Steven M. Basche, LLC

Start Your Own Business: 50 Things You'll Need to Do

 

From insurance to accounting to taxes, here’s what you need to do to start a business.

Thinking about starting a business? You’re not alone. Every year, thousands of Americans catch the entrepreneurial spirit, launching small businesses to sell their products or services. Some businesses thrive; many fail. The more you know about starting a business, the more power you have to form an organization that develops into a lasting source of income and satisfaction. For help with the beginning stages of operating a business, the following checklist is a great place to start.

Evaluate and Develop Your Business Idea

1. Determine if the type of business suits you.

2. Use a break-even analysis to determine if your idea can make money.

3. Write a business plan, including a profit/loss forecast and a cash flow analysis.

4. Find sources of start-up financing.

5. Set up a basic marketing plan.

Decide on a Legal Structure for Your Business

6. Identify the number of owners of your business.

7. Decide how much protection from personal liability you'll need, which depends on your business's risks.

8. Decide how you'd like the business to be taxed.

9. Consider whether your business would benefit from being able to sell stock.

10. Research the various types of ownership structures:

• Sole proprietorship
• Partnership
• LLC
• C Corporation
• S Corporation

11. Get more in-depth information from a self-help resource or a lawyer, if necessary, before you settle on a structure.

Choose a Name for Your Business

12. Think of several business names that might suit your company and its products or services.

13. If you will do business online, check if your proposed business names are available as domain names.

14. Check with your county clerk's office to see whether your proposed names are on the list of fictitious or assumed business names in your county.

15. For corporations and LLCs: check the availability of your proposed names with the Secretary of State or other corporate filing office.

16. Do a federal or state trademark search of the proposed names still on your list. If a proposed name is being used as a trademark, eliminate it if your use of the name would confuse customers or if the name is already famous.

17. Choose between the proposed names that are still on your list.

Register Your Business Name

18. Register your business name with your county clerk as a fictitious or assumed business name, if necessary.

19. Register your business name as a federal or state trademark if you'll do business regionally or nationally and will use your business name to identify a product or service.

20. Register your business name as a domain name if you'll use the name as a Web address too.

Prepare Organizational Paperwork

21. Partnership:

• Partnership agreement
• Buyout agreement (also known as a buy-sell agreement)

22. LLC:

• Articles of organization
• Operating agreement
• Buyout agreement (also known as a buy-sell agreement)

23. C Corporations:

• Pre-incorporation agreement
• Articles of incorporation
• Corporate bylaws
• Buyout agreement (also known as a buy-sell agreement or stock agreement)

24. S Corporations:

• Articles of incorporation
• Corporate bylaws
• Buyout agreement (also known as a buy-sell agreement or stock agreement)
• File IRS Form 2553, Election by a Small Business Corporation

Find a Business Location

25. Identify the features and fixtures your business will need.

26. Determine how much rent you can afford.

27. Decide what neighborhood would be best for your business and find out what the average rents are in those neighborhoods.

28. Make sure any space you're considering is or can be properly zoned for your business. (If working from home, make sure your business activities won't violate any zoning restrictions on home offices.)

29. Before signing a commercial lease, examine it carefully and negotiate the best deal.

File for Licenses and Permits

30. Obtain a federal employment identification number by filing IRS Form SS-4 (unless you are a sole proprietorship or single-member limited liability company without employees).

31. Obtain a seller's permit from your state if you will sell retail goods.

32. Obtain state licenses, such as specialized vocation-related licenses or environmental permits, if necessary.

33. Obtain a local tax registration certificate, a.k.a. business license.

34. Obtain local permits, if required, such as a conditional use permit or zoning variance.

Obtain Insurance

35. Determine what business property requires coverage.

36. Contact an insurance agent or broker to answer questions and give you policy quotes.

37. Obtain liability insurance on vehicles used in your business, including personal cars of employees used for business.

38. Obtain liability insurance for your premises if customers or clients will be visiting.

39. Obtain product liability insurance if you will manufacture hazardous products.

40. If you will be working from your home, make sure your homeowner's insurance covers damage to or theft of your business assets as well as liability for business-related injuries.

41. Consider health & disability insurance for yourself and your employees.

Set Up Your Books

42. Decide whether to use the cash or accrual system of accounting.

43. Choose a fiscal year if your natural business cycle does not follow the calendar year (if your business qualifies).

44. Set up a recordkeeping system for all payments to and from your business.

45. Consider hiring a bookkeeper or accountant to help you get set up.

46. Purchase Quicken Home and Business (Intuit), QuickBooks (Intuit) or similar small business accounting software.

Set Up Tax Reporting

47. Familiarize yourself with the general tax scheme for your business structure. (See Tax Savvy for Small Business, by attorney Frederick Daily.)

48. Familiarize yourself with common business deductions and depreciation. (See Deduct It! Lower Your Small Business Taxes, by attorney Stephen Fishman.)

