How To Start A New Business – Have you caught the entrepreneurial bug? Congratulations, this is probably an exciting time for you. You have ideas, plans and goals to accomplish. But, starting a business can also be a bit overwhelming if you don’t have prior knowledge of what you legally need. Check out this checklist for starting a business to plan everything you need to know before you open your doors.
Do you have your million dollar business idea? Excellent! Now, it’s time to take care of the necessary tasks to open your business to the public. These are the seven steps in our startup checklist.
How To Start A New Business
Before you start, you need to plan ahead. Write down each and every question you have. These questions can be about:
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…And more! It’s crucial to find the answers to all of your questions so you can write a small business plan. Without a plan, you can make decisions that won’t benefit your business in the long run.
A business plan can be a general description of the objectives to be achieved or a formal document. Your business plan usually includes information about your business, its purpose, and what you plan to sell. When you create your plan, learn how to do a market analysis. The market analysis should include information about your industry and target market.
Do you plan to make funding requests? Have you already applied for financing from friends, family, financial institutions or other sources? Add that information to your business plan as well. In the same section, include financial projections to get an idea of how you plan to proceed.
An added benefit of formalizing a business plan comes down to money. Lenders, banks, and investors want to see your plan before they finance your business. This can help you launch a startup faster and easier (which we’ll cover later).
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The data you collect for your business plan also gives you a clear picture of your competition and the market. You can use it to hone small business growth strategies that target your ideal customers in a competitive market.
Your legal business structure determines how you pay business taxes, personal protection, and income reporting. The business structure you choose is one of the most important decisions you will make. Once you have your plan, the structure tells you how to start building your business. Take a look at some of the most common business structures.
Sole proprietorships are one of the easiest business structures to form. There are quite a few advantages to sole proprietorship, including fewer government regulations.
But, there are some risks. In this structure, the owner is the same legal entity as the business. So if a company cannot cover its debts, the owner is responsible for them. As such, the owner’s personal property is at risk.
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If you and at least one other person are considering starting a business, you may choose to form a partnership. Two or more individuals can own a partnership. When you create a partnership, the owners are the same legal entity as the company. So personal assets can pay off business debts if the business is unable to pay them.
Partnerships also experience pass-through taxes. The company does not pay taxes. Instead, the taxes pass through the business to the owners, so the income is only taxed once.
A corporation is a separate legal entity from its owners. Because the business is separate from the owners, the owners experience limited liability for business debts.
Incorporating a business is the most expensive and complex structure to operate. And corporations pay double tax. Both the business and the owner pay taxes on the income the business receives.
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An LLC combines aspects of corporations and partnerships. Like a corporation, an LLC has limited liability, so the owner’s property is protected. And just like a partnership, an LLC uses a transfer tax, so income is only taxed once.
Just because you have a million dollar idea doesn’t mean you have $1 million to fund it. That’s why financing is next on the checklist for starting a business.
Many companies are self-financing, but that is not always possible for all new entrepreneurs. If that’s not possible, you have several ways to finance a small business.
Small business loans can help cover some of the costs of starting a new business. Many banks offer small business loans. However, bank loans may be more difficult to obtain if the business is new.
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The Small Business Administration (SBA) also offers small business loans. The SBA Loan Program offers SBA-backed bank financing. With the SBA guarantee, it may be easier for new businesses to obtain bank loans.
When applying for loans, review what you need for a business loan and follow the tips for small business loans.
Remember, many lenders require a business plan on loan applications. So make a plan before applying for loans.
A business credit card is another common option for financing a business. However, business credit cards can incur high interest rates. So don’t rely on credit cards to finance your entire business. And pay off credit to avoid hurting your credit score.
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The business name you choose is the first impression potential customers get of your business. Be careful to select a unique name and check your state’s website for availability. If available, register the business name. If it’s not available, go back to the drawing board.
The state in which you operate and the structure of your business determine how you register the name. For example, corporations generally register names when they file documents to form the business.
You can choose to apply for a small business DBA. A DBA is a business name that differs from the legal name of your business. For example, the legal name of a sole proprietorship is the name of the owner of the business. To operate under a different name, the sole proprietor must register a DBA name.
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Taxes are part of business ownership. Federal and state laws require you to pay taxes on your business income. And you must report profits and losses to the government.
The first tax account you need to create is the federal tax identification number. Use this tax ID to file taxes, open business bank accounts, and obtain business licenses or permits. If you are a sole proprietor, use your Social Security number for business taxes.
You may need to apply for a separate federal identification number known as an EIN. An EIN is the employer identification number and you can apply for an EIN through the IRS. Common reasons you may need an EIN include:
Your state may also require you to register for a business tax identification number. The state tax identification number is often used for reseller permits and sales tax registration. Check with your state to see if you need a state tax identification number.
Start A New Business
Almost all businesses need some type of license or permit to operate. Their requirements vary by state and industry. The SBA provides a list of state licensing regulations.
Most small businesses must register for a basic business license in their city. You may also need zoning and land use permits, especially if your business is home-based or involved in manufacturing.
If you sell items that have a sales tax, you must obtain a sales tax license to collect and remit the sales tax. If the products you sell include liquor, lottery tickets, gasoline, or firearms, you need additional licenses.
When you own a business, you can’t just track income and expenses haphazardly. You need a reliable way to track all your incoming and outgoing money. Why? Because you must keep records of your business transactions and report them to the government.
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There are several solutions when it comes to accounting for small businesses. You can hire a bookkeeper, do the accounting by hand, or use accounting software.
Hiring an in-house bookkeeper or often outsourcing to an accountant is the most expensive accounting solution. You compensate the employee and pay the employer’s taxes or pay the accountant’s ongoing fees.
Although passing your books on to someone else is expensive, you don’t have to handle your bookkeeping. You save the most time by hiring an accountant.
Hand bookkeeping is the least expensive accounting method. But, you will spend many working hours doing accounting tasks. You can record transactions in a spreadsheet.
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You’ll have to calculate figures and balance accounts, so your books are more prone to errors. Reporting errors on a tax return could mean penalties and fines from the IRS. It can be difficult to learn bookkeeping and accounting while learning how to start a small business at the same time.
Using accounting software is a cost-effective way to manage your accounting. You can find an affordable software program that allows you to enter transactions. The software automatically generates accurate totals for you. Customer service representatives are often available to answer questions related to the software.
Accounting software can save you time and money when launching your new business. But, there are many different types of programs available. Learn how to choose the right accounting software for your business by comparing accounting software functionality, features, and costs.
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