5 Steps To Starting A Small Business
Every small business starts with a dream, but making an actual plan from that dream can be intimidating. We have good news- it’s easier than you think! Break down the big goal into actionable steps, and you’ll be a business owner in no time. Here are five simple ways to turn your dream into reality.
1. Research and Create A Plan
You already have an idea for a business, and that’s great! Now you need to do some thinking to ensure that your idea has the potential to turn into a successful business. Ask yourself the following questions, and put your answers in writing:
- What problem is your business designed to solve?
- Is there a need for your product or service in your area? Who needs it?
- Does anyone else already provide this service or product?
You also need to create a business plan- essentially, a blueprint for your small business. It will take you through every phase of your business’s life, from start-up through expansion. There are many resources to help you write your business plan- you can find some online, and attorneys and financial planners can also guide you through this process.
2. Plan Your Finances
A small business costs money before it makes money, and having a detailed plan for your business’s finances is crucial. First, create a spreadsheet detailing the anticipated start-up costs (legal fees, licenses, trademarks, market research, leases, etc.). This should also include what you anticipate your business will need financially for the first 12 months. If you need assistance funding your small business, research your options! These can include small business loans, small business grants, and even crowdfunding. Talking with a financial planner with experience in small business growth will also be helpful at this stage.
3. Choose A Business Structure/Legal Entity
Take a look at the chart below, which outlines the differences between the common business structures. Also, we’ve created separate articles discussing these entities in more detail.
|Sole proprietorship||One person||Unlimited personal liability||Personal tax only|
|Partnerships||Two or more people||Unlimited personal liability unless structured as a limited partnership||Self-employment tax (except for limited partners)
|Limited liability company (LLC)||One or more people||Owners are not personally liable||Self-employment tax
Personal tax or corporate tax
|Corporation – C corp||One or more people||Owners are not personally liable||Corporate tax|
|Corporation – S corp||One or more people, but no more than 100, and all must be U.S. citizens||Owners are not personally liable||Personal tax|
|Corporation – B corp||One or more people||Owners are not personally liable||Corporate tax|
|Corporation – Nonprofit||One or more people||Owners are not personally liable||Tax-exempt, but corporate profits can’t be distributed|
4. Pick and Register Your Business Name
Naming your business is one of the most important decisions you’ll make. It’s the first impression your potential customers will get, and you want to make it positive. Once you’ve decided on a business name, check to see if it’s already trademarked (more info on searching trademarks here). Next, you’ll need to officially register the name with the Secretary of State. Many sole proprietors choose to conduct business under their legal name without registering a business name; however, doing so prevents you from accessing liability protection and tax exemptions. Corporations, LLCs, and Limited Partnerships typically register their names when filing the initial formation paperwork. You’ll also need a registered agent, a person or business that officially receives and files documents for the business. Many business owners prefer to hire a professional registered agent service for that purpose.
5. File Necessary Documents
Finally, you will have to file a few documents with the proper state agencies (the exact ones depend on the type of entity you are forming; see the table below). You will need to file with the IRS for a federal tax ID (Employer Identification Number, or “EIN”). If you are forming a Corporation, LLC, or Limited Partnership, you can often file through your state’s Secretary of State website.
Below is a general overview of the documents you will need to file. These vary based on the state and business structure.
|LLC||Articles of organization||Articles of organization describe the basics of your LLC. It includes information like the company name, address, member names, and the registered agent.|
|LLC||LLC operating agreement||An operating agreement describes the structure of your company’s financial and functional decisions. It defines how key business decisions are made, as well as each member’s duties, powers, and responsibilities. It’s widely recommended to create one to protect yourself and your business, even if your state doesn’t mandate it.|
|Limited partnership||Certificate of limited partnership||This simple document describes the basics of your limited partnership. It notifies the state of the partnership’s existence and contains basic business information like the company name, address, and partner names. Not all states require it, and some states call it by a different name.|
|Limited partnership||Limited partnership agreement||A limited partnership agreement is an internally binding document between all partners that defines how business decisions get made, each partner’s duties, powers, and responsibilities. It’s widely recommended to create one to protect yourself and your business, even if your state doesn’t mandate it.|
|Limited liability partnership||Certificate of limited liability partnership||This simple document describes the basics of your limited liability partnership. It notifies the state of the partnership’s existence and contains basic business information like the company name, address, and partner names. Not all states require it, and some states call it by a different name.|
|Limited liability partnership||Limited liability partnership agreement||A limited liability partnership agreement is an internally binding document between all partners that defines how business decisions get made, each partner’s duties, powers, and responsibilities. It’s widely recommended to create one to protect yourself and your business, even if your state doesn’t mandate it.|
|Corporation (any kind)||Articles of incorporation||The articles of incorporation – or certificate of incorporation – is a comprehensive legal document laying out the basic outline of your business. It’s required by every state when you incorporate. The most common information included is the company name, business purpose, the number and value of shares offered, directors, and officers.|
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