This post has been updated from the original post on starting a business, published in 2017. The links are all up to date and new information has been added.
Congratulations! You’re starting a business, and I’m here to help you get things rolling. