1. Choose your business name and entity type
When choosing a business name just keep in mind you may want a website domain so google the names you come up with and search for those domains you are thinking about using. There are also free search sites to see if your business name is already taken. If you choose to name your business as another you may run into trademark and legal issues especially if the name is already taken by a major company. It is acceptable to name your business the same as an existing business but they must be registered under separate states, so it’s best to search for names in your respective state on the Secretary of State website. After you have chosen a name you need to decide what type of entity your business will be, this does not mean an LLC or not. An LLC is not a tax entity type, it’s a legal entity type and it means limited liability company. This means the business is legally separate from you personally, the owner or investor; you cannot be held liable for the company’s debts and liabilities. The first entity type for small businesses is a sole-proprietor, you can elect for this to be a LLC or not, both file the business return on the personal tax return. Partnerships and S-Corporations are also commonly used for small businesses and both carry the limited liability protection component; however, both require more effort to create, operate and dissolve and need to file separate business tax returns. If you’re unsure what your entity type should be, feel free to contact us.
2. Create Articles of Organization
Articles of Organization is a legal document to formally establish a limited liability company (LLC) at the state level. This will need to be created for Single Member LLCs, Partnerships, S- Corps, C-Corps. In the document things like accounting method, owners investment, owners controlling percentages, owners pay, and other important details regarding your company will be included.
3. File with your Secretary of State online and get a EIN
After you have created your Articles of Organization you’ll need to notify the government that you have formed a business. Simply search your state’s government website for instructions on how to register within your state, there will usually be a small fee to file. You’ll need to provide relevant information about your company, the representative of your company, and the Articles of Organization. Be sure to save documents the Secretary of State gives you after this process is completed because you’ll need them to open a bank account. After you register with the state you can choose to register with the IRS for an EIN (Employer Identification Number). An EIN is like a social security number for a business, however, if you are a sole proprietor or single member LLC you can simply use your SSN as the EIN and do not need to register with the IRS. If you have several employees with a steady and regular pay and plan on expanding your business quickly it may be beneficial to register your sole proprietor or single member LLC with an EIN right away. All partnerships, s-corps and c-corps will need to be registered with the IRS and have an EIN.
4. Open a business bank account
Having a business bank account serves two great purposes. First it separates your individual monetary transactions from your business ones; this makes it helpful and easy for you to keep track of your records and your accountant to do bookkeeping and tax work. Secondly, a separate business bank account is proof to the IRS or other entities, like non profits distributing grants, that your business is actually real – not made up and not a hobby. Be sure to shop around before opening a business account, many banks and credit unions have monthly service charges and transaction limits as well as different types of business accounts and business lines of credit for you to choose from. Usually working with small or local banks and credit unions give you the best customer service and rates.
5. Choose an accounting system
An accounting system is the method in which financial information is gathered, processed and summarized into financial statements and reports. The most popular online software is Quickbooks, some other systems are Xero and Freshbooks. However, not every small business will need a specialized accounting software, in some cases using an excel or Google Sheets document will work just fine. If you choose to purchase the Small Business Tax Course, an excel or google sheet accounting system is included. If you want an accounting system specially tailored to your business book a call with Olivia.
6. Purchase insurance
Just as you shop around with who to bank with, you’ll want to shop around on who to insure your business with. There are several different types of business insurance, the kind of insurance you’ll need will depend on the nature of your business. Here are some different types of insurance you may want to research: General Liability, Professional Liability, Workers Compensation, Commercial Property Insurance, Business Income Insurance, Umbrella Insurance.
7. Create customer contracts
Depending on what your business is, you may need contracts with your customers. If you run an ecommerce site and sell homemade items you probably don’t need contracts. However, if you are a freelancer who provides large scale services, such as a photographer or web developer, you are going to need customer contracts. You can find free or inexpensive contract templates online through Rocket Lawyer, Legal Zoom, Legal Contracts, Law Depot. Make sure to read these thoroughly and make any changes you want or see a lawyer to help you create a specific and unique contract template for your business.
8. Consult an accountant & tax professional
You may want to do this step before step 5, the accountant you choose may have a preference or suggestion on what accounting system is best for your business. Here are some things you will need an accountant/ tax professional for: monthly bookkeeping, payroll processing, quarterly payroll tax filing, filing of other forms at year end such as 1099s and W2s, financial statement creation, tax preparation. You’ll want to choose a professional that has a solid accounting background, ongoing continuing education and who you feel comfortable and confident with. Here at EFG we have your best interest in mind and would love to learn more about your business on a free discovery call.