Are you thinking of starting a business? The freedom that comes with being your own boss is exciting. But, before you launch your great idea, you need to get some important factors in order. To learn how to start a business, follow our seven-step business startup checklist.
How to start a business
When you open a business, you have a lot of different tasks to take care of. To keep organized, begin with the seven steps in our small business startup checklist.
#1: Plan ahead
Much of your business’s success will depend on how well you plan your operations. Finding answers to your startup questions and applying them to your business strategy is crucial. One way you can map out your first steps as an entrepreneur is to create a small business plan.
A business plan can be a broad outline or formal document. Usually, the plan contains a description of the business, its purpose, and sales items. Also, learn how to do a market analysis and include information about your industry and target customers. Include any funding requests you have made and financial projections, as well.
Though it’s not required, a business plan can help you launch a startup in several ways. Banks, lenders, and investors want to see a plan before giving you funds. You also get a grasp on the market you will be up against. And, you can hone in on your small business growth strategies.
#2: Organize financing
Small business loan
A small business loan can cover some initial costs of starting a business. Banks offer small business loans, but they can be difficult to secure for new business owners. Another source for a small business loan is the Small Business Administration’s loan program. These loans offer bank funding that is backed by the SBA. With the SBA’s guarantee, loans are easier to secure. Carefully examine what you need for a business loan and follow these small business loan tips.
Business credit card
You can also finance your business by opening a business credit card account. Though you shouldn’t depend on credit cards, they can help you make immediate payments. Pay off the credit to avoid damaging your credit score and incurring high interest fees.
#3: Choose a business structure
When forming your company, you must choose a legal business structure. The different types of business structures will affect your tax liabilities, personal protection, and income reporting. Knowing how to start your own business will largely depend on the type of entity you decide to form. The following is an overview of common business structures:
The pros of sole proprietorship include the ease of setup and the relatively small number of government regulations compared to other structures. You are considered the same legal entity as the business. If the business can’t cover debts, you are responsible, and your personal property could be at risk.
Partnerships are owned by two or more people. When you form a partnership, the owners are the same legal entity as the business. Your personal assets could be used to pay business debts if the business can’t pay. Partnerships use a pass-through tax. Taxes skip the business and are passed onto the owners, so income is only taxed once.
A corporation is a separate entity from its owners, offering limited liability of business debts. Incorporating a business is the most expensive and complex structure to operate as. Income is double-taxed: once at the business level and again on the owners’ compensation.
Limited liability companies (LLCs)
An LLC combines aspects of corporations and partnerships. Like a corporation, an LLC has limited liability so the owner’s property is protected. And like a partnership, an LLC uses a pass-through tax, so income is only taxed once.
#4: Register your business name
Your business name is the first impression potential customers will get of your company. You need to choose a name that is unique to your business and register it.
The state you operate in and your business structure determine how you register the name. For example, corporations usually register names when they file documents to form the business.
In some situations, you need to file for a small business DBA. A DBA is a name that is different than the legal name of your company. For example, the legal name of a sole proprietorship or partnership is the name or names of its owner(s). To operate under a name that is different than your own, you need to register a DBA name.
#5: Set up tax accounts
You need to pay taxes on your business’s income. And, you must report its profits and losses to the government.
When starting a business, you need a federal tax ID number. You will use the ID number to file taxes, open business bank accounts, and secure business permits. If you are a sole proprietor, use your Social Security number for business taxes.
- You have employees
- Your business is a corporation, partnership, or LLC
- You file tax returns for employment, excise, or alcohol, tobacco, and firearms
Usually, states also require you to register for a business tax ID number. The state tax ID number is often used for reseller permits and sales tax registration. Check with your state to see if you need a state tax ID number.
#6: Get business licenses and permits
Almost every business needs some kind of license or permit to operate. Your requirements vary by state and industry. The SBA provides a list of state licensing regulations.
Most small businesses need to register for a basic business license in their city. You may also need zoning and land use permits, especially if your business is involved in manufacturing or is home-based.
If you sell items that have a sales tax, you must get a sales tax license to collect and remit sales tax. If the products you sell include liquor, lottery tickets, gasoline, or firearms, you need additional licenses.
There are many other types of business licenses and permits. Check with your state and industry standards.
#7: Select an accounting system
As your new business begins making transactions, you need a way to track incoming and outgoing money. You must keep records of your business transactions and report them to the government.
There are several solutions when it comes to accounting for small business. You can hire a bookkeeper, do accounting by hand, or use accounting software.
Hiring an in-house bookkeeper or outsourcing an accountant is the most expensive accounting solution. You will either compensate the employee and pay employer taxes or pay accountant fees.
Though passing your books onto someone else is pricey, you don’t have to handle your accounting. You save the most time by hiring an accountant.
Doing your accounting by hand is the least expensive method of accounting. But, you will spend a lot of work hours doing bookkeeping tasks. You can record transactions in a spreadsheet.
You will have to calculate figures and balance accounts, so your books are more prone to mistakes. Reporting errors on a tax return could mean IRS penalties and fines. It can be hard 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 will automatically generate accurate totals for you. Often, customer service representatives are available to answer your questions.
Accounting software can save you time and money as you launch 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 functionality, features, and accounting software costs.
Don’t start making business transactions without an accounting system. Patriot’s online accounting software is a simple solution to your bookkeeping tasks. We offer free, U.S.-based support. Try it for free today.