49. Obtain IRS Publications 334, Tax Guide for Small Business, and 583, Taxpayers Starting a Business.

50. Obtain the IRS's Tax Calendar for Small Businesses.

As you can see, starting a business involves making quite a few initial decisions and getting policies and paperwork in place. For more information about and help with starting a business, consult the following Nolo resources: Legal Guide for Starting and Running a Small Business, by attorney Fred Steingold; Wow! I’m in Business, by attorneys Richard Stim and Lisa Guerin; or Quicken Legal Business Pro (software).

Choosing the Best Ownership Structure for Your Business

 

The right structure -- corporation, LLC, partnership, or sole proprietorship -- depends on who will own your business and what its activities will be.

When you start a business, you must decide whether it will be a sole proprietorship, partnership, corporation, or limited liability company (LLC).

Which of these forms is right for your business depends on the type of business you run, how many owners it has, and its financial situation. No one choice suits every business: Business owners have to pick the structure that best meets their needs. This article introduces several of the most important factors to consider, including:

• the potential risks and liabilities of your business
• the formalities and expenses involved in establishing and maintaining the various business structures
• your income tax situation, and
• your investment needs.

Risks and Liabilities

In large part, the best ownership structure for your business depends on the type of services or products it will provide. If your business will engage in risky activities -- for example, trading stocks or repairing roofs -- you'll almost surely want to form a business entity that provides personal liability protection ("limited liability"), which shields your personal assets from business debts and claims. Acorporation or a limited liability company (LLC) is probably the best choice for you.

Formalities and Expenses

Sole proprietorships and partnerships are easy to set up -- you don't have to file any special forms or pay any fees to start your business. Plus, you don't have to follow any special operating rules.

LLCs and corporations, on the other hand, are almost always more expensive to create and more difficult to maintain. To form an LLC or corporation, you must file a document with the state and pay a fee, which ranges from about $40 to $800, depending on the state where you form your business. In addition, owners of corporations and LLCs must elect officers (usually, a president, vice president, and secretary) to run the company. They also have to keep records of important business decisions and follow other formalities.

If you're starting your business on a shoestring, it might make the sense to form the simplest type of business -- a sole proprietorship (for one-owner businesses) or a partnership (for businesses with more than one owner). Unless yours will be a particularly risky business, the limited personal liability provided by an LLC or a corporation may not be worth the cost and paperwork required to create and run one.

Income Taxes

Owners of sole proprietorships, partnerships, and LLCs all pay taxes on business profits in the same way. These three business types are "pass-through" tax entities, which means that all of the profits and losses pass through the business to the owners, who report their share of the profits (or deduct their share of the losses) on their personal income tax returns. Therefore, sole proprietors, partners, and LLC owners can count on about the same amount of tax complexity, paperwork, and costs.

Owners of these unincorporated businesses must pay income taxes on all net profits of the business, regardless of how much they actually take out of the business each year. Even if all of the profits are kept in the business checking account to meet upcoming business expenses, the owners must report their share of these profits as income on their tax returns.

In contrast, the owners of a corporation do not report their shares of corporate profits on their personal tax returns. The owners pay taxes only on profits they actually receive in the form of salaries, bonuses, and dividends.

The corporation itself pays taxes, at special corporate tax rates, on any profits that are left in the company from year to year (called "retained earnings"). Corporations also have to pay profits on dividends paid out to shareholders, but this rarely affects small corporations, which seldom pay dividends. 

This separate level of taxation adds a layer of complexity to filing and paying taxes, but it can be a benefit to some businesses. Owners of a corporation don't have to pay personal income taxes on profits they don't receive. And, because corporations enjoy a lower tax rate than most individuals for the first $50,000 to $75,000 of corporate income, a corporation and its owners may actual have a lower combined tax bill than the owners of an unincorporated business that earns the same amount of profit.

Investment Needs

Unlike other business forms, the corporate structure allows a business to sell ownership shares in the company through its stock offerings. This makes it easier to attract investment capital and to hire and retain key employees by issuing employee stock options.

But for businesses that don't need to issue stock options and will never "go public," forming a corporation probably isn't worth the added expense. If it's limited liability that you want, an LLC provides the same protection as a corporation, but the simplicity and flexibility of LLCs offer a clear advantage over corporations. For more help on choosing between a corporation and an LLC, read the articleCorporations vs. LLCs.

Next Steps Nolo's book LLC or Corporation? How to Choose the Right Form for Your Business, by attorney Anthony Mancuso, provides lots of real-world scenarios that demonstrate how these options work for different types of companies.  After learning the basics of each business structure and considering the factors discussed above, you may still find that you need help deciding which structure is best for your business. A good small business or tax lawyer can help you choose the right one, given your tax picture and the possible risks of your particular situation.

Changing Your Mind

Your initial choice of a business structure isn't set in stone. You can start out as sole proprietorship or partnership and later, if your business grows or the risk of personal liability increases, you can convert your business to an LLC or a corporation.

OTHER USEFUL ARTICLES:

 Top Tax Deductions For Your Small Business

The LLC Operating Agreement

 Buy-Sell Agreement FAQ

Limited Liability Company (LLC) FAQ