- You have a great idea for a business — now you just need to launch it.
- Business Insider spoke with four business owners and experts to learn the best steps to take to build your company from the ground up.
- These include figuring out how to structure your business — whether it’s a partnership or LLC, for example — as well as registering your business’ name and obtaining an employer identification number.
- Next, you should open up a bank account specifically for your business and implement a cloud-based bookkeeping system.
- Click here for more BI Prime stories.
You’ve come up with a brilliant idea for a product or service. You’ve done your research and identified your audience as well as your competition. Perhaps you’ve created a business plan, which is a smart move if you’re hoping to secure financial backing.
If you’re ready to take the leap and launch your business, you may be wondering where to begin. We asked four entrepreneurial experts to share the first five steps necessary to start a business, any business, from freelancing and photography to tax preparation and interior design. Here’s their advice.
1. Consult with a professional about how to structure your business
You can choose to operate your business as a:
- Sole proprietor: The simplest of business structures, this unincorporated entity is owned solely by one individual, who retains the profits but also has unlimited liability for the debts and obligations of the business. It’s easy to set up and just as easy to dissolve.
- Partnership: This common form of business is established when partners agree to set up and run a business together. In doing so, partners share in the assets and profits, as well as the financial and legal liabilities of this entity, and are subject to unlimited liability.
- Limited liability company (LLC): As its name implies, this entity limits the personal responsibility of owners. But some states require that the LLC dissolves after a set number of years or if a member dies or quits.
- Corporation: This structure is more complicated and, thus, expensive to establish. Owners are protected from liability but they’re often less autonomous because they may report to shareholders.
There’s no one-size-fits-all answer, and you may even decide to change from one form to another as your business evolves over time. The structure you select, however, will impact your personal liability as well how much you pay in taxes.
For these reasons, it’s fiscally prudent to get personalized advice from a qualified business attorney or certified public accountant (CPA), who can help you determine which is your best option. According to the online marketplace for legal services Upcounsel, the cost of hiring a small business lawyer can range from $150 per hour for a junior associate to $1,000 per hour to retain the services of a senior partner at a prestigious firm. Depending on an accountant’s level of experience and location, expect to pay between $150 and $400 per hour.
“Believe it or not, not every small business needs to set up a business entity such as an LLC or a corporation, especially when they’re just starting out,” said Logan Allec, CPA and owner of personal finance site Money Done Right, which has over 30,000 email subscribers and garners more than 100,000 visitors per month.
In some cases, he noted, jumping the gun on forming a business entity could eat into your profits.
“Forming an LLC in California, for example, will cost you a franchise tax payment of $800 per year, whether or not you need or even use the LLC,” Allec explained. “That being said, given your industry and personal wealth situation, it may very well be advisable to set up a business entity for your business right from the get-go for asset and legal protection purposes.”
By forming an LLC, owners limit their personal liability. In the event that a lawsuit is brought against the business, only its assets can be claimed by creditors — the owners’ personal assets can’t be touched.
To find trusted professionals who can offer their insight for the best business structure, Allec suggested visiting local entrepreneur groups and getting word-of-mouth recommendations from those who’ve had positive experiences.
Allec shared that based on his expertise as a CPA, he chose to form an LLC.
“For me, the choice was between forming an LLC or a corporation,” he said. “In my state, the LLC is less expensive to set up and easier to maintain than a corporation, so I opted to form an LLC.”
2. Choose a business name and register it
Deciding what to name your business seems like it should be one of the easier and more fun aspects of starting your endeavor. But if you’re struggling to come up with a name that either conveys what your business is all about or makes a positive first impression, you may want to consult with a branding expert or visit a site like Squad Help, which harnesses the brainpower of over 100,000 talented professionals to help create your entire brand.
If you have your heart set on a name for your business, first you’ll need to make sure it isn’t already in use or trademarked. You can check this for free at LegalZoom.com. If it’s available, you’ll need to register it, as this makes your business a distinct legal entity. How and where you need to register depends on your business structure and location.
Simply by creating an LLC or corporation, you’ve registered your business name, as filing articles of organization (for an LLC) or articles of incorporation (for a corporation) registers the name with your state.
But if you’re starting a sole proprietorship or partnership, you’ll want to conduct a Doing Business As (DBA) search with your local county clerk’s office to make sure the name you want is available, said Kyle Odom, owner of Bar Cop, a software company that helps restaurant and bar owners track inventory and whose customer count has grown approximately 20% year over year since it was founded in 1998, to include roughly 32,000 individual establishments worldwide.
“You will need a DBA to open a bank account in your business name,” he explained.
You can file DBA online, and pricing starts at a flat fee of $99, plus state filing fees. The application will ask you what you’d like to call your business, if you’re registering it for the first time, and in which state you want to do business.
If you’re using your own legal name as your business’ name, you don’t need to register it. Once your business name is good to go, experts recommend registering your domain name (also known as your website URL) so customers can easily find you on the internet — and so that it doesn’t get scooped up by the next small business that launches with a similar name. You can do this by visiting a domain name registrar, such as GoDaddy or Namecheap.
