   Establish a Google Business Profile: This is a free tool that controls how you appear on Google maps and in searches. It allows you to fill in your business name, location, and phone number, and upload images.

•   Ask for reviews: Ask customers to share their experience and review your products and services.

•   Leverage social media: Social media provides a free and direct way to communicate with your customers. Figure out which platform your target audience uses most and build a presence there.

•   Optimize your SEO: Search engine optimization, or SEO, helps determine where your website ranks in online searches. Optimize results by using keywords your customers may search when looking for products and services like yours.

•   Create an email list: Collect client contact information and build a local email list to send out updates and offers.

How to Track and Measure Advertising Results

Tracking and measuring your advertising results can help you understand what’s working and where your budget is best spent. Without clear performance data, it’s difficult to know which campaigns are driving real business outcomes versus those that simply generate noise. Consistent measurement allows you to make informed decisions and improve results over time.

By setting clear goals and monitoring the right metrics, you can connect your advertising efforts directly to sales, leads, or engagement. Modern analytics tools make it easier than ever to track performance across digital and traditional channels, helping you refine your strategy and maximize return on investment (ROI).

Key ways to track and measure advertising results include:

•   Define clear objectives: Set specific goals such as website traffic, lead generation, phone calls, or sales conversions before launching a campaign.

•   Use analytics tools: Platforms like Google Analytics, social media insights, and ad dashboards provide data on clicks, impressions, and user behavior.

•   Track conversion metrics: Monitor actions that matter most, such as form submissions, purchases, or appointment bookings.

•   Measure cost efficiency: Review metrics like cost per click (CPC), cost per lead (CPL), and overall ROI to evaluate budget effectiveness.

•   Test and compare campaigns: Use A/B testing to compare ads, headlines, or audiences and identify which variations perform best.

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The Takeaway

Advertising works best when it’s grounded in clear goals and strategy. By understanding your audience, tailoring ads to them, and delivering these ads through the right channels, you can expand your reach, increase your customer base, and set your business up for sustainable growth.

If you’re seeking financing for your business, SoFi is here to support you. On SoFi’s marketplace, you can shop and compare financing options for your business in minutes.

FAQ

How do I advertise my small business with a low budget?

There are several advertising strategies that require little to no budget, including leveraging social media, establishing a Google Business Profile, creating an email marketing list, and adding your business to free online directories.

What is the most effective way to advertise a local business?

The most effective way to advertise will vary from business to business, but will likely involve a mixed strategy that draws on a strong digital presence and local engagement.

How much should I spend on advertising my business?

As a rule of thumb, businesses may expect to spend roughly 7% to 10% of their gross revenue on marketing. That said, this amount will likely vary depending on your industry.

How can I advertise my business online for free?

You can advertise your business online for free by optimizing your Google Business Profile, using social media consistently, creating helpful content, joining online communities, and encouraging customer reviews. Listing your business in free online directories, leveraging local forums, and collaborating with other businesses can also increase visibility without spending money.

How do I know if my advertising is working?

The only way to know that your advertising is working is to make sure you have measurable goals before you begin. With these in place, you can track pertinent data to see how much your efforts have moved the needle.

Photo credit: iStock/zamrznutitonovi

SoFi's marketplace is owned and operated by SoFi Lending Corp.
Advertising Disclosures: The preliminary options presented on this site are from lenders and providers that pay SoFi compensation for marketing their products and services. This affects whether a product or service is presented on this site. SoFi does not include all products and services in the market. All rates, terms, and conditions vary by provider. See SoFi Lending Corp. licensing information below.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

SOSMB-Q425-036

Running your own business can be an appealing prospect. Working for yourself comes with a number of benefits, from setting your own schedule to seeing your income grow along with your business.

But how do you decide on the best type of business for you? The good news is that, while having a passion project is great, you can pursue your entrepreneurial dreams even if you don’t have a specific obsession you’re pursuing. There are many different kinds of businesses that can be both enjoyable and profitable to run.

Explore several different types of lucrative business ideas to find the one that fits your skillset and workstyle.

What Makes a Business Profitable

When your business is profitable, its revenue (meaning its gross proceeds) is higher than what you have to pay to run it, including operating costs, employee salaries, inventory, rent, and more. There are three types of profit that businesses may track:

•   Gross profit: Revenue left after subtracting the cost of goods sold (COGS)

•   Operating profit: This profit subtracts even more expenses from revenue, including operating expenses, depreciation, and amortization, as well as COGS.

•   Net profit: This number gives you the amount of profit after all business expenses are deducted.

It’s important to measure your business’s profitability regularly, both on an ongoing basis (like monthly or quarterly) as well as at the end of each year. This can help you assess the health of your company and let you know if you should make any changes to your business plan.

Factors That Affect Business Profitability

There are many things that can impact your company’s profitability. Here are a few of the most common ones you’ll come across when you’re considering the best business to buy.

•   Operations: Both expenses and efficiency can impact business profitability. Increase your bottom line with helpful technology, streamlined processes, and employee efficiencies.

•   Pricing structure: It’s important to strike a balance between being competitive and still maintaining profit margins that work for your business.

•   Market: Not everything is in your control when it comes to profitability. There are also external factors to take into account, like the economy and taxes.

The cost of financing also affects how much revenue stays in your business. Before borrowing any funds, either to buy or operate a company, consider using a business loan calculator to estimate your monthly payment and the total cost of the loan.

