How to Start a Business
You've got an idea for a business, but where do you start? What are the first steps to take?
There are a lot of questions to answer and things to consider before launching your new venture.
This guide will walk through everything, from naming your business to setting up an LLC or corporation. We'll also cover other critical legal considerations such as contracts, insurance, accounting, and more.
The goal will be to set up the framework of your business so you can jump into doing what you're passionate about while serving others.
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Step 1: Research your business name idea
Before you run out and start your business, you need to make sure that your company's name is legally available. The first step in this process is to find out if anyone else has registered it as a trademark or service mark.
You want a business name that relates to what you do and doesn’t step on the sales territory of other businesses by accident.
Brainstorm
Brainstorm the name: can it be mispronounced? Can it be mistaken for something else? Does it already exist in another industry?
Make sure it's not already taken. You don't want to spend your money and time on something that can't be used because it's already trademarked or copyrighted by someone else.
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Check Legal Availability
To protect your rights, it's important that you check the availability of your business name in each state where you plan to operate. You can visit the County Clerk or Secretary of State website for your respective states.
For example, if you were planning to start a business in California and wanted to ensure that the company name was not already taken, you would go to this site: http://www.sos.ca.gov/business-programs/corporations-search/.
Secure Social Profiles
If you have a catchy name for your business, it's crucial to make sure it isn't already taken on social media. Check out Namecheckr, which is free and allows users to check if their desired username is available on all major social media platforms.
Step 2: Decide on your entity type
There are several different ways to structure your business, and it’s important to choose the right one for you. First, let’s take a look at some of the most common types of businesses:
Sole proprietorship: If you own an unincorporated business and work alone, this is probably your best option. You can file your taxes as a sole proprietor using Schedule C (Form 1040).
Partnership: Partnerships come in two flavors—general partnerships and limited partnerships (LPs). As a general or limited partner in an LP, you share in profits but aren't personally liable for debts incurred by the partnership.
LLC or Corporation: Corporate structures allow more flexibility than LLCs when it comes to transferring ownership shares after death or divorce but generally require more money up front to set up since they need extra paperwork like bylaws and minutes.
DBA vs. LLC
When you are learning how to start a business, consider a DBA or LLC.
An LLC (limited liability corporation) allows for more flexibility than a DBA (doing business as) because it offers some liability protection for its owners.
A DBA is basically using a nickname when you are doing business. It doesn’t provide any absolute protection or tax benefits like an LLC will.
Check out a great post form a friend of ours, Legalmiga.
Consider LLP
Sometimes an LLP is required if you are providing professional services with a partner.
A limited liability partnership (LLP) is a business structure that protects the personal assets of partners, and it's also required for certain types of businesses. It is similar to an LLC in tax benefits and protection, but you are designated as a “partner” with shared responsibility compared to a “member” in an LLC.
Probably Not a Corporation
Rarely will you start as an S Corp or C Corp. You will likely start as a sole proprietorship or partnership.
The reason for this is that, in most cases, it is easier to establish and maintain an LLC or partnership business than jumping into an S corporation or C corporation.
There are many more legal requirements for C and S corporations that are not necessary if you are earning anything less than $60,000 in profits. If you plan on being an S Corp there will be far less paperwork involved, and your taxes will be much simpler, but you should speak to an accountant or lawyer first.
Step 3: Think through other legalities
Once you’ve gone through the steps of getting a business license and filing for all the necessary paperwork, it’s important to make sure you have all the legalities in order.
First and foremost: only operate a business with an operating license. You may think this isn’t something to worry about when you are just starting out, but it could cost your company thousands of dollars in fines if caught. If your state or city requires an operating license, make sure that yours is active before beginning operations.
Second, ensure that your business has all necessary insurance policies in place—including professional and general liability coverage and workers' compensation. Your local chamber of commerce or small business center should be able to assist with this process. Most industries will have an insurance specific to their work type and some industries may not require it. But it's necessary to research and determine before getting started.
You need to consider what contracts you will need. In the United States, there are many different kinds of business contracts. You will probably need to use at least one of them.
The most common types are:
Contracts for services, which cover the work you do for other people and companies (at minimum you should have one of these before getting started working)
Intellectual property (IP) agreements such as patent applications or trademark registrations
Agreements between parties, which help to spell out the details of any arrangement you're working out with others
And more
And finally, copyrights on any original material - such as books or songs other printed material.
Never forget how you will manage accounting. Keeping track of your business finances can seem daunting, especially if you're not a numbers person. But it's a necessary step to conducting business correctly.
Consider hiring an accountant to do the job for you. If this is out of your budget range, there are several software programs available to help small businesses manage their finances.
Step 4: Determine whether to outsource or save
If you're like most people, you'll want to use a combination of both methods. This is where the real fun begins.
Many online companies will file a business application on your behalf, so you avoid the time and potential errors. Some entrepreneurs would rather have a professional do this work if they plan on starting more than one business in their lifetime.
For those that want to remain more anonymous, you should decide on a registered agent other than yourself.
A registered agent is the legal representative of your company. They must be located in the state you are registered to do business. They must be available to accept the service of process (the legal documents a person or company uses to start, stop or transfer a business). They're a great option for ensuring your personal information (like your home address) don't end up in public records.
Step 5: Most Importantly - Get Started Now!
The most important thing to do is to get started. You don't need to know everything when you start a business, but you should have a basic understanding of what's involved and try to learn more as you go along.
Realize that you are going to make mistakes. There is no way around it. Part of being a successful business owner is learning from the errors you make along the pathway to success. Almost everyone that has come before you has had to do the same. Just move forward one day at a time, and you’ll do well.