The cost of a domain name varies depending on several factors:
- the domain extension, for example “.com” vs “.shop”;
- the length of time you select to retain the name; and
- where you purchase it. For instance, it’s cheaper to purchase a new name through a registrar than through a private seller.
Typically, a domain name can cost as little as between $2 and $20 per year.
3. Obtain an employer identification number
Next, you’ll want to get an employer identification number (EIN), which is a nine-digit number assigned to your business by the Internal Revenue Service (IRS). You’ll use this number when you file your taxes and open a business bank account. Think of it as your business’ social security number.
“You may need to obtain one if your business meets certain criteria,” noted Allec. “For example, if there are multiple owners in your business, you need an EIN. If you set up a corporation for your business or elected to be taxed as one (either an S corporation or a C corporation), you need to get an EIN.”
The IRS website outlines which business entities are required to get an EIN. But even if you’re not required to get an EIN, it still may be a good idea to do so.
“If you will be working with clients who will be issuing you 1099 forms, you will have to provide them with your social security number if you don’t have an EIN to give them,” said Allec.
And, added Deborah Sweeney, CEO of MyCorporation.com, an online leader in business formations, trademarks and copyrights, and more, “if you plan to hire and pay employees, open a business bank account, or establish a retirement plan, you’ll need an EIN.”
How do you obtain an EIN?
“In the old days, obtaining an EIN meant filing a form with the IRS and waiting for them to get back to you,” said Allec. “Now, you can do it online and have your EIN within 15 minutes.”
You need to complete the application in one session and have a valid taxpayer identification number. The application is free when you use the IRS website, so beware of other sites that attempt to charge for this service.
4. Open up a business bank account
If you have a business, you need a business bank account.
“Keeping your business inflows and outflows separate from your personal accounts will not only make bookkeeping and taxes a lot easier, but it will also get the conversation [started] with business bankers who could potentially help you with funding down the line,” said Allec. “Keep in mind that every bank has slightly different rules when it comes to opening a business bank account, so be sure to call ahead so you understand exactly what information and documents the banker will need to open up your account.”
Allec suggested looking for sign-up bonuses when opening your business bank account, as both national and local banks routinely offer new businesses cash incentives simply for opening a new business bank account. Additionally, you want to make sure the bank is a good fit for your needs.
“For example, a business owner whose company routinely invests in equipment purchases and other large capital expenditures will likely want a bank nearby where he or she can communicate their financing needs in person and develop face-to-face rapport with business bankers,” said Allec. “My needs, however, as the owner of an online service-based business are far more simple: I just needed an account where cash can come in and out and didn’t want any fancy bells and whistles. I also wanted an account where I could easily check my balance on the go. So, the most important things to me were a low fee structure and a top-notch mobile banking app.”
For Allec, finding the right bank account didn’t take much work.
“The bank at which my wife and I bank personally sent me a mailer with a sign-up bonus offer for opening a new business bank account,” he said. “I researched the fee structure and found that the monthly fee would be waived if I maintained a relatively low balance each month, and I was already familiar with this bank’s mobile banking app and was very pleased with it.”
Ask your banker about services that are not only important to you now but those that may be of value down the line. For example:
- Are there minimum balance requirements? (No one wants to get hit with unexpected fees if the balance dips below a certain level.)
- Does the bank charge overdraft or electronic transfer fees?
- Will the bank extend a line of credit if needed? If so, what are the interest rates?
- Is mobile check deposit available?
- Will your account earn interest?
5. Implement a cloud-based bookkeeping system
While you don’t necessarily need to hire a bookkeeper on day one, you should have some kind of automated bookkeeping system in place.
“Obviously, you need a set of books to do your taxes, but beyond that, knowing exactly how much your business is making every month is essential to making good business decisions,” said Allec. “Technology makes bookkeeping so easy these days, so there’s really no excuse to not have a system in place.”
Robert Gauvreau, CPA and founder of Venture North, a 38,000-square-foot entrepreneurial incubator business hub and program, recommended purchasing a cloud-based bookkeeping solution.
“If you implement this system right out of the gates, it is as simple as one or two minutes per day to review transactions, and you will never get behind again,” he said. “A few options for a cloud-based bookkeeping solution would be QuickBooks Online, Sage 50, Xero, and Wave. As a bonus, if you enter your budgeted figures into your cloud-based bookkeeping software, you can continue to monitor your progress and determine if you are on track to realizing your vision and financial results in your business.”
Which system does the entrepreneur use for his own business?
“The cloud-based bookkeeping system we use is QuickBooks Online, which is an incredibly powerful platform,” he said. “A few of the reasons it won us over was its ease of use, its ability to customize reporting, and its integration with other third-party solutions that provide for even greater financial analytics.”
Launching a business is an exciting time. Taking the right steps can help set you on the path for success.