How to start a business
8 simple steps To Start Your Business:
Create A Business Plan
The first step after deciding to start a business is to create a business plan. Today, starting a business is easier than ever. You can quickly design products online, create an entire website in a few hours and source products from around the world in minutes. Due to the ease of starting a business, many small business owners are often failing to create a business plan. However, this is a vital step that should not be skipped. A business plan forces you to think about your business long term.
Select A Business Name
Choosing a business name should take time. The name of your business will be your business' first impression. Making the wrong first impression can derail your business. A business name can also cause significant legal problems if it infringes on another's trademark.
Top considerations when naming your business:
One way to derail a business is litigation due to trademark infringement! This can be costly. To help avoid such a problem brainstorm a number of possible business names. After you create a list of possible names conduct a search of the United States Patent and Trademark Office's (USPTO) website, www.uspto.gov, and your state's Secretary of State (SOS) website. It is highly recommended that this search is performed before settling on and putting into commerce a business name.
Select A Business Structure
After selecting a business name it is time to form your legal entity (aka business structure). Choosing a business structure is an important decision and should not be rushed. Your business structure will influence every aspect of your business. Including day-to-day operations, taxes, personal liability, ability to raise capital and if your business survives after your death. Thus, it is a decision you should make only after spending considerable time learning about the different types of business structures.
Further, your choice of business structure will determine what documents must be filed to form your legal entity. The Legal Structure Quick Guide defines common business structures, ownership, personal liability, and tax implications. As the name indicates, this is a quick reference guide.
Form your business entity
After finalizing your business name and selecting the appropriate business structure it is time to form your legal entity.
Secretary of State
Form your legal entity by filing the appropriate paperwork with your state's SOS. At this point, you should be familiar with your state's SOS website. Many states have an online filing option and you may be able to file your documents online. If you are forming a Sole Proprietorship or General Partnership you must go to your county's Register of Deeds.
What Documents to File
The documents necessary to form your legal entity depend on your legal structure. You may need to file Articles of Incorporation or Articles of Organization, etc.
After forming your entity keep the SOS updated with any changes to your email, mailing address, and phone number. You may be required to submit yearly filings with the SOS. The deadline for yearly filings may be sent via email, postal service or both. It is important to respond to all communications from the SOS as failure to do so may result in the administrative dissolution of your entity.
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OBTAIN TAX IDENTIFICATION NUMBER(S)
Federal Tax ID Number
A federal tax identification number is commonly referred to as an employer identification number (EIN), is used to perform important tasks such as paying federal taxes, opening a business bank account, applying for business licenses and permits and hiring employees.
An EIN is free and can be obtained instantly. Visit to apply. Make sure you visit www.irs.gov to obtain your EIN as some non-government websites charge a fee. Do not pay for these services. Visit the IRS official website and obtain your EIN for free.
State Tax ID Number
In addition to an EIN, you may need to obtain a state tax identification number. In general, state tax ID numbers are required when your business is providing something other than a service (selling products) or your business has employees.
Tax obligations vary from state to state. It is best to research your state tax requirements to determine if your business must register to pay state and local taxes. Some helpful resources you can utilize are:
your state's Department of Revenue website; y
our state's tax laws; your county's website;
and your city's website.
determine and understand tax liability
Another way to derail your business is by failing to pay your taxes. Business taxes can be complicated. It is important to fully understand your business' tax obligations prior to launching your business. If you fully understand your business' tax obligations you should be able to answer the following questions:
At what level(s) will I have a tax liability (federal, state, local)?
What type of taxes will I have to pay?
How does my business structure impact my tax requirements?
How Does My Business Structure Impact My Tax Requirements?
Let's start with question 3. At this point, you should know the answer to this question. If you do not clearly understand how your business structure impacts your tax liability, then you may need to go back to Step 3. (Hint: when you need to pay your taxes)
At What Level(s) Will I Have a Tax Liability?
There are three tax levels. Federal, state and local (county and city). All businesses are required to pay federal taxes. State and local taxes vary by business type. It is best to contact your state and local officials to determine your state and local tax obligations.
What Type of Taxes Will I have to Pay?
Below is a list of common federal and state taxes. Remember, your business function and location will determine what taxes you will need to pay.
obtain permits and licenses
Federal Permits and Licenses
If you’re starting a business in a federally regulated industry—firearms, commercial fishing, aviation, etc.—then you’ll need to consult a specific list of business licenses to operate legally in your industry. If your business is in a federally regulated industry you should have an attorney!
State Permits and Licenses
Permits and licenses vary based on the following factors:
type of business;
It is best to contact your state and local (county and city) officials to determine the permits and licenses required to operate your business legally. The following is a list of the most common permits and licenses that affect small businesses:
Open business bank account
A Business Bank Account Is Important
Let's add to our discussion concerning legal entities above. When you form a business entity you are forming an entity separate from yourself. This concept is at the heart of personal liability. When you create a separate entity you are not personally liable for the debts and obligations of the separate entity. This is easier to understand if you think of your business entity as a separate person.
April has a friend named Barbra. April and Barbra are best friends. April is always at Barbra's house. One day after a snowstorm Barbra did not salt or shovel her sidewalk. A person fell and broke their leg on Barbra's sidewalk. The person sued Barbra and Barbra claimed April is also liable because April is always at Barbra's house. Is April liable? Of course not!
This same concept applies when you form your business entity. Barbra is your business entity and as long as you are operating your business as a separate entity you retain personal liability protection. Operating as a separate entity includes maintaining separate business and personal bank accounts.
If you are co-mingling (mixing business and personal) funds it can be said that you and your business are not truly two separate and distinct entities. Therefore, you ARE personally liable for the debts and obligations of your business.
Why Does This Matter?
This matters because you want to protect your personal assets. No personal liability means if your business goes into debt, if there is a legal judgment against your business, or your business is unable to satisfy its obligations then creditors and other persons cannot pursue your personal assets. Let's revisit our April and Barbra example with a little twist.
April is the owner and operator of Barbra’s Butcher. Barbra’s Butcher is a new business venture and is not yet profitable. April sold all of her assets, except her home, to fund Barbra’s Butcher. One day after a snowstorm April did not salt or shovel the sidewalk outside Barbra’s Butcher. A customer fell and broke their leg on Barbra's sidewalk. The customer sued and won a judgment against Barbra’s Butcher. Barbra’s Butcher does not have enough money to pay the judgment. Can the customer pursue April personally? It depends.
What information do we need to answer the question? We need to know if April was, in fact, operating Barbra’s Butcher as a separate entity. One way to determine this is to see if April separated her personal and business banking accounts.