You’ve finally decided to go for it. You’ve come up with the perfect business idea, done thorough market research to identify your target market, and now you’re ready to join the ranks of America’s small business owners. You’re going to become your own boss, and take charge of your destiny. Congratulations!
But just because you know you want to start your own business, doesn’t mean you know how. Before you cross the starting line, there are a few things you need to do to get ready for the race.
Luckily, many of the tasks you need to complete are one-time events that you only have to do to get out the gate. However, some will be ongoing once you open your doors. No matter what, all of the tasks that follow are essential before you get your first customer.
1. Choose your business name
Of course, your business will need a name. This is critical both for marketing and legal purposes. You’ll want your name to be memorable and relevant to the products your business sells or the services it offers.
While it’s fun to brainstorm ideas and imagine the day when your company will be a household name, you’ll also want to make sure one very specific criteria is fulfilled: the name is unique. Not only will a unique name help you find and gain customers, it will also help ensure that your assets are protected.
So before you start designing any logos or printing business cards, perform a corporate search with your Secretary of State office to make sure your company name is available in your state. Once you’re sure you’ve picked the perfect name for your small business, you’ll need to move on to step two.
2. Select a business structure
This next step is crucial: choosing a business structure. There are several options to choose from, and with each comes a specific set of pros and cons. According to the Small Business Administration at SBA.gov, the most common business structures are:
- Sole proprietorship: This type of business is owned by a single person who bears unlimited personal liability for the company. With this structure, you will pay taxes on business profits through your personal tax return.
- Partnership: In this structure, two or more people own the business. Again, the business partners bear unlimited personal liability for the company, unless it’s structured as a limited partnership. As for taxes (this will vary by state), you will pay self-employment tax, as well as personal income taxes.
- Limited Liability Company (LLC): An LLC can be owned by one or more people, and in contrast to sole-proprietorships and partnerships, the owners have limited personal liability. When it comes to taxes — again this will depend on your state — you may pay self-employment tax, personal tax, or corporate tax.
- S Corp: In this structure, the company can be owned by one or more people, but no more than 100 people — all of whom must be U.S. citizens. Owners are not personally liable and will file personal tax.
- C Corp: Similar to an S corp, this type of business entity can be owned by more than one person, but there is no limit on ownership or nationality. The owners are not personally liable, and under this structure, you will have to file corporate tax.
It’s important to note that if you don’t formally select a business structure, you will by default operate as a sole proprietor. Realize that: As a sole proprietor or as a partnership, your personal assets are at risk. Should your company be sued, the court can seize your own assets if the business doesn’t have enough to pay business debts. Both the corporation and LLC provide a legal umbrella, as well as some tax benefits and other perks.
3. Register your business name
Because business formation and operation is actually governed by state law rather than federal law, if you choose to incorporate your new business as an S or C corporation — or alternatively, if you choose to file as an LLC — you will need to register your business name with your state.
This ensures that no one else can do business using your name. Also, by registering your company name, you are essentially creating a business entity that is separate from your own personal affairs.
However, when it comes to sole proprietorships, the process is slightly different. Although most states don’t require sole proprietors to formally register their business activities with the government, they do require you to operate your business under your legal name — unless you choose to complete a “Doing Business As,” or DBA, application.
While this step might not be necessary for many sole proprietorships — say you’re working as a personal trainer or a freelance translator — it is a good option if you’re selling products directly to consumers or other businesses. To complete your DBA, you’ll need to submit an application to the local county clerk’s office to gain permission to use the business name you’ve chosen in your state.
4. Get your EIN
Once you’ve registered your company name with your state, you’ll need to apply for an Employer Identification Number unless you’re going into business as a sole proprietorship. Your EIN is a bit like your business’s social security number. You’ll need it to open a business bank account and to perform other administrative tasks. You’ll use it frequently, including when you file your taxes next April.
If you’re opening up shop under a sole-proprietorship business structure, you can actually use your Social Security number to file your taxes. However, you might also want to consider getting an EIN, as it can help avoid identity theft and allows you to file your tax returns as an independent contractor — not an employee — which can make you more attractive to prospective clients.
Additionally, if your business grows and you would one day like to hire employees, establish a Solo 401(k) retirement plan, or eventually form an LLC or partnership, you would need an EIN to do so. As such, it might be worth your time to apply for your EIN early on.
