Guide – Starting a Business
To better understand what you need to start a new business.
1. Create a Business Plan Strategy
After you have a solid idea of your business, it is time to start planning. Researching upfront can help you plan the details for your business. These details will save you money and help you achieve rapid success. If you plan to form an LLC you should visit our list of the best LLC services.
Start by researching your target market and competitors
You can make better decisions about your product or service if you understand your competitors and potential customers well. Market research can help you gain that information when you open a new business. High-quality market research can help you make smart decisions and will also assist in the search for loans or investments.
There are several ways you can conduct your research.
- Online. These tools can help you find your competition. Take a look at their advertising and pricing. To find customers, conduct keyword searches. Find the most common terms in your local area by narrowing your search.
- Surveys. Online and in-person surveys. Your survey can be used to identify your customers and gather information about their demographics, where they shop from competitors, and what their opinions are about the experience. To get the most information, make sure your questions are well-crafted.
- Focus groups. You’ll need to recruit between 10-20 people (remember that recruitment is easier when there is some compensation). To determine if your product is useful, ask them lots of questions, such as who they get it from, what their feelings are about the experience, etc.
No matter what type of market research you use, you need to be able to find key pieces of information.
- Do you have a business need?
- What number of customers will be interested in what your company has to offer?
- Local demographics include employment rates, income ranges and ages
- Are your customers located where you should be?
- Which pricing strategies do they use and who is your competitor?
Make a business plan
Setting up a business plan is more than just finding investors. It will help you stay on track through every phase of running, opening, and growing your business.
There are some essential elements that you should include when creating your business plan.
- Company Description. This section will provide details about your company, the reasons consumers should use your business and who your customers are. Include your strengths and advantages over your competitors.
- Market analysis. Here you can distill your market research into useful data. What are your competitors doing? And why is it working — or not?
- Management and business structure. You should list the roles and responsibilities of each individual involved in the business.
- Marketing and sales plan. While this section is highly customized for your business, there are some things you should include. Talk about your plans to bring customers back and how they will do it as thoroughly as possible.
- Projections and financial needs. Discuss how much funding is needed to start and run your business. Then, follow that up with financial projections that show that your business is possible.
Calculate the starting costs of your business
You can prepare for unexpected costs that could cost you dearly and plan ahead to avoid them. Your costs will vary depending on whether you have an internet presence or a physical location. Your expenses will be affected by the type of services or goods you offer.
No matter what type of business you are planning to start, be ready for the common expenses such as:
- Equipment and supplies
- Website design
- Filing, licensing, and permit fees
- Marketing services/materials
- Utility costs
- A lawyer or an accountant are professional services.
Start Raising Capital for Your Startup Business
Once you’ve determined the amount of funding you require, you must decide how you’ll put it together. You have three options to finance your startup business: investors, self-funding and loans.
- Self-funding. You will use your resources and/or the resources of those closest to you to fund your business. Self-funding gives you full control of your business. You are also taking all the risk. You should plan how much you can invest in self-funding. If you’re thinking of using retirement income, consult a financial advisor.
- Get outside investment.
- There are a few steps you can take to find investors. Start by researching potential investors or a venture capital company. Once you have a list of potential investors, ask them to review your business plan. Investors will want to see that your business aligns with their priorities. Investors will want to see your financial statements, organizational chart, and products. You will negotiate the terms of the investment with them if they are interested.
- Applying for a loan at a credit union or bank will give you the ability to keep control of your business. You should prepare your business plan, expense sheets, and financial projections if you choose to fund this way. These documents should be reviewed every five years. To get the best deal, speak to several banks and compare their offers.
2. To Start a business, choose a structure
It is a crucial decision to decide on the structure of your company. Before you make a decision, consider the pros and cons of each structure. Your tax liability, the way you run your business and the level of liability protection you have available to you will all be determined by the structure you choose.
This decision is not yours alone. LLC Radar provides information and resources that will help you make the right decision when opening a business.
It is a crucial decision to decide on the structure of your company. Before you make a decision, consider the pros and cons of each structure. Your tax liability, how you organize and manage your business and the level of liability protection you have available to you will all be determined by the structure you choose.
The Pros and Cons of a Sole Proprietorship
- Start-up costs are less
- Individual returns are subject to tax
- Simpler finances
The Cons of Sole Proprietorship
- Personal liability is high
- Accounting controls are lacking
- It is more difficult to raise funds
A partnership is formed when at least two people start a business together. Partnerships allow profits of a company to be passed on to their owners. Taxes are reported only on individual tax returns.
There are three types of partnerships. A general partnership is where the owners of the company manage it and share the profits and risk. Limited partnerships will include general partners as well as limited partners, who can be investors without having any control over the company and are not subject to the same liability. Although limited liability partnerships offer some protection for partners from malpractice and wrongful actions by other partners, this protection may vary from one state to another.
Pros and Cons of a Partnership
- Start with less red tape
- State fees are lower
- Easy, collaborative decision-making
Cons of Partnership
- Different degrees of personal liability
- Conflicts between partners
- It is more difficult to raise funds
Limited Liability Company (LLC).
