How to start a service business

What counts as a service business?

A service business sells your time and skill rather than a product: classes and lessons, appointments such as training or grooming, regular home visits like cleaning or dog walking, one-off jobs, and projects such as photography or design. Because there is no inventory to buy, it can need less money up front than a product business. What it does need is customers who book you, prices that cover your time, and the licenses and tax habits of any small business.

Our guides for specific services go deeper: cleaning, personal training and fitness classes, photography and dog walking and pet sitting.

What are the steps to start a service business?

1. Check there is demand

   The Small Business Administration says market research helps you find customers for your business. Look at who already offers the service near you and what potential customers pay for those alternatives (SBA: Plan your business).

2. Work out your prices

   Add up what it costs to deliver the service and find your break-even point, the point at which total cost and total revenue are equal. Our guide on how to price a product or service walks through the numbers.

3. Choose a structure and register

   The SBA says you will need to choose a business structure before you register your business. See LLC vs. sole proprietorship for the trade-offs.

4. Get your licenses and permits

   The licenses and permits you need from the state, county or city depend on your business activities and location. Many trades also need an occupational license, and career licenses are state-specific, not nationwide.

5. Open a business bank account

   As soon as you start accepting or spending money as your business, the SBA says you should open a business bank account, so your business money stays separate from your own.

6. Set aside money for tax

   Plan for self-employment tax and quarterly estimated tax payments from your first paid booking; see the section on taxes below.

Do I need a license to start a service business?

Often, yes, and the rules are local. The SBA's guide to launching a business says the licenses and permits you need from the state, county or city depend on your business activities and location, and suggests your Secretary of State's website as a place to start. Some services also need a license for the person doing the work: the U.S. Department of Labor reminds workers that career licenses are state-specific, not nationwide (DOL: License Recognition), so a license from one state may not let you work in another. Our guide to business licenses and permits shows where to look.

How are taxes different when I sell my own services?

When you work for yourself, nobody withholds tax from what customers pay you. The IRS says the self-employment tax rate is 15.3%, made up of 12.4% for Social Security and 2.9% for Medicare, and you owe it once your net earnings from self-employment are $400 or more (IRS: Self-employment tax). Sole proprietors generally have to make estimated tax payments if they expect to owe $1,000 or more, and the year is divided into four payment periods (IRS: Estimated taxes).

Payment apps and card processors report some of what you take. They must send you a Form 1099-K if your payments for goods or services total over $20,000 in more than 200 transactions in a year, but the IRS is clear that you must report all income on your tax return whatever the amount reported (IRS: Understanding your Form 1099-K). Our guide to self-employment and estimated taxes covers the due dates.

Which consumer rules apply to selling services?

Two Federal Trade Commission rules come up often for service businesses:

• The Cooling-Off Rule. For sales made at the customer's home, or at a temporary location such as a fair, above set amounts, the buyer can cancel for a full refund until midnight of the third business day after the sale, and you must tell them about that right (FTC: The Cooling-Off Rule). Sales made online, by mail or by phone are not covered.
• The Consumer Reviews and Testimonials Rule. In effect since October 21, 2024, it bans fake reviews and paying for reviews that express a particular opinion, and courts can impose civil penalties for knowing violations (FTC: Reviews Rule Q&A).

Reviews matter a lot when customers choose who to book, so ask happy customers for honest reviews instead. When you need help with the work, read our guide on employees vs. independent contractors before you bring anyone on, and see small business insurance for professional liability cover.