Starting your own business is an exciting life decision, but it isn’t one that is made overnight. Before you decide to open a business, you must be ready for a few bumps in the road along the way.
Learn how to create and stick to a budget, make a business plan and apply for all necessary licenses before ever opening your doors with the information in this guide.
Now that you’ve decided to start a business, the question remains: which type of business will you run? The answer depends on a few factors, including the industry in which you plan to enter, number of employees who will work for you and whether you will use outside investors. Review the following list of common business structures to find the best one for you.
An LLC is a type of private company that protects personal assets. As the owner of an LLC, you would not be personally responsible for business debts and liabilities. Creditors, investors and other individuals cannot pursue your personal assets (house, car, etc.) to cover business debts. LLCs are governed by the state in which it operates.
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A sole proprietorship is typically run by one business owner. As a sole proprietor, your business is not considered separate from you. Therefore, you are required to include the profits and losses on your personal tax returns and you are personally responsible for paying any business debts owed. Unlike an LLC, you don’t need to register with the state as a sole proprietor.
Like an LLC, a corporation is a separate legal entity from its owner(s). Typically, corporations have multiple owners or shareholders. The biggest difference between an LLC and a corporation is the way the businesses are taxed. Often, it benefits a single business owner to start an LLC and a group of owners to start a corporation.
When two or more owners enter a business agreement it is considered a partnership. Partnerships are ideal for sharing the risk, but don’t always necessarily entail responsibility. In some cases, one partner merely holds a majority share, but is not in charge of everyday operations or decisions. Special partnerships that encompass aspects of the LLC are another route to take.
One of the most important success factors in starting a business is creating and sticking to a budget. Here are a few tips to use to create a reasonable budget for the startup of your own business.
The best way to estimate your startup expenses is to consider the needs of your business and do some research. This includes finding a few possibilities for your business’s location, determining the cost of traveling to and from these locations and the property taxes you will pay each year. Capital expenditures are one-time expenses for things like property, inventory and vehicles, so take this into account as well.
How will you pay for the expenses outlined in the previous section? You may have some money set aside for your startup, but starting a business comes with its costs. Determine how much money you can put forth out of pocket. Be realistic – you don’t want to bankrupt your savings in the process!
Many business owners turn to banks or private companies for a business loan. The specific amount of this loan varies by business, but the idea is to use the money for startup expenses. These include rent, utilities, payroll, registration costs and any other expenses included in the startup phase.
All good businesses start with a plan. What is the goal of your company? What do you hope to provide to your customers, clients or community? Read the following suggestions for implementing a business plan during your startup phase.
Every business has a purpose. Whether you’re selling goods, providing a service or assisting with a task, determine your business’s purpose. This helps clearly define the next steps in your startup plan. For example, if you are opening a bakery, you’re going to need a marketing plan specific to the food industry. However, if your business is in the technology industry, your next steps may be creating an innovative website.
Find all possible competitors in your field and study them. Look at their websites, social media pages and flyers to find the ways they are reaching their customers. Use this to help boost your own business by offering something the competitor does not. Also, consider the possible location of your business. Is the area already saturated with businesses like yours? If so, consider another location where you can be the sole service provider in your industry.
Owning a successful business depends on your marketing strategies. Your customers need to know you exist. A strategic marketing plan includes paid advertising, social media campaigns and a solid website. Without all these factors, your business cannot grow. If you’re unsure of how to create your own plan, consider using a professional marketing agency. It’s one of the best investments a business owner can make.
These are a few tasks that must be completed before you can officially open your doors to the public:
You must register your business name with your state. Register for an LLC or file a “Doing Business As,” (DBA), in most states. A DBA is different from an LLC and is ideal for sole proprietors, as it separates your name from your business name. A registration fee applies, though the amount depends on your state or application.
You may need to apply for a tax identification number, also known as an employee identification number (EIN) or taxpayer ID. Sole proprietors and LLCs with zero employees do not need a tax ID. Most owners of corporations and partnerships need to file for a taxpayer ID with the IRS.
Most business owners need a license to operate. These help the IRS track revenue and protect the public from dangerous practices. Each state regulates the license and permit process. To find which license or permit your business needs, contact your state’s business bureau.
Use the business’s EIN to open a separate bank account. This protects you from legal trouble. You cannot mix your personal assets with business profits. A business bank account is used solely for your company’s expenses.
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