Question of the Week
Starting Your Business the Right Way
Happy Friday! In response to a few requests for more solo episodes on business issues, I recorded the most recent MDB podcast one of the most common questions I get: how do I build a proper foundation for my business? In this episode, I outline eight essential tasks to check off when starting a company that can help minimize risk and give you a solid foundation.
Starting a business can be daunting, and setting up a solid foundation to grow from is critical for future success. Here are eight first steps to start your business on solid ground.
Step 1: Pick your company name.
As new parents know, picking a name isn’t as easy as it may sound. A business name can ultimately help — or hinder — your success.
A good business name not only communicates who you are and what you do but also drives branding and marketing efforts. When thinking of business names, it helps to clarify your vision and purpose, know your ideal clients, and how you’ll add value. Creating a one-page business plan can also help you think clearly.
“Remember that a name doesn’t have to be perfect. You can change it as you need to.”
Step 2: Pick a business structure.
Your business structure is the legal framework of the company you’re building. Common small business organizational structures include limited liability companies (LLC), partnerships, and S corporations. The type of business structure you choose will impact numerous aspects of your business, from the paperwork you need to file to how you pay taxes.
“While taxes shouldn’t be the only concern when picking a business structure, you’ll want to consult with a tax professional to make sure you’re making the best choice for your situation.”
Step 3: Register your business.
Once you have a business name and structure, it’s time to register your business. You can register with the Secretary of State’s office in most states. However, if you want to protect your name nationally, consider registering with the United States Patent and Trademark Office.
Also, don’t forget to ensure people can find your company on the web! Before registering, check website domain registrars like GoDaddy and Google Domains to ensure your domain is still available.
Step 4: Apply for your Employer Identification Number.
Like a Social Security number, your Employer Identification Number (EIN) is a federal tax number used to identify your business. You can use it to get a business license, open bank accounts, obtain credit lines, and pay taxes.
Technically, you don’t need an EIN unless you have employees or plan to form a partnership, LLC, or corporation. But even if you don’t need an EIN, it doesn’t hurt to have one. It can keep your personal Social Security number private.
“You can apply online in just a couple of minutes and reduce the chance of identity theft.”
Step 5: Get a business license and permits.
All sorts of complex rules exist with different licensures. Depending on what type of industry you’re in, a federal, state, or local agency may regulate your business. You’ll likely need a state, county, or city license, and you may need permits or state registrations to do business across state lines.
“Make sure to research your state, county, and city regarding regulations for your particular type of business.”
Step 6: Open bank accounts and set up a cash flow system.
With the regulatory hurdles out of the way, it’s time to look at the operational side of your business. Getting a business account and setting up your cash flow system is essential.
Opening separate bank accounts will keep your business and personal assets separate, which is critical for tax and legal purposes. It also establishes your company as a separate entity should you need a loan and allow you to set up merchant accounts for faster payment.
Having an account is one thing, but successfully managing your cash flow is another. Mike Michalowicz’s Profit First System is a great way to ensure that your business is profitable, that you’re ready for your quarterly tax bill, and that you’re paying yourself a reasonable wage.
Step 7: Get an accounting system.
While you’re addressing operations, it’s a great time to set up an accounting system like QuickBooks or Wave. These systems allow you to track your business income and expenses immediately. They also help you take advantage of tax deductions.
“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.”
Step 8: Find the proper insurance.
Now that you have a business, you will want to protect it. One way to do that is by getting the appropriate type of insurance. Common types of business insurance include general liability insurance, professional liability insurance, and home-based business insurance.
“While your business structure will protect you from personal lawsuits, you’ll want to make sure your business is protected as well.”
Quote of the Week
“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.” – Me!
Task of the Week
Are you interested in starting your own business? Here are some resources to help get your mind around how to do it and relieve some of that worry, anxiety, and insecurity. Let me know if you have any other questions.
- “The Lean Startup: How Today’s Entrepreneurs Use Continuous Innovation to Create Radically Successful Businesses.” Eric Ries.
- “One-Page Business Plan Templates.” Susan Ward, The Balance Small Business.
- U.S. Small Business Administration
- United States Patent and Trademark Office
- “Apply for an Employer Identification Number (EIN) Online.” IRS
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