You’ve decided to start your own business. Congratulations! When you work for yourself, you have the opportunity to do what you most enjoy and are more likely to have a high level of job satisfaction. Make sure that when you set your business up, you are doing so properly so that you are not surprised by unexpected expenses or problems in the future. By taking the following steps you can be best prepared.
1. Construct a Business Plan
Before you begin, it is a good idea to get all your ducks in a row. Ask yourself the following questions:
- What will my business do and how does it differ from other similar businesses?
- What will I do to make my products or services appealing to customers?
- What are my customer-base and net-profit goals?
- How will I market my company and build a solid customer base?
- Will I need to hire employees?
- Should I consider a business insurance policy?
- Where will I get the funding to get started?
It is much easier to build a business plan for a small, at-home freelancing business as you can keep your plan informal. If you are planning to start a larger company, your initial business plan will be more complex and will need to be structured formally. You can purchase software that can help you put together your business plan or you can hire a consultant to assist you with putting it together.
2. Meet With a Tax Advisor, Accountant or an Attorney
Once you have your business plan in place, it is a good idea to meet with an expert to discuss your options and your tax considerations. There are different types of business structures that you can use when setting up your company and each has different tax implications and set-up requirements. You can choose from the following business structures:
- Sole-proprietorship: This is the simplest type of business structure. It is ideal for freelancers and for those who will have full control over all aspects of the company.
- Corporation: Corporations are complex structures intended for larger companies that have multiple employees. This structure provides limited liability protection and tax benefits for your company.
- Partnership: This structure is ideal if you are going into business with at least one other person. It provides a lot of operational flexibility and protects you and your other business partners if the actions of one cause problems for all involved.
- Limited Liability Company (LLC): This business structure combines the liability protections of a corporation with the flexibility and tax benefits of a partnership. It is ideal for smaller companies that have employees.
- Cooperative: This is the right structure for a business that is comprised of several member-owners who work together to meet a common goal or perform a service that benefits all involved. Profits are distributed among the owner-users. This structure is most likely to be found in retail, art, restaurant and healthcare industries.
- An S Corporation: This is a business structure you can choose to add on to your corporation or LLC business type. There are tax benefits to doing so but not all businesses qualify for S corp status. A tax advisor can help you determine whether this is worth looking into.
By speaking with a business or tax professional, you can get assistance determining which type of structure is right for you. You can also learn about setting money aside to pay your federal, state and local taxes on a quarterly basis. Remember, when you are your own employer, you will be paying 100 percent of your social security contribution, whereas when you work for someone else, your employer covers 50 percent of this tax.
3. Create and Register Your Company
Once you have chosen the right business type, it is time to make your company official by registering it with your state.
- Choose Your Company Name
If you have not yet done so, you must now decide on the name of your company. The name you choose at this stage is the name your business will be registered under so choose carefully. If you are doing freelance work, you can register your business under your actual name. It is okay to use a nickname so long as it is a common one for your given first name.
If you prefer to do business under any name other than your given name, you may be required by your state to apply for a fictitious name certificate, also known as a “doing business as” or DBA certificate. There is typically a one-time fee for doing this.
- Acquire an EIN Number
An Employer Identification Number (EIN) is a tax ID number (TIN) that is unique to your company. It is easy to apply for an EIN number online and you will receive this number instantly. Some sole-proprietors and freelancers prefer to work under their social security numbers, and this is okay. However, if you are completing W-2 forms for several different clients, you may not want to risk compromising your social security number, and this is why and EIN number is the better choice.
When you apply for a Fictitious Name certificate or an EIN number, you are automatically registering your business with the state.
4. Develop a Marketing Plan
No matter how great your business is, it will never succeed without customers. Marketing is one of the most important steps when starting your new business. While you will incur some expenses when promoting your new company, the return on investment can be quite high.
If you are opening your business in a retail space, put up “Coming Soon!” signs in the windows so people know, and talk to others, about what you will be doing with the space. You can also have business cards and flyers printed and can begin distributing them to your key demographic.
Most importantly, you will want to create a web-presence. Even if you do not expect to drum up any business through a website, having one will lend your business credence and will also supply a place for curious people to go to learn more about what you do. Find a domain name that is applicable to your business and register it as soon as possible. You’d be surprised how quickly names get taken up.
Social media can also help you to market your business so consider making a Facebook, Google+ or other social media business page. Mashable offers some very interesting statistics about using Facebook as a marketing tool:
- Currently, 1 out of every 3 small businesses has a Facebook page
- 86% of small business owners feel that Facebook is a valuable marketing tool
- Facebook fan are 79% more likely to become customers and are 74% more likely to recommend your business or products to others
- Approximately 26% of all traffic to business websites is generated through Facebook
Whatever marketing techniques you use, remember that you can deduct the cost of promotional materials and website registration from your business income taxes.
5. Open Up Shop and Get Started
Now that you have everything ready to go, it’s time to open up shop to customers. If you are a retail type business, you may want to plan an event with balloons and giveaways to bring people in.
Most new business ventures start out slow and build up over time, so do not be discouraged if you operate at a loss the first few months. Remember that customer referrals and positive feedback can go a long way toward getting new and repeat customers. Feel free to ask satisfied customers to write you a testimonial and include these on your website.