By Gerri Detweiler, Nav
Perhaps you’ve got a hot idea for a new business and decided it’s time to turn a dream into reality. Or you’ve given up on finding your dream job and decided to create your own. No matter what your motivation for launching your own business, the journey ahead is no doubt both exciting and scary. Where do you start?
The first thing you’ll want to do is lay a solid foundation for your venture. Here’s a step-by-step list to get you started.
1. Choose a business name. Think this one through carefully. Not only do you want to make sure it will be unique and memorable, you’ll also want to make sure it is legally available. Just because there are other businesses with similar names doesn’t mean you can’t use it, but be careful. If your business name is similar to another business — particularly one in your geographic area — your business credit profiles could get mixed up with one another. While you are at it, check domain names, social media accounts (Facebook, Twitter, Instagram, etc.). Do a Google search. Before you make your final decision, consider a trademark search to avoid any legal challenges down the line. If your business name is too similar to another, you may not be able to register that name when you create a legal entity. (See step 4.)
2. Choose your business address. It’s OK to register your business at your home address, though some owners choose to use a service such as a UPS store to give their business a location separate from their home address. Keep in mind there will be situations — such as filing a tax return — where you will have to provide a physical address for the business.
3. Get a business phone number. You may not have to get an expensive business landline from your local telecom, but you do need a number to give out to clients and customers, and it should sound professional. You may be able to use a service like Google Voice or get a virtual business telephone service or answering service.
4. Create your business entity. While it may be tempting to just give it a whirl as a sole proprietor, you may be taking unnecessary risk. If your business gets into any kind of legal hot water, your personal assets could be at risk. In addition, the right entity — LLC, or S or C Corporation, for example — may offer tax advantages. It’s also much easier to create a business credit profile and eventually get small business financing if you create a separate legal entity.
5. Register your business. In most states you must register with your Secretary of State. (This may be part of the process when you incorporate.) When you do, you’ll need to identify a registered agent; this should be someone who is able to accept service of process if your business is involved in legal action. Mail may also come to the registered agent, so choose an individual or service that will reliably forward it to you. You can usually hire one fairly inexpensively.
6. Get licenses and permits. Again, this will vary both by location as well as by type of business. You may need to get a sales tax license, health department inspection, or certain professional licenses, depending on your type of business. Not sure what you will need? Talk with your local Small Business Development Center (SBDC), which offers free and low-cost resources for small businesses. Your attorney or accountant can also help. In addition, the Secretary of State website in the state where you incorporate your business may help you understand the permits you need.
7. Request an employer identification number (EIN) for your business from the IRS. An EIN is also known as a Federal Tax Identification Number, and it is used to identify a business entity. Generally, businesses need an EIN, according to the IRS. You can request one for free, online from the IRS. Note, it will be required if you form a legal entity.
8. Open a business bank account. Co-mingling business and personal funds can create all kinds of tax headaches and can also open you up personally to liability if your business is incorporated. (This is known as “piercing the corporate veil.”) Open a separate business bank account and use it exclusively for business purposes. (Banks almost always require an EIN to open a business bank account.)
9. Consider getting a business credit card to use for business purchases. Not only will this help you easily identify business purchases come tax time, but most business credit card issuers do not report activity to the owner’s personal credit unless they default. (This chart describes which issuers report business credit cards to personal credit.) This can help protect your personal credit from the activities of your business.
10. Set up your books. When you do, you’ll need to set up your chart of accounts and begin keeping track of business expenses and income. If you don’t know how business accounting works, consider hiring a bookkeeper or accountant, or at least taking a class on basic bookkeeping at your local SBDC. Starting your business bookkeeping out on the right foot will save you enormous amounts of time in the long run.
11. Get a D-U-N-S number. This number will be used to identify your business in the Dun & Bradstreet commercial credit database. You can request a D-U-N-S number for free.
12. Establish business credit. Did you know your business can build its own credit history, separate from your personal credit? You accomplish this by getting credit in the name of the business. It can be a little trickier than establishing personal credit, since not all companies report to business credit agencies. Consider opening accounts with companies that allow you to make purchases on a net-30 basis and report payments to credit bureaus such as Experian (which keeps credit reports on businesses as well as consumers) or Dun & Bradstreet. You’ll buy things you need for your business, pay them off within thirty days and begin to build a good business credit score. The sooner you do this the better, as age of accounts is one factor that can often help your business credit scores. (Nav’s free BusinessLauncher tool will give you the names of companies that report.)
13. Create a website. Depending on your type of business, you may be able to get away with a basic website where prospective clients or customers can learn a little bit about your business and how to contact you. But not having one at all will likely hurt your business.
14. Register your business with online services. You can register your business on Google so it comes up in online searches. This is especially important if your business has a physical address and specific business hours. Also register social media accounts for your business — even if you don’t plan to use them yet — and consider registering with review sites relevant to your business, such as Yelp or TripAdvisor.
While laying the groundwork for your business isn’t the most glamorous or fun part of getting started, it can significantly boost your chances of being successful.