5. Secure business licenses and permits
Next, you’ll need to find out which business licenses and permits you need to operate in your city or state. A few of the most common licenses and permits you should be aware of include:
- General business license: In some states, you might need your local or city government to issue a business license in order to operate within the city limits. If you’re not sure what you need, visit your local courthouse or city hall to inquire about which regulations apply.
- Tax permit and registration: Again, depending on your state, you may need to apply with local and state agencies to get a sales tax license, income tax withholding, and unemployment insurance tax.
- Professional or occupational licenses: In certain fields, if you’re going into business for yourself, you may need a professional or occupational license to practice your trade legally. For instance, plumbers, cosmetologists, accountants, physicians, and even private auctioneers need specific licenses to launch a business.
This list is not exhaustive, and it’s absolutely imperative that you have all your ducks in a row — license- and permit-wise — before you start operating, or you could risk being shut down or fined. As business licenses vary on a state by state basis, you should consult your state’s small business authority to find out exactly what you need to legally operate.
6. Develop your business plan
According to the Small Business Administration, or SBA, your business plan is the foundation for your business, providing a step-by-step overview of how you plan to start and manage your new company.
Your business plan provides a detailed roadmap for your business, including how you will organize, structure, run, and ultimately grow your company from day one. You’ll need to provide detailed information that includes:
- A company description outlining your products and services.
- A market analysis explaining why your new business is viable.
- The legal structure of your company — whether you plan to incorporate as a C or S corporation, form a general or limited partnership, or start out as a sole proprietor or LLC.
- An overview of your marketing strategy, or how you intend to attract and retain customers.
- A prospective outlook on how your business will perform financially over the next five years.
Because you’ve already completed the previous steps, you likely already have this information organized in your head. However, it’s also important to have your plan available in an easy-access format, as you are also more likely to stick to your plan if you have it formally outlined. Additionally, if you’re in need of funding, a well-written business plan can help you attract investors and secure that small business loan you may need to get going.
While steps one through five are relatively simple administrative tasks, developing and writing up your business plan requires a bit more heavy lifting from your cerebral cortex. In this case, there are no easy boxes to tick. Instead, you’ll have to think through each and every step — from what you’ll sell to who will help you sell it. Laying this info out in an easily accessible document will help you stay on track with goals for your new business.
7. Check your bank account
Don’t overlook your pre-launch finances. You need to make sure you have enough money for your first year’s expenses, both personal and business. If you plan to take out a loan — and this should be in your business plan — apply for that loan now.
8. Get your website up and running
You’d think that marketing begins once you launch, but you have to first lay the groundwork for what follows. Most businesses need a website to operate efficiently and effectively, so you’ll need to register your domain name, using your company name if possible.
If not, try to incorporate keywords that relate to your business. Once you’ve secured that domain name, design your website. Unless you’re a seasoned web designer, resist the urge to do it yourself. This is the first thing people see that represents your brand, so going for the cheapest option is usually not the best choice.
9. Take care of other pre-marketing needs
Next, order any marketing collateral you need, including business cards, brochures, and coupons. Again, hire a professional designer so your materials look like quality pieces. Set up social media profiles, but only on a handful of sites that your audience spends a significant amount of time on.
10. Hire help
You may be the only employee when you first start your business, but if you need help right off the bat, take out a job ad online. Interview your top choices, and then make an offer to the right candidate. Spend plenty of time training each new hire to ensure they’re ready for opening day.
11. Find software to make you smarter
Choose accounting software so that you can easily manage income and expenses, send invoices, and pay your staff if you have them. Investigate customer relationship management software so you can keep track of sales and customer activities. Find any other tools — like Google Drive or Dropbox for file sharing, and MailChimp for email marketing — that can help you be more efficient.
12. Consider your intellectual property
If you have ideas, products, or even taglines that you want to protect, consider trademarking them or filing for a patent. Your intellectual property is worth money, and you don’t want anyone stealing your great ideas. Talk to an attorney to find out more.
13. Keep your business in compliance
As you launch, it’s important that you follow deadlines for turning in your annual report or filing other business paperwork. The business licenses you secured in step five may have to be renewed annually, so keep their due dates on your calendar.
Start your new adventure
Once you’ve ticked off each of these steps, you’re ready for the next big adventure: launching your business. While you might not be able to completely relax — any successful business has to be able to adapt to an ever-changing market — knowing you took all the precautionary measures to ensure that your new company is protected and that you’re starting off on the right foot will provide you with the peace of mind that will let you focus on what counts: growing your business.