Maybe you have a fantastic business idea and have decided it's time to make your dream a reality. Or perhaps you've decided to leave your day job and start your own venture. No matter your motivation for starting your own business, the journey ahead is undoubtedly both exciting and daunting for new business owners.Where do you begin?
What Does It Mean to Have a Legitimate Business?
Making your business legitimate involves creating a solid foundation that enables your business to operate correctly and be seen as reputable by potential customers, other businesses, and lenders. Here is a step-by-step guide to get you started.
1. Choose a business name.
Think this through carefully. You want it to be unique and memorable, but also legally available. Just because there are other businesses with similar names doesn't mean you can't use it, but be cautious. If your business name is similar to another business, especially one in your area, your business credit profiles could get mixed up.While you're at it, check domain names and social media accounts (Facebook, Twitter, Instagram, etc.). Do a Google search. Before finalizing your business name, consider a trademark search to avoid future legal issues. If your business name is too similar to another, you might not be able to register it when forming a legal entity.
2. Choose your business address.
It's okay to register your business at your home address, though some owners prefer using a service like a UPS store to give their business a separate location from their home address. Keep in mind that there will be situations—such as filing a tax return—where you'll need to provide a physical address for the business.
3. Get a business phone number.
You don't necessarily need an expensive business landline from your local telecom, but you do need a number to give clients and customers, and it should be answered professionally. Consider using a service like GoDaddy SmartLine to add a business number to your cell phone. You can also explore using a virtual business telephone or answering service.
4. Create your business entity.
Though it may be tempting to start as a sole proprietor, you could be taking unnecessary risks. If your business faces legal issues, your personal assets could be at risk.A limited liability company (LLC), S Corporation, or C Corporation can offer asset protection and tax benefits. It's also easier to create a business credit profile and eventually secure small business financing if you have a separate legal entity.Consult legal or tax advisors if you need help choosing the right business structure. Once you decide on an entity type, you can outsource the legal work to a business formation service.
5. Register your business name.
This will likely be part of the incorporation process. If you operate as a sole proprietor, it's a good idea to file a fictitious name registration (DBA) with your state. If you incorporate, you'll need to identify a registered agent who can accept legal documents if your business is involved in legal action. Mail may also come to the registered agent, so choose someone reliable.
6. Get business licenses and permits.
Depending on your business type, you may need a sales tax license, health department inspection, or professional licenses. Unsure of what you need? Talk to your local Small Business Development Center (SBDC) or SCORE chapter, which offer free and low-cost resources for small businesses. Your attorney or accountant can also help. The Secretary of State's website in your state may also provide information on the permits required.
7. Get an employer identification number (EIN).
An EIN, also known as a Federal Tax Identification Number, is used to identify a business entity. According to the IRS, most businesses need an EIN. (Think of it as the equivalent of a Social Security number for your business.) You can request an EIN for free online from the IRS at IRS.gov. Note that it will be required if you form a legal entity.
8. Open a business bank account.
Mixing business and personal funds can create tax headaches and expose you to personal liability if your business is incorporated (known as "piercing the corporate veil"). Open a separate business bank account and use it exclusively for business purposes.Many small business lenders will require business bank statements to verify revenues.
9. Get a business credit card.
A business credit card allows you to separate business and personal purchases and makes identifying business expenses easier during tax time. Most business credit card issuers do not report activity to the owner's personal credit unless there's a default, protecting your personal credit from business activities.
10. Set up your books.
One of the most important steps for business success is timely bookkeeping and ensuring business taxes (income tax, sales tax, payroll taxes, etc.) are paid on time. When setting up your bookkeeping system, establish your chart of accounts and track business expenses and income.If you're unfamiliar with business accounting, consider hiring a bookkeeper or accountant, or take a class on business bookkeeping from your local SBDC. Proper bookkeeping from the start will save you significant time in the long run.
11. Get a D-U-N-S number.
This number identifies your business in the Dun & Bradstreet commercial credit database. You can request a D-U-N-S number for free.
12. Establish business credit.
Your business can build its own credit history, separate from your personal credit, by obtaining credit in the business's name. This can be more challenging than establishing personal credit, as not all companies report to business credit agencies. Consider opening accounts with companies that offer net-30 terms and report payments to credit bureaus like Experian or Dun & Bradstreet. Buy things needed for your business, pay within thirty days, and build a good business credit score.The sooner you start, the better, as the age of accounts often helps your business credit scores.
13. Create a website.
Depending on your business type, a basic website where prospective clients can learn about your business and contact you may suffice. Not having a website can hurt your business.
14. Register your business with online services.
Register your business on Google so it appears in online searches. This is especially important if your business has a physical address and specific hours. Also, register social media accounts for your business, even if you don't plan to use them yet, and consider registering with relevant review sites like Yelp or TripAdvisor. Depending on your business type, a Facebook and/or LinkedIn page may be beneficial.
15. Get insurance.
Business insurance is essential to keep your business running when losses occur. Without proper coverage, the high costs of lawsuits, property damage, or employee injuries could bankrupt a new or growing company. Each business has different needs, but common coverages include general liability, property, workers' compensation, and commercial auto insurance. Some of these can be bundled to save money.
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