Most Profitable Service-Based Businesses

Starting a small business that offers a service is often profitable because you can receive recurring income by repeatedly selling your service to the same customer base. That’s also why a service-based company may be the best business to buy, too. Some common types of service-based businesses are:

•   Pest control services

•   Barbershop/hair salon

•   Pet boarding and grooming services

•   Personal training

•   House cleaning

Most Profitable Online Businesses

Online companies can be some of the most profitable businesses because the startup costs are often relatively small compared to brick-and-mortar models. You may be able to get started with as little as a laptop, a WiFi connection, and a website builder. Once you begin bringing in clients, get started on opening a business checking account, and you’re good to go. Online businesses include:

•   Graphic design

•   Virtual assistant

•   Social media marketing

•   Freelance writing

Most Profitable Small Businesses to Start From Home

It’s entirely possible to launch a successful business from the comfort of your own home, even with minimal specialized skills. Options include:

•   Dog walking

•   Bookkeeping

•   E-commerce

•   Dropshipping

•   Handmade goods

Most Profitable Low-Investment Business Ideas

Make your entrepreneurial dreams come true even without a cash flow loan or other type of small business financing. Below are some ideas that don’t require a lot of upfront funds.

•   Vehicle detailing

•   Reselling

•   Carpet cleaning

•   Landscaping

•   Senior home companion

Most Profitable Franchises

Typically it takes a substantial amount of capital to get a franchise started, whether you pay with cash or a startup business loan. If you’re interested in a franchise, here are some of the most profitable business types.

•   Automotive maintenance and repairs

•   E-commerce/digital services

•   Education and tutoring services

•   Fast-casual and quick-service restaurants

•   Fitness/wellness services

•   Home services (landscaping, cleaning, home improvements)

•   Pet care services (grooming, walking, daycare)

•   Senior care and healthcare support services

How To Choose a Profitable Business Idea

What’s the best business to purchase or start for someone in your situation? Follow these guidelines to start your selection process.

Consider your interests: It’s hard to sustain an entrepreneurial lifestyle if you’re not excited about the work you do. So don’t try to force an industry that doesn’t fit your skillsets or really appeal to you. Instead, pick something you’ll enjoy doing day after day.

Determine your ideal business model: Everyone has their own goals for starting a business. Maybe you want to work from home to spend more time with family. Or maybe you have a product idea you can’t wait to launch in person. Choose a business that works for your lifestyle goals as well as your interests.

Create a business plan: Once you’ve narrowed down your list of potential business ideas, it’s time to research the market. A business plan can help you determine what steps it will take to launch and maintain your new company. Be sure to include challenges and opportunities you’re likely to come across on your journey.

Estimate your upfront costs: The final step for choosing a profitable business is to estimate the costs and figure out how you’ll pay for them. Maybe you have enough savings to dip into or maybe you’ll want to apply for a small business credit card. Just be realistic with your budget and plan for unexpected costs.

Recommended: Equipment Financing

Tips for Maximizing Profit Margins

Profitability isn’t just one and done. Once you’ve found the best business to purchase — or you’ve got your brand-new business up and running — make sure you’re constantly tracking your profit margins (the difference between your company’s revenue and its costs of operation, expressed as a percentage) and identifying ways to improve your bottom line.

•   Increase revenue: Offer new services or complimentary products to existing customers.

•   Scale back: You don’t need to keep underperforming services or products. Regularly assess what’s working and what’s not.

•   Review your expenses: It’s easy for business budgets to creep up, especially as your company grows. But be sure to analyze your costs regularly and cut back on what you don’t need. It’s a quick and easy way to boost your profit margins.

Common Mistakes That Hurt Profitability

One major issue that impacts profitability for many companies is operating the business without a plan. You need both short-term and long-term goals in order to have a clear understanding of what success will look like for you in terms of both revenue and profitability.

In addition to tracking your goals, make sure you track your finances as well. Reviewing revenue and expenses every month gives you full transparency into how well your company is performing. If you’re churning through cash without seeing revenue improvement, it may be time to adjust the company’s course.

Recommended: Business Line of Credit

The Takeaway

No matter what route you take, a small business loan may help you achieve your goals and reach profitability faster. Fortunately, there are a variety of loans on the market to help with each stage of your business, whether it’s during its inception or as you scale for long-term growth.

If you’re seeking financing for your business, SoFi is here to support you. On SoFi’s marketplace, you can shop and compare financing options for your business in minutes.

FAQ

What are the most profitable small businesses?

When you’re looking for the most profitable small business to run, a lot depends on your lifestyle, schedule, and interests. Dog walking, bookkeeping, and drop shipping are good low-investment options for a service-based business that you can fit around other obligations until you decide to scale. Alternatively, if you have access to capital, buying into a franchise may be a smart move.

What businesses make money the fastest?

If you need to make money quickly, you can look for a business that has low startup costs that meets an ongoing demand. This could be something as simple as junk removal, lawn care, or flipping products on Facebook.

What is the most profitable business to start with little money?

The key to having a profitable business is to determine what people need and are willing to pay for. Service-based companies often have low investment costs but the kind that will work for you depends on your market and what you’re willing to do. Some potentially lucrative business ideas: If there are laundromats near you, you could consider offering a traveling laundry service. Alternatively, you could walk or watch people’s pets.

How can I calculate my business’s profit margin?

To calculate your profit margin, determine your company’s expenses and subtract them from your revenue. For example, if you’re selling scarves, subtract the cost of the goods sold and your operating expenses from your total revenue — the percentage of difference between that number and your revenue is your profit margin. For instance, if your profit margin is 25%, you’ve netted $0.25 for every dollar that came into your company.

What industries have the highest profit potential?

Industries that are scalable tend to have the highest profit potential. If you are drawn toward a specific niche, ask yourself how it could grow year to year. If you’re unable to answer that question, you may want to consider something else.