An LLC is a legal entity that is created as an LLC. However, its profits are passed on to its owners or members. They are only taxed according to their individual tax returns. There are no shareholders or stock. Only limited liability partnerships or professional limited liability companies are eligible for state eligibility. Professional partnerships can be businesses such as a law firm or doctor’s office.
Pros and Cons of an LLC
- Individual taxation
- Protection against member liability
- There is less red tape than a corporation
Cons for an LLC
- There are higher fees for sole proprietorships or partnerships than there are for partnership.
- It does not enjoy all the benefits of being a corporation like the ability to sell stock
Shareholders elect a board to manage C corporations. The board is responsible for making decisions. C corporations can be treated as a separate entity than the owners to protect their liability. The C corporation will tax the business and the income received by the shareholders (also known as double taxation).
Pros and Cons of a C Corporation
- The personal assets of owners are protected against liability
- You may be able to deduct benefits from expenses
- It is easy to transfer ownership
Cons for a C Corporation
- This option requires more funding than the other options
- Red tape
- Both the business and its shareholders are subject to tax
- As the board is involved, slower decision-making.
An S corporation does not represent a separate type of business structure. It is a tax-eligible status. An LLC or a C corporation can apply to the IRS for S corporation status. C corporations can apply for S corporation status with the IRS to avoid double taxation. They are taxed as a general partnership, sole proprietorship or general partnership.
An LLC may choose to be an S corporation. This is because it can reduce self-employment taxes. Income can be divided into two groups: salary and distribution. An S corporation owner must pay 15.3% self-employment from their salary. The IRS does not require them to take the rest as self-employment tax.
However, S corporations have certain restrictions. If they meet these conditions, an LLC or C-corporation can apply to be an S corporation.
- Only one type of stock can exist.
- All owners must be U.S citizens or residents aliens. The IRS will accept certain trusts and estates as owners in addition to individuals.
- You must have fewer than 100 owners.
The tax issues surrounding S corporations can be complex, so it is a good idea to seek the guidance of a qualified tax professional.
The Pros and Cons of an S Corporation
- The personal assets of owners are protected against liability
- Pass-through taxation
- Self-employment taxes can be a cost-saving opportunity for owners
Cons of an S Corporation
- Harder to qualify for
- More restrictions than C-corporations
B corporations are not-for-profit businesses that have a mission to serve the public. These companies have been certified by B Lab, a global non-profit organization. While they are subject to the same tax as a corporation of the same type, their purpose and transparency is different. Some states require that B corporations submit an annual report demonstrating their progress toward their mission.
Pros and Cons of a B Corporation
- Structured requirements
- B corporations can market their public benefits by having a strong brand image and a strong brand.
- Investor interest
Cons of B Corporation
- Scrutiny and accountability standards
- No tax breaks
- You will need more resources to incorporate as a corporation of B and meet the annual reporting requirements.
3. Choose a business name and location
The most important decision you’ll make is to choose your business name and address. Names should help you to build and protect your brand. It can be difficult to attract customers if the wrong place is chosen. These are important decisions that you shouldn’t rush as you will be living with them for a while.
How to choose a business name
You want your company name to be distinctive and unique. When choosing a name, there are some requirements that you must meet. All states require that a name includes an LLC if you have chosen a business structure. A word that suggests illegal activity will not be allowed.
You should not copy another business’s name. You can avoid this by looking at available names in your state. Use the searchable database on the website of your Secretary-of-State.
After you have chosen your name, it is possible to reserve it with your state. You can do this in most states for a limited time. This allows you to continue the process to register your business and ensure that your name is secure.
Your DBA name (“doing business under”) may also be required. This step is necessary for two reasons. If you are a sole proprietorship, general partnership or other type of business and need a unique name for your company. The second is when your company will operate under an alternative name to its legal name. For example, ABC Corporation has two lines, one operating as “ABC Puzzles”, and the other as”ABC Toys.”
The process of applying for your DBA can take several weeks. Each state, county and city has its own rules. You will need to show proof of good standing as well as a unique name. Public announcements may be required to follow local rules and provide a reliable payment method. A Social Security number (or a Federal Tax ID (EIN) will be required.
It is possible that you may be wondering if your name should become a trademark. To search the U.S. Patent and Trademark Office database for your name to determine if it has been federally trademarked, you can start to apply for a trademark. You have the option to apply for a trademark once you are certain that your name is unique. Although federal registration of your trademark provides greater protection, it may be more difficult to obtain. Although it is quicker and easier to register a state-level mark, it only applies to your state. However, trademarks are not meant to last forever. To keep your trademark current, you will need to adhere to the deadlines.
Selecting a Business Location
Finding the right location for your business is similar to searching for the perfect home. Before you start, make a list. Do not start without a plan. Once you have locked yourself into a place, it can be expensive and time-consuming for you to fix the problem.
Here are some things to think about. Is the location suitable for your business’s growth and operational requirements? How much will it cost to locate (think about rent, utilities, and any other expenses you might incur by being there)? Businesses need to think about demographics. Retailers should consider how much foot traffic and parking a particular location provides. Retailers will also need to assess whether the area is suitable for their brand.
