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BUSINESS PHASES
Start-Up Guide: The Action Phase
Although starting a new business can be an exciting experience, it isnʼt all glamorous. There is a lot of paperwork involved, and completing the necessary legal and administrative tasks will be downright boring. Tedious as it may be, you will need to ensure that your business is in compliance with local, state and federal laws. The information below will assist you in launching your business by covering: legal considerations, filing business taxes, securing insurance, and hiring employees.
Determine the Legal Structure of Your Business
Deciding what form of business entity to establish is one of the major decisions you will have to make when beginning your business. The form of business you select will determine how much control you have over the business, the level of personal liability you will carry, the amount of paperwork you have to file, and the taxes you have to pay.
Common Types of Business Structures:
Sole Proprietorship: the business is owned by one individual who is personally liable for all business debts and responsibilities.
Partnership: two or more people share the liability and responsibility of owning the business.
Corporation: the business is a legal entity owned by shareholders.
Limited Liability Company (LLC): a hybrid legal structure that provides the tax flexibility of a sole proprietorship (depending on how many owners there are), and the limited liability protection of a corporation. Consult with your attorney and accountant to determine which business structure will best suit the needs of you and your company.
Register Your Business Name
Depending on what legal structure you selected for your business, you may need to either register your business name at a local office or with your state government. If you elected to form a corporation, a limited liability company or a partnership (limited, or limited liability), you will have to register your business with your state government. If you have decided to run your business as a sole proprietorship, then you need to file your business name by filing an Assumed Name Certificate with your local county clerkʼs office.
- Run and market your company under your business name.
- Keep other businesses or competitors from using the same business name within your state.
- Open a bank account under your business name.
- Accept checks written out to your business name.
Obtain Tax Identification Number
Businesses generally need to obtain an Employer Identification Number (EIN), also known as a Federal Tax Identification Number. Your EIN is used to identify a business entity, much like a social security number is used to identify an individual. Your EIN is a permanent number and can be used for various reasons, including opening a bank account, applying for business licenses, and filing a tax return by mail. This is a free service offered by the Internal Revenue Service. If you are running your business as a sole proprietorship and donʼt have any employees, then you can simply use your social security number as your tax identification number.
Visit the IRS.gov website to obtain information on how to file for an EIN.
Register for State and Local Taxes
Your business is responsible for paying state and local taxes in addition to federal taxes.
Common types of state and local taxes:
Franchise Tax: a privilege tax imposed at the state level against businesses and partnerships chartered within that state.
State Sales & Use Tax: is imposed on all retail sales, leases and rentals of most goods, as well as taxable services.
Local Sales & Use Tax: in addition to the state-imposed sales tax, local taxing jurisdictions (cities, counties, special purpose districts, and transit authorities) may also impose sales taxes.
Property Taxes: are local taxes that provide the largest source of money local governments use to pay for schools, streets, roads, police, fire protection and many other services.
Employment Taxes: business owners with employees may be responsible for payment of state workers' compensation insurance and unemployment insurance taxes.
Obtain Business Licenses and Permits
Your business will need at least one or more federal, state or local licenses or permits in order to operate. You can start by contacting your city government to find out what paperwork you will need to complete in order to legally run your business in their jurisdiction. After youʼve contacted your local government offices, you should then move forward with identifying state and federal licenses and permits. Also note, that you may need to obtain specialized licenses depending on what industry your business will be entering.
Visit Business.gov to determine whether your business needs to acquire any state-level licenses or permits.
Secure Insurance
Starting a business is a risky decision and you always want to be prepared for the worst. One of the safest ways to prepare your business for the unexpected is to buy business insurance. From a lawsuit to a natural disaster, insurance coverage is available for a wide variety of risks that your business might face. Youʼll want to carefully consider which types of insurance your business would benefit the most from should a disaster occur.
Types of business insurance policies available:
General Liability Insurance: this insurance typically provides protection against the legal problems related to accidents, injuries or claims of negligence.
Product Liability Insurance: this insurance will protect you financially if a defective product causes an injury.
Professional Liability Insurance: this insurance is best suited for businesses that provide services, as it can help protect you against malpractice, errors, and negligence.
Commercial Property Insurance: this insurance protects you from the loss and damage of company property due a natural disaster, vandalism or fire.
Visit the SBA.gov site to learn more about the different types of insurance available for your business.
Employment Responsibilities
If you plan on hiring employees to help you run your business, then you will need to acquaint yourself with the following information to avoid issues with the IRS.
Obtain an EIN: if you havenʼt already done so, you will need to formally apply for EIN with the IRS before you can hire employees.
Withholding Income Taxes: the IRS expects you to keep records of employment taxes. You will want to withhold Social Security and Medicare taxes from your employeeʼs wages.
Federal Income Tax Withholding (Form W-4): each of your employees must provide you with a signed withholding exemption certificate (Form W-4) on or before the date of employment.
Federal Wage and Tax Statement (Form W-2): each year, you must report the wages paid and taxes withheld for each employee to the federal government using Form W-2, Wage and Tax Statement.
IRS Form 1099: you are required to report payment to non-employees that receive in excess of $600.
Visit the IRS.gov site to view the tax forms you will need for your business.
Visit the Business.gov site to familiarize yourself with employment and labor laws.
Keeping your company compliant with the law is an ongoing process, and it is best to consult with your attorney and accountant in order to stay up to date with the legal rulings related to your business.
Next Steps
At this point, youʼve most likely contemplated how this new business will impact your life, and developed your business plan. Youʼve also been made aware of what paperwork you have to complete in order to formalize the launch of your company, but remember that starting your business is merely the beginning. Operating your business on a daily basis will be challenging and many obstacles may emerge. The key to your success is to stay flexible and to be vigilant. Surround yourself with mentors and a support group that you can rely on, and youʼll be able to successfully handle any situation your business might face.
If you need further assistance in starting or running your business, contact the Northeast/ Texarkana Small Business Development Center (SBDC) for a confidential business consultation at no charge to you. Call (903) 434-8237 to set up an appointment.