Photo credit: iStock/damircudic

SoFi's marketplace is owned and operated by SoFi Lending Corp.
Advertising Disclosures: The preliminary options presented on this site are from lenders and providers that pay SoFi compensation for marketing their products and services. This affects whether a product or service is presented on this site. SoFi does not include all products and services in the market. All rates, terms, and conditions vary by provider. See SoFi Lending Corp. licensing information below.

Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

SOSMB-Q425-030

While both insolvency and bankruptcy are terms that describe a situation where a person or company is unable to pay their debts, bankruptcy is a legal declaration – it’s what can result if insolvency isn’t resolved.

Keep reading for a closer look at bankruptcy vs. insolvency, how a person or small business might experience each situation, and the pros and cons of formally filing for bankruptcy.

What Is Bankruptcy?

Bankruptcy is a legal lifeline that an individual or company can use when they’re unable to pay their debts. Debtors file for bankruptcy through the federal court system, and in return they receive help and direction for discharging their debts or making a plan to repay them. Individuals, couples, corporations, and small businesses can file for bankruptcy.

Bankruptcy is designed to give individuals and businesses that are unable to pay their debts a fresh start, while also giving creditors a chance to recoup at least some of what they are owed.

Bankruptcy can have a major effect on a debtor’s financial record, particularly their credit scores. Businesses that file for bankruptcy may have difficulty getting approved for many types of business loans as long as the bankruptcy remains on their credit reports.

Recommended: Free Credit Score Monitoring

How Does Bankruptcy Work?

Either an individual or a business can file for bankruptcy with the bankruptcy court if they find that they are unable to pay their debts. There are different kinds (chapters) of bankruptcy, and debtors will need to apply for a specific kind. While debtors generally don’t have to demonstrate insolvency, they will need to provide relevant documents to show their income and debt. If the court finds a debtor ineligible for that chapter, it can dismiss their request or suggest converting their case to another chapter.

Eligibility requirements can be complicated, which is one reason it may be a good idea to work with a bankruptcy lawyer if you’re contemplating bankruptcy.

An individual debtor (including a sole proprietor) filing for bankruptcy will also need to get credit counseling with a government-approved credit counselor within 180 days before filing. The counselor can help them assess their assets and determine if there are better alternatives to bankruptcy.

Bankruptcy provides an automatic stay of collections and immediate relief from creditors, who must stop collections proceedings while the case is active. The courts will look at the debtor’s assets and decide how much they can reasonably pay and which debts they don’t have to pay.

Recommended: What Is Insolvency?

Types of Bankruptcy

The three main types of bankruptcy for individuals and businesses are Chapter 7, Chapter 11, and Chapter 13.

Chapter 7 Bankruptcy

Also known as “straight bankruptcy” or “liquidation bankruptcy,” Chapter 7 bankruptcy is the most common type of bankruptcy. Overseen by a court-appointed trustee, it entails the selling or “liquidating” of an individual or business’s assets to distribute to creditors. Certain assets are exempt from this sale, however. These vary by state but can include things like cars needed for transportation, basic household furnishings, and the tools needed for work.

Once the assets are liquidated and the debtor has given what money they can to their creditors, the rest of their debt is discharged. However, there are a few exceptions — an individual is still on the hook for debts like child support, taxes, and student loans.

A Chapter 7 bankruptcy will stay on the debtor’s credit report for 10 years after the filing date. And if that person or business gets in over their head again, they won’t be able to file for this chapter for another eight years.

Chapter 11 Bankruptcy

Chapter 11 bankruptcy is designed to help struggling businesses restructure their finances so they can remain open. With this type of bankruptcy, a debtor is able to remain in control of their business and renegotiate with creditors the terms of their debts, potentially modifying interest, payment due dates, and other terms. It can sometimes even erase debt entirely.

Chapter 11 bankruptcy allows a business to stay intact and come out the other side as a healthy business. However, it can be the most complex of all the bankruptcy chapters. It also tends to be the most expensive type of bankruptcy proceeding.

Chapter 13 Bankruptcy

Chapter 13 bankruptcy may be an option for individuals or owners of sole proprietorships who have a regular income stream. It allows the debtor to keep their property and develop a new payment plan to pay back either part or all of their outstanding debts over three to five years. A Chapter 13 bankruptcy stays on an individual’s or business’s credit report for seven years, and those who find themselves swamped by debt yet again can file for this chapter after just two years.

Recommended: What to Know About Short-Term Business Loans

What Is Insolvency?

Insolvency occurs when an individual or business is unable to pay outstanding debts to creditors or banks due to lack of funds. A person or company can be insolvent without going into bankruptcy.

Insolvent individuals and businesses have options to help them pay back their debt. They could borrow money, increase income, or negotiate repayment with their creditors. If these options fail, bankruptcy may be the only remaining possibility.

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How Does Insolvency Work?

Insolvency is not a legal proceeding. It may sometimes be possible to recover from insolvency informally with creditors, without filing for bankruptcy. However, insolvency can often result in a company or individual filing for bankruptcy.

When an insolvent individual or business is unable to meet their debt obligations, creditors may begin efforts to collect their due. At this point, insolvency can become a real problem.

For example, if an individual holds secured debt, such as a mortgage, and can’t pay, the lender may start foreclosure proceedings on their home. If these go through, the individual could lose their home, since the bank could sell it to help recoup the debt. With unsecured debts, such as credit cards or personal loans, lenders may send the debt to a collections agency, which might then hound the individual in an effort to get them to pay.

Types of Insolvency

There are two different types of insolvency: Cash-flow insolvency and balance-sheet insolvency. A debtor might experience just one or both of them.

