You have found the perfect business idea, and now you are ready to take the next step. There is more to starting a business than just registering it with the state. We have put together this simple step guide to starting your web development company. These steps will ensure that your new business is well planned out, registered properly and legally compliant.
STEP 1: Plan your Business
A clear plan is essential for success as an entrepreneur. It will help you map out the specifics of your business and discover some unknowns. A few important topics to consider are:
- What are the startup and ongoing costs?
- Who is your target market?
- How long it will take you to break even?
- What will you name your business?
Luckily we have done a lot of this research for you.
What are the costs involved in opening a web development company?
Basic costs for starting a web development company are minimal. All that’s needed is a computer and some office space. Total costs should not exceed $5,000. Most of the cost will be wrapped up into a good quality laptop or desktop, ample screen space (using multiple screens for design work), a business phone, a pro-grade text editor, and design reference books.
Marketing costs may run you between $2,000 and $5,000 in the first year. This is especially true if you plan on doing any type of direct mail.
What are the ongoing expenses for a web development company?
Ongoing expenses are minimal. Web development companies with offices pay utilities and rent like every other business, which makes up the majority of the ongoing costs. Other costs, like office supplies, tend to be minimal. Costs like cloud storage, time tracking software, and project management software, vary based on the needs of the developer.
Some developers find it helpful to include project management and “whiteboard” apps like Basecamp. These project management applications also make collaboration with clients easier and more streamlined. They work well when you primarily work with clients over the Internet.
Who is the target market?
Ideal clients are corporate clients that have a need for extensive coding and application deployment. Most web design companies try to avoid small projects or projects which have a high overhead and low profit margin.
How does a web development company make money?
Web development companies make money by charging clients an hourly or flat fee for coding websites.
How much can you charge customers?
Entry-level pricing for web developers is between $25 and $100 per hour for small projects. Average pricing is $100 – $200 per hour. Project costs are often calculated or estimated in advance. Any work that goes over this amount is then cleared with the client before more work is performed. This helps set budgets and expectations for the client.
Some web developers charge flat fees for projects. Usually, the flat-fee arrangement is appropriate when a project is similar to other past projects the developer has done and there is a template or guide the developer will use for the current project.
How much profit can a web development company make?
Profit potential is high for this type of business since costs are relatively low. A one-person web development company can clear $65,000 per year. If you have a team of developers, profit potential is much higher. For example, a 5 person company could clear $400,000 to over $1 million in revenue, depending on average project size and hourly rate.
How can you make your business more profitable?
To make your web development business more profitable, consider adding additional services like web hosting and storage. An integrated CMS platform will also help increase revenue. All these revenue sources are scalable so even if you cannot provide development services to clients, you can sell them hosting, storage, and content management platform services.
Some development companies also offer design services or partner with web designers and collect a “finder’s fee.”
What will you name your business?
Choosing the right name is very important. We recommend checking if the business name you choose is available as a web domain and securing it early so no one else can take it.
STEP 2: Form a legal entity
Establishing a legal business entity such as an LLC prevents you from being personally liable if your web development company is sued. There are many business structures to choose from including: Corporations, LLC's, and DBA's.
You should also consider using a registered agent service to help protect your privacy and stay compliant.
For most small businesses forming an LLC is a great option, but if you still want to weigh all your options check our our article, What Structure Should I Choose for My Business?
STEP 3: Register for taxes
You will need to register for a variety of state and federal taxes before you can open for business.
In order to register for taxes you will need to apply for an EIN. It's really easy and free!
You can acquire your EIN for free through the IRS website, via fax, or by mail. If you would like to learn more about EINs and how they can benefit your LLC, read our article, What is an EIN?.
STEP 4: Open a business bank account & credit card
Using dedicated business banking and credit accounts is essential for personal asset protection.
When your personal and business accounts are mixed, your personal assets (your home, car, and other valuables) are at risk in the event your business is sued. In business law, this is referred to as piercing your corporate veil.
Open a business bank account
- This separates your personal assets from your company's assets, which is necessary for personal asset protection.
- It also makes accounting and tax filing easier.
Get a business credit card
- This helps you separate personal and business expenses by putting your business' expenses all in one place.
- It also builds your company's credit history, which can be useful to raise money and investment later on.
STEP 5: Set up business accounting
Recording your various expenses and sources of income is critical to understanding the financial performance of your business. Keeping accurate and detailed accounts also greatly simplifies your annual tax filing.
STEP 6: Obtain necessary permits and licenses
Failure to acquire necessary permits and licenses can result in hefty fines, or even cause your business to be shut down.
State & Local Business Licensing Requirements
Certain state permits and licenses may be needed to operate a web development business. Learn more about licensing requirements in your state by visiting SBA’s reference to state licenses and permits.