You should consider whether the area has the right infrastructure to support your business. Get to know the environment. What regulations and ordinances should you follow, and what taxes are you required to pay?
4. Register your business in your state
Once you have a plan, name and location, it’s time to register the business with state. This step is not necessary if you are a sole proprietorship, general partnership, or a limited liability company.
It means that you must file the necessary documents in order to officially start your business.
This will be required for most states. However, you must make a few decisions before you visit the Secretary of States website.
Registering a Registered Agent to Your Business
First, you need a registered agents. Registered agents are individuals or entities who act as the point of contact between your company and the state. They will accept legal notices on your behalf and ensure that they are received in a timely fashion.
You can serve as your own registered agent in all states. This may sound like an easy solution, but it has its disadvantages. A registered agent must always be available during business hours. It can be hard to run your business while being at the same place every day. It can be difficult to meet with potential clients while being served with legal documents.
A registered agent outside your company can help you take the stress out of managing your business and make your life easier. Here are some of the benefits:
- If served at your business, you can avoid embarrassment
- You can travel more flexiblely during business hours
- This fulfills the requirement for a physical office
- This prevents you from having to update your listing for every move
- Your legal documents organized and maintained so you are able to access them whenever you need them
For your business, you will need to file articles of organization
You will need to file the Articles of Organization in order to register with the state. Find the right form and information about filing fees on the website of your Secretary-of-State. This can vary from one state to another. Online filing is allowed in most states.
You should ensure that you have all necessary information for the application. Each state will have a different application. However, most include the following:
- Your business name
- Your business address
- Contact information for your registered agent
- Start date for your business
5. For LLCs, create a Business Operating Agreement
Next, if you’re creating an LLC, create an Operating Agreement. Although only a few states require it, it is essential for your business. This document will outline in writing how your business will run, be managed, and be governed.
An Operating Agreement has many benefits
An Operating Agreement provides your LLC and its member’s many benefits, including:
- Additional legal protection for many courts
- Conflict prevention among partners
- Establishing clear and specific rules to control the business
- Clear procedures to add or remove owners from the business
- You need to plan what happens to your business if it isn’t possible to manage it anymore
- This is useful in securing financing for your startup/expansion
How to create a business operating agreement
Operating agreements should be tailored to your business, but there are some common items you can include. An attorney could be hired to help you create your Operating Agreement. This option can be costly and time-consuming.
6. Register for a Tax ID to identify the type of business you want to start
The laws governing federal, state and local taxes must be understood and followed by businesses (or, in the case if an LLC, individual owners). Start by getting your identifying numbers to ensure you’re collecting and paying the correct taxes.
How to get a Business Employer Identification Number (EIN).
Your federal Employer Identification Number is the first number you will need. The IRS assigns this number to your company. This number is required by most businesses. These requirements will help you determine if your company requires an EIN.
- You can operate as a partnership or corporation
- Partnering with other people in your business
- You must file an employment tax return if you are subject to excise, tobacco, alcohol, or firearms taxes
- You may be involved in trusts, estates or real estate mortgage investments.
Even though your company is not required by law to have an EIN, getting one is a good idea. EINs can be useful for several reasons. Before opening a bank account for your business, your bank might require you to give your EIN. This also protects you from having to use your Social Security number in business, which can help prevent fraud.
How to get a state tax ID number
The tax system in each state will determine which taxes are applicable to your business. Register with your state. The Department of Revenue in your state is a good place, as many states still use the same system. You should also consider local taxes. It is necessary to research and register for the tax system in your locality and/or county.
How to identify the state taxes that apply to your business
Different types of businesses might need to pay different taxes. The most popular taxes are:
- Income tax
- Sales tax
- Property tax
- Excise tax
- Taxes specific to an industry
- Environmental-impact taxes
- Employment taxes include unemployment insurance, employee withholding tax and unemployment insurance.
- Self-employment tax for business shares of sole proprietors, partners and LLCs
For more information about taxes that your business is responsible for, contact your state Department of Revenue.
7. Apply for Permits and Business Licenses
You are not ready to legally operate just because your company has been formed. Additional licenses and permits may be required in your locality or state. It doesn’t matter if you need a general or industry-specific license; it is important to get the correct permits in order to keep your business compliant and run smoothly.
Basics of a Business License and Permit
You may require the following types of business licenses:
- General business license
- Restaurant licenses
- Alcohol licenses
- Retail licenses
- Trade licenses
- Professional licenses
Investigating Permits and Licenses to Protect Your Business
It can be difficult to ensure you have the necessary permits and licenses. You should make sure you know when they expire so you can reapply. You could face fines or even have to cease doing business without them.
Brian Wilson is the content manager and founder of LLC Radar.
Brian grew up in North Texas, just outside of Dallas, and has a bachelor’s degree in business journalism from Southern Methodist University. Since graduating from SMU, Brian has gained over 10 years of experience in business writing for several online publications.
Brian resides in Plano, Texas and he can be reached by email: email@example.com