Cash-Flow Insolvency

Cash-flow insolvency, or illiquidity, occurs when an individual doesn’t have the cash to pay off their debts as they come due. They may, however, have assets in other, non-liquid forms, like real estate.

In other words, it’s possible for a company or person to be cash-flow insolvent even if they have assets they could sell that are worth more than their debt.

Balance-Sheet Insolvency

Balance-sheet insolvency occurs when a company’s or individual’s total debts exceed the value of their total assets, no matter what form those assets are in or how liquid they are.

A business can be balance-sheet insolvent (debts exceed assets), but cash-flow solvent if it’s able to meet its immediate financial obligations.

Recommended: What Is a Business Liability?

Insolvency vs Bankruptcy

As we’ve seen, insolvency and bankruptcy are not the same thing. However, they can be closely related. Here’s a quick look at similarities and differences between the two terms.

Similarities

The main characteristic that insolvency and bankruptcy share is the debtor’s inability to pay off debts. This may mean that an individual or business doesn’t have the cash to pay them off as they come in or that they don’t have enough assets, including those that they could liquidate, to cover their debt.

Bankruptcy can damage a person’s or business’s credit score for up to 10 years, making it more difficult for the filer to acquire credit in the medium term. Insolvency can also damage a debtor’s credit as a result of being unable to pay their bills on time — though typically this would not be nearly as significant as bankruptcy. A delinquent payment will remain on a person’s or business’s credit report for seven years.

While bankruptcy can be much more damaging, both insolvency and bankruptcy can hurt your chances of approval when applying for a small business loan.

Differences

The main difference between insolvency and bankruptcy is that insolvency is a financial state, whereas bankruptcy is a legal designation. Someone who is insolvent has not necessarily filed for bankruptcy, as there may be other tactics they could use to pay down their debt. Insolvency can sometimes be reversed by negotiating with creditors or with an infusion of cash, such as an inheritance, bonus at work, or large business payment.

A person or business that has filed for bankruptcy typically has no other options to pay off their debt. Filing for bankruptcy means that the business will need to work with a trustee and/or its creditors on next steps, depending on the type of bankruptcy.

Here’s a look at bankruptcy vs insolvency at a glance:

Recommended: Guide to Off-Balance-Sheet Financing

Pros and Cons of Filing for Bankruptcy

Bankruptcy can be a solution for insolvency, but it comes with a number of downsides. Here’s a look at the pros and cons.

Recommended: What Is a Small Business Audit?

Pros of Filing for Bankruptcy

•  Stay of collections and repossessions: When you file for bankruptcy, there’s an automatic stay of collections. Creditors must hit the pause button on collecting debt, repossessing property, garnishing wages, filing lawsuits, and making phone calls.

•  Debt relief: Your creditors will likely be forced to accept whatever payment is determined in your bankruptcy case, including no payment. You may be able to discharge most of your unsecured debt, including credit cards, personal loans, and medical bills.

•  A chance to start over: Once bankruptcy proceedings are over, an individual or business can begin to rebuild their finances and reestablish good credit.

Cons of Filing Bankruptcy

•  Your credit score will take a hit: A Chapter 7 bankruptcy will remain on your credit report for 10 years, while a Chapter 13 bankruptcy stays on your report for seven years. During that time, it will likely be much harder to secure new loans or lines of credit, as lenders may see the bankruptcy filing as a red flag.

•  Some debts may remain: While you may be able to discharge most unsecured debt, other debt can’t be wiped out. You must still pay child support, tax liens, and student loans, for example.

•  You could lose assets of value: Depending on which type of bankruptcy you qualify for, your income, and how much equity you have in your assets, you might lose personal or business items of value if they must be sold to pay creditors.

Here’s a look at the pros and cons of filing for Chapter 7 bankruptcy at a glance:

Recommended: Debt Covenants Explained

Alternatives to Bankruptcy

If your company is experiencing insolvency or even just approaching it, that doesn’t mean that you will necessarily have to file for bankruptcy. There may be options that can help your business recover its footing and allow you to avoid bankruptcy. Some possible alternatives might be:

Debt restructuring.You can ask your creditors if they would be willing to renegotiate the terms of your loans in a way that would make them easier for you to repay. For instance, they might reduce your interest rate or extend your loan term, which could lower your monthly payments.

Debt consolidation. Business debt consolidation involves taking out a large loan to pay off all your current debts. This can simplify your payments but will save you money only if you obtain a lower interest rate or other more advantageous terms on the new loan.

Selling assets.If your company owns assets that aren’t necessary to its core operations, liquidating them could give you a cash infusion that might help you manage debts.

Reducing the size of your business. It may seem counterintuitive, but retrenching and limiting or even decreasing the services and/or goods your business offers may allow you to focus your efforts and control your costs more effectively.

The Takeaway

Though people may say they’re “bankrupt” when they are too broke to pay off their debts and obligations, that’s not the correct word. The right term is insolvent. In order to be bankrupt, the individual or business must first file a petition with the court declaring their bankruptcy.

Insolvency that can’t be resolved may result in bankruptcy. And, while filing for bankruptcy comes with a host of cons, it also provides a chance to make a fresh start, rebuild your credit, and once again have an opportunity to take out loans and lines of credit for yourself or your business.

If you’re seeking financing for your business, SoFi is here to support you. On SoFi’s marketplace, you can shop and compare financing options for your business in minutes.

FAQ

What do you lose if you have to declare bankruptcy?

When you declare bankruptcy, you may have to sell certain assets to help settle debts with your creditors. Additionally, the bankruptcy will be a negative mark on your credit report for seven years when you file Chapter 13 bankruptcy or 10 years when you file Chapter 7 bankruptcy.

