Have you ever dreamed of owning your own business? It’s a fantastic adventure, full of extreme highs and lows. But for me, it’s worth the emotional rollercoaster. How else can I obtain the freedom to create my own future, fulfill a purpose aligned with my values and master the craft of my choosing?
Launching a business can be risky. It takes a lot of thought. But as with building a house, setting the right foundation for your business can help ensure long-standing success. This week I’ll cover seven essential tasks that can help you ensure your business starts on solid ground.
1. Pick a company name
2. Pick a business structure
3. Register your business
4. Apply for your Employer Identification number (EIN)
5. Obtain business licenses or permits
6. Get a business bank account and accounting systems
7. Get the proper insurance
1. Pick a company name
What do you want to call this new thing that you’re birthing? As new parents know, picking a name sounds easy but can quickly become complicated. In the business world, a good company name communicates who you are and what you want to do. It will drive branding and marketing and can have a real impact on the success of your business.
Before you pick a name, it’s smart to clarify a few things: your business’ vision and purpose, your ideal clients and the value you bring to that group. The Lean Startup methodology provides a great framework for considering these issues. I also like the idea of using a one-page business plan. It will help you think clearly about your business without spending months or years trying to create the perfect plan. If you need additional help, check out Fizzle. They have some great ideas about developing clarity around your approach.
And remember the name doesn’t have to be perfect. You can change it if your need to or operate “doing business as” (DBA) by filling out a simple form. So yes, give it some thought but not too much.
2. Pick a business structure
In addition to your business name, you’ll need a business structure before you can take the next steps. Your business structure affects all sorts of aspects of your business like the paperwork you need to file, the formalities your business needs to follow, your personal liability and how you’re taxed among many other things. The business structure is especially important with the new Tax Cuts and Jobs Act (TCJA) passed late last year. Pass- through entities such as sole proprietorships, LLCs, partnerships, or S-Corps can receive a deduction of up to 20% of certain business income.
Taxes shouldn’t be your only concern when you choose a business structure. Still you’ll want to consult with a tax professional to make sure you’re making the best choice for you (especially if you’re a service business that may end up making a lot of money). You can check out this previous post for an overview of different business structures.
3. Register your business
Once you have a business name and business structure, you’ll have to register your business. I suggest starting at the state level. In most states, you’ll register through your Secretary of State’s office. A lot of them have an online search function to make sure you’re not trying to register a duplicate name. This goes for both the your company name and a DBA (although you may have a little more leeway with a DBA). You can look up your state agency here.
To protect your name at a national level, you may want to consider registering with the United States Patent and Trademark Office website. Lastly, make sure your domain name (or something similar) is available. You can do that through domain registrars like GoDaddy or Google Domains.
4. Apply for your Employer Identification Number (EIN)
An EIN is the federal tax number used to identify your business. Think of it as the social security number for your business. You’ll need this to get required business licenses, open bank accounts and credit lines for the business and pay your taxes.
Technically, you don’t need an EIN unless you will have employees or plan to form a partnership, LLC or corporation. Even if you don’t need one, it makes most sense to get one anyway. You can apply online in just a couple of minutes. And you can keep your Social Security number private and reduce the chance of identity theft.
You may also need a state tax ID, especially if you’re paying state sales or employment taxes. Check with your state about its specific requirements and whether you need to take additional steps beyond applying for your EIN.
5. Get business license and permits
Depending on what type of industry you’re in, you may be regulated by a federal and/or state agency. For instance, if you manufacture, wholesale, import or sell alcoholic beverages at a retail location, you would need a specific license from the Alcohol and Tobacco Tax and Trade Bureau or the Local Alcohol and Control board.
Even if you’re not regulated by the federal government, you’ll likely need some sort of state, county and/or city license. And you may need multiple licenses or state registrations, if you’re doing business across state lines. Registered Investment Advisors (RIAs), for example, have to register in different states depending on the number of clients they have in a specific state.
All sorts of convoluted rules exist with different licensures. My barber couldn’t set up in a specific location because he was too close to another shop. So make sure to research your state, county and city regulations for your specific type of business.
6. Open a business bank account and get an accounting system
You’re almost there. You just have a few more operational tasks. Next, get a business bank account and accounting system. Opening a separate bank account allows you to keep your business and personal assets separate (which is important for tax and legal purposes), establish the business as a separate entity if you need to apply for a loan and set up merchant accounts to get paid faster.
You should just need your business name and EIN to get your account (you might also need your registration documents). Most banks offer business banking services. You can choose a brick-and-mortar institution in your area or even an online. It’s often easiest to use the bank or credit union that you bank with personally — that makes it easier to transfer assets between your business and personal accounts. But remember, keep your business account just for business transactions and your personal account just for personal transactions.
This is also a good time to set up an accounting system like Quickbooks or Wave. These systems allow you to start tracking your business income and expenses right away so you can take advantage of all of the tax deductions you’re entitled to. As a tax attorney, I represented clients who didn’t keep good records before the IRS, and it was brutal. It’s much easier to start the habit early when you don’t have a lot going on rather than trying to keep up after things really get going.
7. Find the proper insurance
Lastly, you want to protect your new business by having the appropriate type of insurance. While your business structure may protect you from personal lawsuits, you want to make sure your business is protected as well. Some common types of business insurance include: general liability insurance, professional liability insurance and home-based business insurance. Check with your insurance provider to make sure you’re covered.
Starting a business can be a daunting task. But taking the time to set a proper foundation is essential to future success. I would love to hear your questions and concerns about opening up your own shop. Tweet, message and email me at the links below.