When meeting with budding entrepreneurs, we will sometimes get asked what is the best way to get started when creating a business. There is a lot of confusion and conflicting information out there. We have compiled a list here to give you the 10 essential steps to follow when starting a business.
1. Entity Filings - File your articles of organization or articles of incorporation on your state's secretary of state's website. You will have to pay a small fee (usually between $100-$300) to file the papers and then each year you will have to file an Annual report that will maintain your active status in the state's directory.
If you aren't sure which entity to create, check out this article that goes over the 5 major types of business entities in the United States. If you aren't a do-it-yourselfer, you can use services like legal zoom to create and maintain your filings.
2. Register For Taxes - Currently, only 5 states don't impose sales tax (Alaska, Deleware, Montana, New Hampshire, and Oregon). Once you have the entity filing papers back from your state, you will be able to make the application for these documents. These forms can be generally found under the state's DOR (Department of Revenue).
If you engage in retail sales, you will be required to collect and remit sales tax to the state's entities. Also depending on the state you are registered/engaging in, you will need to apply for the local municipalities tax authorities as well. You can call and speak with someone at the state level to get an idea of what you will have to apply for.
If you plan to hire employees, you will also need to file for state unemployment taxes, amongst other entities, again depending on the state that you are conducting business. Our clients use Gusto which is a payroll provider that gives you a step-by-step process to getting set up and staying compliant with the authorities.
3. Get Relevant Licences - After you receive your documents from the state and municipalities, you might be required to file and apply for licenses depending on what type of business activity you will be conducting.
Business activities range from CPA and Doctor to Food and Lottery permits. Make sure you have these in place before you start providing services or selling goods or possibly face hefty fines even possibly your business being shut down.
4. File for a DBA (Doing Business As) (optional) - If you file your business as an LLC or Corporation, you will be required to use the official name (ABC Business, LLC or ABC Business, Inc.) unless you file a DBA. A DBA allows you to operate under a different name separate from the name that you filed the business under with the state.
The best way to imagine this is you file your business as "ABC Business, LLC" but you want your business name to be "John's Cakes" this DBA will let you operate under this name under the officially filed business name. There is a minor fee associated with this document and you can have multiple DBAs under 1 entity filing.
5. File for and Obtain an EIN (Employer Identification Number) - An EIN also sometimes called a FEIN (Federal Employer Identification Number) is a unique identification number that your business is issued for federal tax purposes. This is a free service provided by the IRS and you can find the application here.
Be sure to save the document in a secure location when the service provides you the document. You will need this for ALL federal returns and federal tax payments. It's important to note that this service is only available between 7 am and 10 pm Eastern US Time.
6. Create your Business Bank Account - One of the biggest mistakes that small business owners make when getting started is using their personal business checking or savings account for their business revenues and expenses. This is a BIG mistake! This is because it becomes extremely difficult extremely fast to keep an accurate track of what you're earning and spending.
This creates a liability to you, the freshly minted business owner because you have no idea what you owe and what you need to report on taxes. There are several banks here in the United States that offer business checking and savings services. If you're just getting started, all you will need is a standard business checking account.
When I was getting started, I opted to open an account with Wells Fargo because they offer a "Simple Business Checking" Account that only required a minimum balance of $500 and the option to receive digital statements to waive any fees. There are several options to choose from; large and small banks offer these services but in the long run, larger banks will give you more options if you need additional services or access to cash or merchant services.
7. Register for Insurance - Depending on what you are doing in your business, it would be wise to apply for relevant insurance to protect you, your business, and it's customers. There are plenty of services that exist from Worker's Comp Insurance to Errors and Omissions Insurance.
Some of these types of insurance are required prior to obtaining a license for the work that you will be performing if your chosen path requires that you have a license (step 3).
8. Comply with Local, State and Federal Requirements - Once you start working with customers and/or hiring employees, you are required to comply with certain laws and regulations. These include OSHA, Tax Deadlines, Equal Employment Opportunity Act, the list can go on.
It is also important to note that some of these requirements mandate that you publicly publish these requirements in the workplace. Placards are easy to obtain and can be purchased for a minimal fee. If you are found in violation of these requirements, you can be fined and up to having your business shut down.
9. Setup a System of Record Keeping - As soon as possible, it is highly advisable that you put a system in place to start tracking your revenues, expenses, and profit in a neat and organized fashion. This will save a lot of headaches and/or money in the future. The software that we recommend when getting started is Xero. Xero is a very user-friendly cloud-based Accounting Platform.
To get set up you can click here and we will set up a time to help you get your accounting system online for Free!
10. Make Money! - If you have followed all of the steps and navigated all of the legal requirements, it's time for the fun part. Go out and change the world. The sky's the limit and you're only limited to your imagination and work ethic. Cheers!
If you are having a hard time of identifying a market that you want to help, check out this awesome article on creating a niche strategy.
Legal Disclaimer: This blog post includes topics and information about taxes and legal requirements around starting a business. The information contained in this blog post and its external links are not considered professional legal or tax advice. Please consult a professional to assist with your unique situation.