How much debt do you need to be in to file for bankruptcy?

While there are eligibility rules for the different types of bankruptcy, federal bankruptcy law doesn’t specify any minimum debt amount to file a bankruptcy case.

What does financially insolvent mean?

Individuals or businesses that are financially insolvent either do not have the cash flow to cover their debts or have a total debt greater than the total value of their assets. Being Insolvent does not automatically mean that a person or business is bankrupt.

Can you be insolvent without filing for bankruptcy?

Yes, it’s possible to be insolvent but not file for bankruptcy. If you or your business faces insolvency, you may be able to cover your debts by selling unnecessary assets, consolidating your debt to get more favorable terms, or renegotiating your debt terms, if your creditors are willing.

What are the consequences of insolvency vs. bankruptcy?

Insolvency doesn’t have any defined consequences, though not paying your bills can impact your credit negatively and ultimately lead to bankruptcy. Declaring bankruptcy results in the court establishing a plan for you to pay some or all of your debts – which may require the sale of some of your assets – but will also appear on your credit report for a number of years.

Photo credit: iStock/golubovy

SoFi's marketplace is owned and operated by SoFi Lending Corp.
Advertising Disclosures: The preliminary options presented on this site are from lenders and providers that pay SoFi compensation for marketing their products and services. This affects whether a product or service is presented on this site. SoFi does not include all products and services in the market. All rates, terms, and conditions vary by provider. See SoFi Lending Corp. licensing information below.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

SOSMB-Q425-104

Given how different businesses can be, it may be surprising to learn that they tend to share a predictable life cycle. Most companies will follow through five stages. Read on to find out what they are, how to recognize them, and how your business can make the most of each one.

What Is a Business Life Cycle?

Every business, regardless of its size, generally goes through five stages that make up its life cycle. Those business life cycle stages are development, startup, growth, maturity, and renewal or decline. Each stage comes with its own unique challenges and opportunities, and each is considered a healthy part of the business cycle.

By learning about each of the growth stages, you can identify where your small business currently is in its cycle and develop an appropriate business growth strategy. The following sections outline the five key stages of the business life cycle and the steps you can take to increase your odds of success as your business progresses.

1. Development

The first stage of small business growth actually begins before you start your business, while you’re coming up with business ideas and selecting one to focus on. In the development phase, you’ll be identifying an unmet need in a specific market and doing the research necessary to get your business off on the right foot.

How to Support a Business in This Phase

At this point, it’s all about laying the groundwork. You’ll want to create a detailed business plan that identifies exactly who your business will serve, the products or services your business will provide, the marketing tools and strategies you’ll use to make people aware of your company, your budget for the first year, and how you’ll fund your business.

If you don’t feel confident as a business owner yet, it may be beneficial to take business courses or workshops to ensure you’re ready to launch.

You may also want to consider whether you’re going to hire help. Having part-time, full-time, or even freelance employees will add to your startup costs but can help you get your business up and running faster.

When to Go to the Next Phase

Once you have a plan in place for your business and know where you’ll find the funds you need to launch, it’s time to move to the next phase.

How to Get to the Next Phase

This may be the time to quit your regular job so that you can fully focus on your new endeavor. Alternatively, you might decide to continue working at least part time while your business launches. You can always wait to quit until you’re making enough to replace your full-time salary.

Once you have a name and structure for your business, you may want to apply for a business checking account and business credit card. These can give you access to cash but also help you build up a credit history for your business, which might help you obtain funding later on.

As you gear up, if your business requires machinery or other fixed assets, you might want to look into equipment financing, which can be easier to get than other kinds of financing, since the equipment acts as collateral.

If your business is seasonal, you might consider applying for a business line of credit so that you can bridge slow periods. Unlike a small business loan, with a line of credit, you would be able to draw funds when you need them up to a set limit, and pay back only what you borrow (with interest).

2. Startup

Though often considered the riskiest stage of business growth, the startup phase can also be one of the most exciting. This is when you put your idea out into the world and start selling.

During the startup stage, there’s a lot to be done: You’ll generally need a website, office space, and employees, as well as a product or service to sell.

How to Support a Business in This Phase

Ideally the budgeting and finance work you did in the development phase ensures that you have enough capital to cover your startup costs. If you find yourself coming up short, you may want to weigh the pros and cons of a startup business loan. Some lenders charge high interest to loan to startups, so determine whether that’s a good tradeoff for getting the capital you need.

This is also a period of trying things out. You can test your product and target market, as well as different marketing channels. If something doesn’t work, you can tweak it and try again.

You may also want to spend time hiring people who can help your company grow. Identify the skills each role needs and then carefully choose the best candidate.

Recommended: Steps to Writing a Business Plan

When to Go to the Next Phase

Since this is one of the early stages of business growth, you may be in the startup phase for a while. You’ll know it’s time to move on when your business starts to settle and your profits become steady.

How to Get to the Next Phase

Once you’re no longer struggling financially and can confidently project sales for the future, it’s time to get ready to grow your business.

3. Growth

After you’ve been in business for a few years, your market share and customer base are now experiencing rapid growth. This presents you with a variety of opportunities to expand your business. These could include adding another location to the mix, hiring more staff, or expanding your product line.

How to Support a Business in This Phase

It’s important to keep an eye on the future while also maintaining day-to-day operations. You’ll want to set short- and long-term goals that make the most sense for your business and use your resources effectively. You’ll also need to make sure you have enough working capital to both meet your current financial obligations and also invest in new opportunities as they present themselves.

When to Go to the Next Phase

Once you’ve achieved your short- and long-term goals for growing your business, or when you feel you’ve grown as much as the market will allow, you may be ready to enter the next stage of small business growth with your established, successful company.