Most businesses are required to collect sales tax on the goods or services they provide. To learn more about how sales tax will affect your business, read our article, Sales Tax for Small Businesses.
In addition, certain local licensing or regulatory requirements may apply. For more information about local licenses and permits:
- Check with your town, city or county clerk’s office
- Get assistance from one of the local associations listed in US Small Business Associations directory of local business resources.
Web development businesses should require clients to sign a services agreement before starting a new project. This agreement should clarify client expectations and minimize risk of legal disputes by setting out payment terms and conditions, service level expectations, and intellectual property ownership (who will ultimately own the site’s design). Here is an example of one such services agreement.
Recommended: Rocket Lawyer makes it easy to create a professional service agreement for your web development business when you sign up for their premium membership. For $39.95 per month, members receive access to hundreds of legal agreements and on call attorneys to get complimentary legal advice.
STEP 7: Get Business Insurance
Insurance is highly recommended for all business owners. If you hire employees, workers compensation insurance may be a legal requirement in your state.
STEP 8: Define your brand
Your brand is what your company stands for, as well as how your business is perceived by the public. A strong brand will help your business stand out from competitors.
How to promote & market a web development company
Promoting your business is going to take work. Find a mailing list of business owners who have purchased design services in the last year and mail them your offer. These leads are most likely to want to buy design services from you. Alternatively, send out flyers to local businesses.
Recommended: Get started with local advertising for your business with a $300 credit from Yelp.
How to keep customers coming back
Differentiate yourself by specializing in certain industries. For example, if you become known as a web designer for restaurants, it will be easier for you to dominate that market. If you specialize in designing websites for consultants or doctors or financial planners, you it will decrease your competition. Clients want to work with specialists, not generalists.
STEP 9: Establish your Web Presence
A business website allows customers to learn more about your company and the products or services you offer. You can also use social media to attract new clients or customers.
Start A Web Development Company In Your State
Select your state below for an in-depth guide on completing each of these steps in your home state.
This business is ideal for people who love problem-solving. Because the work entails a fair amount of computer screen time, business owners need to be comfortable with using computers, typing, and manipulating computer code.
While the business might require long hours, it’s not absolutely required that owners work weekends and holidays.
Attention to detail is very important in this line of work, as is the ability to meet deadlines.
What happens during a typical day at a web development company?
Day-to-day activities include coding and invoicing clients. Most web development companies also spend considerable time training coders and freelancers for on-spec work. A lot of time is spent reading and replying to emails, analyzing reports, attending meetings, and doing phone conferences with clients. You may also spend significant time face-to-face with clients.
Some clients and projects require you to be on-site to complete the work. This includes planning the backend design of the site, or how the content, words, pictures, animations, and videos are structured. It may also include coding of applications into the site to allow for flash presentations, custom apps like calculators or slideshows, and tracking software.
Sites need to be tested extensively for bugs. This is especially important on larger commercial sites that receive a lot of traffic. The site needs to be secure as possible. Revisions may need to be made, checked and rechecked.
What are some skills and experiences that will help you build a successful web development company?
The necessary skills for web development can be acquired through college courses, or online courses. Either way, it is essential to be well-versed in web development in order to meet clients’ needs. Developers should be well-versed in fundamentals of design imaging, basic web design, principles of animation, multimedia design, content management, editing for video and audio, and multimedia programming and technology.
A variety of certifications can also be obtained. However, no specific certification is required to begin a web development company. It may help to work for an established web developer prior to starting your own business to get a handle on the trends in the industry.
What is the growth potential for a web development company?
Growth potential for a web development company is unlimited. They can be operated as a one-person business or bloom into a large company with thousands of employees. Small companies tend to work with small business owners. Larger companies can handle corporate accounts and the unique needs of those types of companies.
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One of the greatest resources an entrepreneur can have is quality mentorship. As you start planning your business, connect with a free business resource near you to get the help you need.
Having a support network in place to turn to during tough times is a major factor of success for new business owners.
What are some insider tips for jump starting a web development company?
Getting up and running in this business is simple, but controlling costs is essential. Do not skimp on the computer, but feel free to buy everything else used. Aim for professional or business clients that can afford ongoing work so you can establish a base level of revenue and income.
How and when to build a team
Building a team is optional. If you decide to build a team, do it only when you have enough revenue to justify another developer. Most development companies start out by hiring independent contractors. This keeps your costs low while also allowing you to earn revenue needed to expand and grow. The problem with this approach is that your contractors won’t be as loyal as employees.
At some point, consider hiring people on full-time. Full time employees come with the additional labor costs of insurance and benefits but may be more loyal than independent contractors.