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Thinking about creating a company? Here’s a guide on how to start a business, outlining which type of business to choose & how to register the business name.
You may have a great idea that just might sell, whether a product or service, so you want to start a business. Before you jump in head first, you should know that starting a business is more than just filing the appropriate documents with your state’s Secretary of State office.
Steps to Start a Business
1. Come up with a business idea.
If you don’t have an idea but want to start a business, brainstorm ideas. Once you get an idea, do market research to find out if your products or services are needed or wanted.
2. Choose a company name and check with the Secretary of State to ensure that it’s not already in use.
This step is not incredibly important in the early stages, but it will help you get started. Don’t stress about this step – you can always change it, and remember, you can always file a ‘doing-business-as’ form within minutes. While you’re at it,
3. Check out domain names and see if you can purchase one for cheap.
But, don’t stress about this – it’s a small part that you can worry about much later in the process.
4. Create a business plan.
You’ll be able to find sample business plans at Bplans. While they may seem to be more than what you need, they are not – a business plan contains all you need to ensure that your business does not fail. These plans are crucial and will help you identify everything from the equipment you will need, ideal locations, and even help you develop a very specific budget. You will also use this plan to entice investors and lenders to getting your business of the ground.
5. Choose the type of business and decide if your business will do better in a brick and mortar location or online.
If you choose brick and mortar, find a good location based on some of your market research. Also, think about parking and street access. If you can, try to start your business from home. It will be cheaper and easier, will allow you to save money, and also offers many tax write-offs.
Great – you have done a lot of the major foundational work for your business!
6. Next, register your business with the Secretary of State’s Office.
Choose an entity type, whether corporation, limited liability company, partnership, nonprofit corporation, s corporation, sole proprietor or limited partnership. Each of these have different legal and tax consequences, so do your research or consult an attorney who can guide you.
7. Get your employer identification number (EIN) from the Internal Revenue Service (IRS).
Not all business structures require the use of an EIN, but it’s a good idea anyway. You can use it instead of your personal social security number, which could reduce fraud and identity theft.
8. Apply for or register for licenses, permits, and tax certificates.
Depending on your location, you may need both at the state, county and local levels.
9. Get any business permits you may need.
This may include special permits to sell alcohol, special permits if you are handling hazardous materials, or general business permits. Some counties and cities also require business permits.
Duties and Responsibilities
As a business owner, you will be in a new leadership role. Therefore, if you have employees or contractors you will need to do additional tasks as a employer including, but not limited to:
10. Learning how workers’ compensation and unemployment works.
11. Understanding the types of insurance you may need
You may wish to find a lawyer or advisor to provide specific insight since the kind of insurance you need depends on the type of business you are starting.
12. Deciding how you will classify the people working for you as independent contractors or employees
13. Making sure employees complete the appropriate documents including W-4s and I-9s.
14. Learning the rules of health insurance
These are constantly changing under the Affordable Care Act, so stay on top of any publications and notices about this. Your business may have to provide health insurance to employees. Some states further require employers to get temporary disability insurance. Even if you are a sole proprietor, you’ll need business insurance to cover any lawsuits and disputes that may arise due to your business. You might consider joining a trade group or subscribing to a publication for small business owners to help you stay on top of common concerns.
Funds and Bookkeeping
Now, it’s time to actually start the business.
15. Understand your finances.
If you do not have enough to start your business, you may have to borrow from banks, investors, family and friends. Explore the possibility of grants and special deals for small business owners, or first-time entrepreneurs.
16. If you do not have enough capital, consider start up financing for your business.
This will be used in the crucial first few months of running your business such as paying the rent for a building, or purchasing a plot of land. The money will also likely go to stocking inventory, purchasing business machines and supplies, or buying other important equipment (like stoves and refrigerators if you decide to open a restaurant for example). Finally, it will prime the pump to pay any employees you might hire, as well as pay yourself so you can make ends meet and support yourself or your family.
17. Consider dedicating a small portion of the financing to advertising and marketing.
This can go towards branding yourself. You should make a logo or catchphrase, but make sure your brand is not already protected under trademark or copyright laws.
18. Set up an accounting system to keep up with your expenses and assets.
Invest in a good accounting system so that tax time is much less harried and stressful. Figure out if you need to follow any special procedures to fill out your taxes. Some states require additional paperwork, depending on the business.
19. Get a business bank account and use this account only for business expenses.
One of the easiest ways to get the IRS after you is to commingle your business and personal funds.
Reasons to Consider Starting a Business
If you have an idea that you think will be popular and you can get the financing for it, then, go for it.
Keep in mind that ninety-nine percent of businesses are small businesses, and of these, over half (52%) are home-based. Let this factor into your decision for the location you decide to use in starting your business.
If you start a business, you will also get major tax benefits. You can write off meals, travel and other business expenses, as well as your home business, including a portion of your utilities.
Common Mistakes People Make When Starting a Business
Don’t overlook mistakes you could make when you start a business. You will just set yourself up for failure. Instead, learn from others’ mistakes.
Create a business plan no matter how long it takes you to do it. Make sure you answer everything in your business plan. You may walk away with no financing if the bank or investor doesn’t have confidence in your plan.
Don’t let others talk you into something that you know you shouldn’t do. For example, if you purchase an existing business and your customers want to change something that could affect the business in the long run, don’t do it. If you planned for contracts for certain services, don’t let the customers talk you out of those contracts in exchange for more people signing up. A few years down the road, you may wish you had contracts.
Avoid using money that you can’t afford to lose to get your business going. If you use your retirement fund to start the business and it fails, you won’t have that retirement fund to lean on when you need it.
Make sure you are ready to launch when you launch. Don’t launch before everything is put into place. Nothing is guaranteed, so you could lose everything if something in your plan doesn’t work out. However, don’t wait for ‘perfect’ when you have ‘good.
Get help if you need it. Regardless of what type of business you may have, you may need some answers, whether legal answers, financial answers, or answers about machinery you might need to purchase.
Always price everything out before you apply for financing. This should be in your business plan. Pad the prices in the event that prices change by the time you get to make your purchases. This includes everything from raw materials, labor, rental fees, and premiums. The cost of your product or service should cover all overhead, and have money leftover for profit.
Frequently update your business plan. This includes changes in demographics and financing needs. Financing needs may change due to the changing costs of equipment and inventory and employee costs such as insurance and other benefits.
Don’t rely on personal experience for business experience. It’s much different!