How to Get to the Next Phase

When your focus pulls back from aggressively growing your business, it’s time to move into the maturity phase.

Recommended: What Is Organic Growth in Business?

4. Maturity

One of the later stages of business growth is maturity. This happens when your business is stable and profits are steady. You can rely on revenues growing moderately year to year, and you can confidently make business decisions.

How to Support a Business in This Phase

In this phase, you’ll want to keep on doing what works. At the same time, you want to be careful not to succumb to the biggest risk of the maturity phase — becoming stagnant.

Even when your business is mature, you don’t necessarily want it to sit still. It can be wise to continue looking for opportunities to expand your customer base or develop new products or services that tap a new market.

When to Go to the Next Phase

For some business owners, the maturity stage may bring thoughts of selling the business, merging, or buying another company. When you’re regularly questioning “what’s next for my business?” you may be ready to enter the next phase.

How to Get to the Next Phase

Something has changed in your business, whether it’s that you’ve lost the desire to continue it or the fact that your product may be less relevant (think of camera film in a digital world). It may be time to consider the best next steps for your business.

Recommended: Inorganic Growth Explained

5. Renewal or Decline

Now is the time for the hard questions: Do you need to close down your business? Is it time to sell? Should you consider a merger or acquisition? Can you come up with innovative ideas that will inject new life into your business?

How to Support a Business in This Phase

The answer lies with your personal and professional goals. If you feel ready to retire and focus on other areas of your life, you may decide to sell the business or close it down. If you’re not ready to step away from the business, on the other hand, you might decide to invest money in developing or acquiring new products or connecting with a different target market.

Signs of Renewal vs. Signs of Decline

To understand whether it may make more sense to renew your business or step away, consider the following signs.

Strategies for Avoiding Decline

While decline can be a natural part of the business life cycle, if you want to avoid it, there are business growth strategies that may help. Here are a few:

•  Staying current on market trends. Being sure you are on top of how your product and your audience are evolving can help you understand how your business and marketing may need to change in order to stay relevant.

•  Being flexible. Understanding and marketing to new needs for your product may help you find new markets and continue to expand.

•  Embracing change. To avoid decline, a business will have to not only recognize the need to adapt to new circumstances, but willingly take on the need to change on an ongoing basis.

Pros and Cons of the 5 Stages of Growth as a Model

Each stage of growth involves both advantages and challenges. Here’s a rundown of both for each stage.

External Factors That Can Accelerate or Hinder Growth

Naturally, there are factors outside your control that can affect your business’s growth. These may include elements such as:

•  The state of the economy. If unemployment and prices are high, your market may be smaller, especially for discretionary goods.

•  The competition. If you’re the only company serving a niche market, it could be easier to grow than if you’re trying to break into a crowded or monopoly-dominated field.

•  Technology. Advances in tech can affect whether people still need your project and how effectively you’re able to produce it.

•  Legal/regulatory factors. If, for instance, the rules for your industry change or your tax burden rises, your company’s growth can be affected.

Identifying Which Stage Your Business Is In

Throughout the life of your business, you will likely be in one of these stages of business growth. Identifying which one your business is currently in can help you assess and solve current challenges, as well as strategize for how you will move to the next business stage.

The Takeaway

While every business is unique, all of them tend to experience common problems and opportunities that arise at similar stages of business development. Knowing where your company is in the business cycle can help you assess and solve current challenges, develop growth strategies, and plan for the future.

If you’re seeking financing for your business, SoFi is here to support you. On SoFi’s marketplace, you can shop and compare financing options for your business in minutes.

FAQ

Do you have to go through all five stages of business growth?

Generally, every business will go through each of the five stages of business growth, though how long a business spends in each may vary.

What are the different stages of business growth?

The five stages of business growth are: development, startup, growth, maturity, and renewal or decline.

Is starting up a stage of business growth?

Yes. Starting up is the second phase of business growth. It occurs after you’ve developed your business idea and before you’ve reached the growth stage.

Can a business move backward in the stages of growth?

Yes, it’s possible that as your company develops, it may at some point move backward to an earlier phase of business growth. There are many reasons why this can happen — a shift in your market demographic, for instance or a conscious decision to return to growth after reaching maturity. The important thing is to recognize and remain responsive to the shifting needs of your business.

How long does each stage of business growth typically last?

The duration of the stages of business development vary so much from business to business that it’s impossible to generalize. This can be due to both external and internal factors. For instance, while many companies may want maturity to be their longest phase, others may go back and forth between growth and maturity in an effort to maximize profits.

Photo credit: iStock/LaylaBird

SoFi's marketplace is owned and operated by SoFi Lending Corp.
Advertising Disclosures: The preliminary options presented on this site are from lenders and providers that pay SoFi compensation for marketing their products and services. This affects whether a product or service is presented on this site. SoFi does not include all products and services in the market. All rates, terms, and conditions vary by provider. See SoFi Lending Corp. licensing information below.

External Websites: The information and analysis provided through hyperlinks to third-party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

SOSMB-Q425-101

Looking to start your own business? You’re not alone. Some 71% of Gen Z and millennials dream of being their own boss, according to a 2024 JustWorks/Harris Poll survey.

While launching your own business allows you plenty of professional freedom, the costs of setting up a business can be expensive. As you’re creating your business plan, one question you’ll likely face early on is, how much does it cost to start a business?

The average small business owner spends around $40,000 in their first full year. But that amount can vary significantly based on a number of factors, including the size, type, and location of the business.

Let’s take a closer look at the startup costs of different types of businesses and common ways to cover the expenses.

