Caught the entrepreneurship bug? Congratulations—it’s likely an exciting time for you! You have ideas, plans, and goals to accomplish. But, starting a business can also be a little overwhelming if you don’t have existing knowledge of what you need legally. Check out this starting a business checklist to plan out everything you need to know before opening your doors.
7 Tips for starting a business checklist
Got your million-dollar business idea? Great! Now, it’s time to take care of the necessary tasks to open your business to the public. Here are the seven steps in our startup checklist.
1. Make a plan
Before you begin, you need to plan ahead. Write down any and all questions you have. These questions can be about:
…And more! It’s crucial to find the answers to all of your questions so you can draft a small business plan. Without a plan, you may make decisions that don’t benefit your business in the long run.
A business plan can either be a broad outline of goals to accomplish or a formal document. Typically, your business plan 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 requested funding from friends, relatives, financial institutions, or other sources? Add that information to your business plan, too. In the same section, include financial projections to have an idea of how you plan to proceed.
An added benefit of formalizing a business plan boils down to money. Lenders, banks, and investors want to see your plan before funding your business. This can help you launch a startup more quickly and easily (which we’ll get to later).
The data you gather for your business plan also gives you a clear picture of your competition and the market. You can use it to hone in on small business growth strategies that target your ideal customers in a competitive market.
2. Pick a business structure
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’ll make. Once you have your plan, the structure tells you how to start forming 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 pros of sole proprietorship ownership, 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 can’t cover its debts, the owner is responsible for them. As such, the owner’s personal property is at risk.
If you and at least one other person are considering opening 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 business. So, personal assets can pay business debts if the company can’t pay them.
Partnerships also experience pass-through taxation. The business does not pay the taxes. Instead, the taxes pass through the business to the owners, so 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 are double-taxed. Both the business and the owner pay taxes on the income the business receives.
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.
3. Determine how you’ll finance your business
Just because you have a million-dollar idea doesn’t mean you have $1 million to finance it. That’s why funding is next on the checklist for starting a business.
Many businesses are self-funded, but that’s not always possible for every new entrepreneur. If it isn’t possible, you have several ways to finance a small business.
Small business loans
Loans for small businesses can help cover some of the costs of starting a new business. Many banks offer small business loans. But, bank loans can be more difficult to secure if the company is new.
The Small Business Administration (SBA) also offers loans to small businesses. The SBA’s loan program offers bank funding backed by the SBA. With the SBA’s guarantee, it can be easier for new companies to secure bank loans.
When applying for loans, examine what you need for a business loan and follow small business loan tips.
Remember, many lenders require a business plan in loan applications. So, draft a plan before applying for loans.
Business credit cards
A business credit card is another common option for financing a company. But, business credit cards can incur high interest fees. So, don’t depend on credit cards to fund the entire business. And, pay off the credit to avoid damaging your credit score.
4. Register your business name
The business name you choose is the first impression potential customers get of your company. Take care selecting a unique name, and check your state’s website to ensure its availability. If it’s available, register the business name. If it’s not available, head back to the drawing board.
The state you operate in and your business structure determine how you register the name. For example, corporations usually register names when filing documents to form the business.
You may choose to file for a small business DBA. A DBA is a doing business as name that differs from your company’s legal name. For example, the legal name of a sole proprietorship is the business owner’s name. To operate under a different name, the sole proprietor must register a DBA name.
5. Set up tax accounts
Taxes are part of business ownership. Federal and state laws require you to pay taxes on your business’s income. And, you must report profits and losses to the government.
The first tax account you should create is the federal tax ID number. Use this tax ID to file taxes, open business bank accounts, and secure business licenses or permits. If you’re a sole proprietor, use your Social Security number for business taxes.
You may need to file for a separate federal ID 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:
- Hiring employees
- Structuring as a corporation, partnership, or LLC
- Filing tax returns for employment; excise; or alcohol, tobacco, and firearms
Your state may 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. Register for 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 home-based or involved in manufacturing.
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. Choose an accounting system
When you own a business, you can’t just track income and expenses all willy-nilly. You need a reliable way to track all incoming and outgoing money. Why? Because 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 frequently outsourcing an accountant is the most expensive accounting solution. You either compensate the employee and pay employer taxes or pay ongoing accountant fees.
Though passing your books onto someone else is pricy, 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’ll spend a lot of work hours doing bookkeeping tasks. You can record transactions in a spreadsheet.
You’ll 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 automatically generates accurate totals for you. Often, customer service representatives are available to answer software-related 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.
This article has been updated from its original publication date of March 2, 2017.This is not intended as legal advice; for more information, please click here.