Starting your own business is very rewarding and thousands of people do so each year in the U.S. However, several steps must be taken in order for this to happen. Gone are the days when you placed a sign outside your door and waited for your next client. Not only does the federal government require you to set up a taxing entity, but most state and local governments have their own additional requirements. Knowing what you must do, and when you must do it is the difference between a smooth and easy grand opening, and a bumpy ride fraught with headaches and, in some cases, fines.
Regardless of which state you situate your business, knowing the steps you need to take to open your doors (real or cyber…or both) is crucial. In many instances you must also complete various steps in a certain order to avoid fines or delays. Use this quick reference to get your business up and running the smart way, fast.
Selecting a Federal Tax Entity
The Internal Revenue Service (IRS) requires you to list the type of business entity you have selected. In general, they fall into the following categories:
Sole Proprietorship: Select this one if you are the only owner, and you have no employees. This is the option to select if you never EVER plan to have employees. Otherwise, you must change to a different tax entity when you add employees. Understand that this tax entity costs you more in taxes and the amount of deductions you can take at the end of the year are fewer.
Limited Liability Company (LLC): This is often the tax entity of choice for several reasons. First, it limits your personal liability in case your business is ever sued. It also allows what are called “pass through” profits, which are taxed at a better rate than personal income. This tax entity type allows you to add a partner, have employees, tax a good amount of deductions, or remain a sole proprietor, making it very versatile and able to grow with your business.
S-Corp: For the most deductions allowed to a tax entity (aside from an official corporation), then select this type of tax entity. S-corporations combine the nimbleness of an LLC with additional deductions and more protections in the case of a lawsuit.
Once you select the tax entity you believe you want, go to the IRS website to file the paperwork (which they provide) and pay the fee. Keep in mind you must also register with your state, usually via the Secretary of State official website, as well as your local county at the Clerk of Courts offices.
Apply for an EIN Number
An employer identification number is required if you selected the LLC or S-Corp business structure. If you are a sole proprietorship, you can opt out, but in most instances, it is to your advantage to have one. Additionally, if your sole proprietorship is involved with estates, real estate mortgage investment conduits, farmers’ cooperatives, non-profit or Plan administration, then you must have an EIN even if you are a sole proprietor. Applying for an EIN is very simple if you do it online. It is free. You can also apply by Fax or by Mail but be prepared to wait at least a week or more for a response. If you apply using the online forms, then the application is validated immediately and issued at that time.
Choose Your Business Name
Choosing the perfect business name requires you to make sure no one else is using it, and then taking the appropriate steps to protect it. Additionally, if the name you select does not have your own name in the title, then you must file a “doing business as” form as well. To see if your business name has already been selected most Secretary of State websites have an online search tool that helps you discover if the name you have selected is usable. Once you do this, most state sites allow you to trademark it at that time.
Licensing and Permitting
Depending on the type of business you intend to run you might have additional licensing and permits to obtain. If you are unsure whether you need certain licensing or additional permits, most Secretary of State websites have a list of federal and state licensing requirements. As a rule, you need a federal license or permit if the type of business you do is regulated in some way by a federal agency. Local governments may have additional licensing requirements, and these vary by state and city.
Establish Credibility for your Business
Even before you open your doors and take the first payment from a customer you must have your banking account in place. This is important for several reasons. First, having a separate bank account for your business establishes a separation between your personal and professional finances. Secondly, if you plan to ever apply for business credit you want your business to have an established track record of good accounting practices via a healthy bank account. Last, if your business is ever sued, your personal account remains safe (does not apply to sole proprietorship).
Branding Matters
Many new start-ups do not believe they need a website, business cards or a social media presence. Those days are gone. If you wish to give your business the best possible chance of succeeding, you must have an internet presence. Setting up a Facebook page and calling it a website does not count. You must have a viable working website, and viable credible social media platforms such as LinkedIn, Facebook, Twitter, and Instagram, to name a few. If this is out of your wheelhouse, hire creative freelancers to design and maintain them for you. Professionals help to create a custom built “look” for your business, including logo designs, website creation, business card development, and usually can do everything from brochures to YouTube ads. Find creatives through such sites as:
- Fiverr.com
- Guru.com
- Freelancer.com
- Indeed.com