If you have a great idea for a business and you’re not sure where to start, you’re not alone. Coming up with an idea for a business is often the easy part. The forms, paperwork, and legalities involved can be pretty overwhelming. If you’re not sure where to begin, here are some of the fundamentals to consider when starting a business.
Steps to Starting a Business
If you’re wondering how to start a business, here are some of the basic steps you should take.
Market Research
Market research is the first thing you should do when starting a business. Gather information about the type of business you’re thinking about starting. Who are your potential customers? What is your biggest competition? How much startup funding do you need?
Create a Business Plan
Use the information gathered in your market research to put together a business plan. This is the foundation of your business, the road map you’ll use to get from the very beginning to where you want to go. It’s also important for getting people to invest in your business and convincing them to work with you.
Secure Funding and Find a Location
Next, you need to get funding. If you can’t fund yourself, there are a lot of ways to go about this. You can get a business loan or raise the money through fundraisers or crowdfunding websites.
After you cross funding off your starting a business checklist, you can move onto looking for a location for your business. Whether you’re looking for office space, a brick and mortar store, or you’re starting a business where all sales are done online, keep in mind that the choices you make affect not only your taxes but also expenses, revenue, and legal requirements.
Choose a Type of Ownership
There are several types of business ownership to consider, too. Here’s a quick overview of several different types of business entities.
- Sole Proprietorship. This gives you complete control over your business and usually does not separate your own assets from those of the business. If you don’t register as any other type of business, you’re automatically considered a sole proprietor. They’re low-risk and a good way to get a business off the ground.
- Partnership. This the easiest option for two or more people working together. There are two different types of partnerships, limited partnerships (LP) and Limited Liability Partnerships (LLP). Limited partnerships place unlimited liability on one partner who has control of most of the business while the other partners have limited liability and less control. The main partner usually acts almost as a sole proprietor, passing profits through personal tax returns and paying self-employment taxes. LLPs are similar only every partner has limited liability.
- Limited Liability Company (LLC). This is a bit of a mix between a partnership and a corporation. They protect against personal liability in most cases meaning personal assets are safe if the company goes under. Profits and losses can go through personal income tax without being subject to corporate tax rates, but members of an LLC must pay self-employment taxes.
- Corporation. There are a few different types of corporations. C corporations and S corporations are the most common.
C corporations are for a legal entity, separate from the owners of the business. They’re one of the best ways to protect owners against personal liability but there are a lot of costs, record keeping, and reporting involved. C corps pay taxes on profits and again when earnings are distributed to shareholders. Shareholders are seen as separate from the operation of the business.
Another option is an S corporation that’s specifically formed to avoid the double taxation on profits and shareholder earnings. Profits and some losses go through the owner’s personal income tax and aren’t subject to corporate taxes. S corps get their status through a filing with the IRS and some states treat them the same as C corps. There are limits, too. S corps can only have 100 shareholders, and they must be US citizens.
- Non-profit Corporation. These businesses are formed to do work that benefits the public in areas like the arts, education, science, religion, and charity. Most receiver tax-exempt status and don’t pay taxes on any profit they make. It’s necessary to file with the IRS to get tax exemption, and organizational rules must be followed. Notably, there are specific rules about what they can do with their profits.
Choose a Name and Register Your Business
If you’re wondering how to register a business name, the process isn’t very complicated. It’s really just a matter of filling out the right forms. If you’re planning to operate as a sole proprietor or do business as yourself, you may not need to register at all.
In most cases, your business will need to be registered with local, state, and federal agencies. Most times, it’s as easy as getting a state ID number or a federal tax ID, but every state and locality is different. If you want to register a business in Texas, there are different requirements than if you’re trying to work out how to register a business name in Alaska. Make sure you also look into what licenses and permits you need.
If you want to trademark your brand, business, or product, additional paperwork from the federal Patent and Trademark Office is required. Also, if you’re starting a non-profit, you will need to file with the IRS to get tax-exempt status.
Business Insurance
You should also consider whether or not you need business insurance. There are several different types to choose from, but when you’re first starting, you should consider business liability insurance. This protects you in case of a lawsuit or a claim about injury or property damage. Business interruption insurance is something to consider, too, especially if you live in an area prone to natural disasters. It covers loss of income after a disaster and can help with rebuilding.