Typical Small Business Startup Costs

The adage is true: You have to spend money to make money. And unfortunately, some of the biggest business costs can come during the startup phase, when you are defining your business goals, finding a location, purchasing domain names, and generally investing in the infrastructure of your new company.

In order to make sure your business is on firm financial footing, you’ll need more than just a business checking account and a small business credit card. What’s important is to estimate your small business startup costs in advance so that you have a good understanding of what you’ll need and why. Here are some common ones to keep in mind:

Payroll

Many small businesses start out as a company of one. But if you’re planning on having employees, salary will likely be one of the biggest costs you’ll face. After all, offering an attractive pay and benefits package can help you recruit and retain top talent.

In addition to wages, you may also want to budget for other payroll costs, such as overtime, vacation pay, bonuses, commissions, and benefits.

Office Space

No matter what your business is, you’ll need somewhere to work. Are you leasing a storefront, or will you buy a membership to a coworking space or startup incubator? Even if you’re planning to work from home, you’ll want to consider whether your new business will increase your internet bills.

And don’t forget about the supplies you’ll need to do the work. Depending on your business, this could include computers, phones, chairs and desks, paper supplies, or filing cabinets.

Recommended: Best Cities to Start a Business in the U.S.

Inventory

How much it costs to start a company varies a lot, and one major factor in that variance is inventory. If you’re starting a business that sells products, you’ll need to have some inventory ready to go. Calculating stock as part of your startup costs helps ensure that you can buy your product in advance so that you’re ready to serve customers from day one.

Licenses, Permits, and Insurance

Some businesses, especially storefronts and restaurants, require more legal legwork than others.

For example, if you’re starting a native-plants landscaping business, will you need a permit? If you’re opening a new bar, will you have to get a liquor license? Licenses and permits vary by city and state, but most require an application fee.

Likewise, your new business may need one or more insurance policies to protect you in case of future litigation, so be sure to factor in the cost of monthly premiums.

And don’t forget about the costs associated with registering your business. Whether you plan to set up shop as a corporation, limited liability corporation or other business entity, you’ll often need to pay a nominal fee. The amount will depend on the state where you operate.

And if you plan on enlisting the help of a lawyer, accountant, or tax professional to get your business up and running, add those potential costs to your budget as well.

Advertising

Getting the word out about your new business is one of the most important things you can do to ensure that your business starts off strong. Whether you want to advertise on social media or rent a billboard, your startup costs should reflect money you plan to put toward taking out ads for your business.

Technology and Software

No matter what kind of business you have, technology is likely to play a key role. If you’re creating a product, you’ll probably need equipment to make it, but also software to track inventory, payment processing tools, and possibly workforce management and payroll programs. Internet startups are reliant on the e-commerce software they’re using to sell their products and services. And retail and restaurants generally need payment processing tools, as well as software to manage scheduling and payroll, among other things.

As you’re planning, consider what tech you’ll need to manage your operation. A realistic budget will include costs for setting up and maintaining your technology systems.

If there’s a major piece of tech or manufacturing equipment you need to run your business, you may be able to use equipment financing. This kind of funding can be easier for new companies to get since the equipment itself acts as collateral for the loan.

Professional Services

As mentioned earlier, from time to time, you may need specialized professional help for various tasks associated with your business. In many of these cases, you may want to hire someone with expertise on a project basis rather than as a full-time employee.

For example, you may want to use an accountant for bookkeeping and tax preparation; a lawyer when you need to initiate or approve a contract; or an IT expert to help with maintaining computer systems and cybersecurity. Depending on your company’s growth, you may even need to hire a human resources specialist to help you with hiring.

As you look at your business plan, think about what kinds of professional services you might need at various points in your company’s progress and add those costs to your budget.

Utilities and Operational Costs

Whether your business is in your home or in a dedicated building, you’ll need to consider the additional costs of supporting your office and operations. These may include utilities such as electricity, water and sewer charges, gas, heat, trash pickup, and internet access. If you’re working solo from home, you may not be spending much extra on these, but if you’re starting up a restaurant, for instance, these costs could be significant.

Unexpected Expenses and Emergency Funds

While you can’t expect the unexpected, you can prepare. Generally, it can be a good idea for small businesses to have between three and six months worth of their expenses set aside. That way, they’ll be able to cover costs if they hit a lull or experience equipment breakdowns. You may also find this fund helpful if, for instance, you need to replace a major piece of equipment, like a delivery truck.

Coming up with this reserve may be daunting, but you can build it up over time. Having a business line of credit may also help access funds you can draw on when you have an emergency.

Differences in Startup Costs Based on Industry

The actual cost of starting a small business can vary by business and industry. Here’s what you might be looking at if you want to start one of these common types of small businesses.

Online Business Startup Costs

As with brick-and-mortar stores, the cost of doing business online varies depending on the type of business you have. But in general, you’ll need to budget for things like:

•  Web hosting service and domain name

•  Web design and optimization

•  E-commerce software

•  Payment processing

•  Content creation and social media

If you’re selling products, you’ll need to invest in inventory and shipping. If you’re providing services, you may need to hire employees. All of these costs can be significant.

However, one benefit of starting your small business online is that you may be able to keep other costs low. For example, if you can conduct business from home, you may not need to rent office space, which can be a major savings. If you’re able to do the work without purchasing inventory or hiring employees, the startup costs can be even lower.

Average startup cost: $2,000 to $20,000 or more (depending on your business)

Storefront Startup Costs

If your business idea requires a physical space, your startup costs might range from $50,000 to $1 million, depending on how large a store you’re planning and what the stock will be. A medium-sized clothing store or boutique, for instance, might cost between $50,000 and $150,000.

