Starting a business requires merging a great concept with essential legal and financial foundations. The ten crucial steps to get your company up and running include researching the market, writing a business plan, funding the venture, picking a location, deciding on a legal structure, registering the name, getting tax IDs, securing permits, opening a bank account, and purchasing insurance.
- Conduct Market Research
Before you start spending money, you need to validate your concept. Market research helps you understand industry trends, competitor landscapes, and target demographics. Gathering this data ensures there is actual demand for your services or products. This research may be outsourced to trusted advisors and the report may be reviewed by you with other advisors to determine if going forward is the correct decision. Sometimes a business may be viable, but the current economic climate may make the venture too risky to proceed at the specific time.
- Write a Business Plan
Your business plan is your guiding blueprint. It details how you will structure, run, and grow your enterprise. A strong plan is essential if you intend to seek out outside funding, as banks and investors will review it to assess your company’s viability. Outside investors are unlikely to invest anything significant unless you already have a successful track record or are already operating a profitable company. Early pre-seed and seed funding will usually be bootstrapped or obtained from friends or family.
- Determine Your Funding Needs
Calculate your startup costs, such as equipment, inventory, rent, and legal fees. Once you know how much capital you require, you can determine if you need to self-fund, apply for small business loans, or seek venture capital. Generally, you should definitely have at least $50,000 set aside to begin, though this number is on the low end. The more you have to begin the more cushion you will have during the inevitable hard times that will certainly occur early on.
- Choose a Business Location
Your business location impacts your taxes, legal zoning requirements, and revenue. Whether you are setting up a physical storefront, a remote office, or a digital-only startup, your operating location will dictate which regulations you must follow. Usually the business entity will be organized in your home state, but if that is not required you will get a recommendation on a different state depending on the business model. Obviously, Wyoming, Delaware, Texas, New Mexico, and a few others will be at the top of the list.
- Choose a Legal Structure
The legal structure you select affects your personal liability, regulatory requirements, and how your taxes are handled. Common structures include Sole Proprietorships, Partnerships, Limited Liability Companies (LLCs), and Corporations. This is where your professional advisors come in. You should have a frank discussion regarding your plans on operations, partners, funding sources, tax plans, equity structure, and liability potential in your industry. Sometimes insurance will not be sufficient to protect assets due to risk of litigation or regulatory action, and you may need a multi company structure to fully secure your company. Sometimes investors will demand a specific entity type such as a corporation or partnership/LLC. On rare occasions a Delaware Statutory Trust may be needed.
- Register Your Business Name
Make your business official by registering your name with the government. If you are doing business under a name different from your own (or your legal corporate name), you may also need to file a “Doing Business As” (DBA) or fictitious name. This registration includes trademarks, which you want to file for the standard character registration as soon as possible, as it could take up to a year to fully register and you want your ownership to date back to as soon as the mark began to be used in commerce. The graphic design or drawing of your logo could wait till later and may not even need registration since these tend to change and are rarely infringed upon since a small change can make it original and non-infringing on the rights of others.
- Obtain Federal and State Tax IDs
You will need to apply for a federal Employer Identification Number (EIN) through the Internal Revenue Service (IRS). An EIN is required to hire employees, open a business bank account, and file your taxes. You may also need a state-specific tax ID depending on your region.
- Apply for Licenses and Permits
Depending on your industry and location, you will likely need specific federal, state, or municipal licenses and permits to operate legally. Check with your state and local government agencies to ensure you remain fully compliant. Licenses may be needed in every state in which you intend to operate, and the cost of such licensing may vary widely in each state.
- Open a Business Bank Account
Never mix your personal and business finances. Opening a dedicated bank account protects your personal liability and makes tax season much easier. To open the account, you will typically need your EIN, formation documents, and business registration paperwork. Sometimes multiple accounts may be needed, depending on the business structure. Sometimes a virtual account may be sufficient for a virtual/online business model.
- Purchase Business Insurance
Protect yourself, your employees, and your assets by getting adequate business insurance. Even low-risk or home-based businesses need protection against lawsuits, accidental damages, or theft. This area should not be overlooked. Insurance amounts depend on industry, but rarely will one not need any insurance to operate a going concern.