Although $150,000 might seem like a daunting number, remember that many smaller, independently owned stores began with a much smaller budget.

Average medium-sized retail startup cost: $80,000-$150,000

Restaurant Startup Costs

If you’re planning to start earning money by selling your grandma’s famous bánh mì, you could be looking at startup costs of anywhere from $30,000 to $100,000 for a used food truck or cart to up to $2 million to buy a franchise restaurant. Typically, costs for small restaurants, including coffee shops, fall somewhere in the $275,000 to $425,000 range.

Average startup cost: $375,000

Recommended: 15 Types of Business Loans to Consider

How to Finance Your Startup Business

Many people who want to start a business are overwhelmed by the initial costs, but there are several ways to fund your passion project.

Friends and Family

Perhaps one of the most common ways to raise money for your small business is to ask friends and family to invest in you.

Friends and family loans can be ideal for financing a new small business because you can negotiate low-interest rates, set up flexible pay-back schedules, and avoid bank fees. Of course, borrowing money from friends and family can quickly become complicated by family drama, so make sure to agree on conditions before taking out a loan from a relative.

Outside Investors

When we’re discussing startup companies, we frequently hear about so-called “angel investors” sweeping in to fully fund new businesses. But there are other practical ways to fund your small business with outside investors.

Some small businesses use crowdfunding platforms to find investors who each contribute a small amount, and others use startup funding networks to find investors looking to fund their specific type of business.

Outside investors will want to know that your business is likely to succeed, so you’ll need a solid business plan to land outside funders.

Personal Savings and Investments

Most people end up covering some of their small business startup costs out of their own personal savings. Self-funding your new business venture can be the most convenient option. After all, if you’re your own funder, you don’t have to worry about family drama or picky investors. And putting your own money on the line can be an extra motivation to make sure that your business is set up to succeed.

Of course, it can seem overwhelming to save up enough money to fund your small business. Luckily, there are simple strategies to effectively manage your money.

Business Loans

If you’re looking to purchase equipment, buy inventory, or pay for other business expenses, a business loan might make sense for you.

There are various types of small business loans available, each with different rates and repayment terms.

Note that in some cases, lenders may be reluctant to give loans to a brand-new business because they want to see at least a year of revenue. You might need to put up some type of collateral to qualify for funding. Or it may sometimes be easier to qualify for startup business loans, which are designed specifically for younger companies.

When you’re considering a loan, a small business loan calculator can be useful to help you estimate what your monthly costs might be, as well as the full costs over the life of the loan.

You may be able to get a Small Business Administration (SBA) loan. SBA loans are partially backed by the government and often come with more advantageous terms than other loans, though they may require more paperwork upfront.

Using an SBA loan calculator can help you understand what the monthly costs of an SBA loan would be.

Recommended: Business Term Loans: Everything You Need to Know

Personal Loans

A personal loan can be used for just about any purpose, which can make it attractive for entrepreneurs who want to turn their passion project into a reality. These loans are usually unsecured, which means they’re not backed by collateral, such as a home, car, or bank account balance.

Personal loan amounts vary. However, some lenders offer personal loans for as much as $100,000. Most personal loans have shorter repayment terms, though the length of a loan can vary from a few months to several years.

While there’s a great deal of latitude in terms of how you use the funds, you might need to get your lender’s approval first if you intend on using the money directly for your business.

Recommended: How to Get a Small Business Loan in 6 Steps

The Takeaway

Going into business for yourself can be personally and professionally fulfilling. But it can also be expensive, especially if you’re starting from scratch. Estimating your startup costs early on can help ensure you’re on solid financial ground from the get-go. Labor, office space, and equipment are among the biggest expenses facing many entrepreneurs, but there are also smaller fees and charges you’ll likely need to consider.

Fortunately, small business owners have no shortage of options when it comes to covering startup costs. Dipping into personal savings and asking friends and family to invest are popular choices. Taking out a business loan or personal loan is another way to help finance a new business. The money can be used for a variety of purposes, and that flexibility can be especially useful when you’re just starting out.

If you’re seeking financing for your business, SoFi is here to support you. On SoFi’s marketplace, you can shop and compare financing options for your business in minutes.

FAQ

What are the average startup costs for a small business?

Startup costs can vary significantly based on factors like the company’s type, industry, and location, but on average, a typical small business owner spends around $40,000 in the first year.

Can I start a business with no money?

It is possible to start a business without money, though it depends on the kind of business you have in mind. Some service-based businesses, such as pet care or being a virtual personal assistant, often don’t require money to start, and you may also not need funds to start selling hand-crafted goods. Dropshipping could be another option.

What business has the lowest startup cost?

Some of the businesses with the lowest startup costs are service-based companies that rely on skills you already have. For example, tutoring or freelance editing businesses can be relatively inexpensive to set up.

How long does it take for a business to become profitable?

You may see online that startups on average take as long as three to five years to become profitable. Bear in mind, however, that the amount of time it takes a business to achieve profitability can vary enormously, and low-overhead companies may be able to reduce that time.

What are the hidden costs of starting a business?

Costs that entrepreneurs may forget to take into account when they’re starting up a business can include utilities, office supplies, WiFi, and printing and mail charges.

Photo credit: iStock/Wavebreakmedia

SoFi's marketplace is owned and operated by SoFi Lending Corp.
Advertising Disclosures: The preliminary options presented on this site are from lenders and providers that pay SoFi compensation for marketing their products and services. This affects whether a product or service is presented on this site. SoFi does not include all products and services in the market. All rates, terms, and conditions vary by provider. See SoFi Lending Corp. licensing information below.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.

SOSMB-Q425-102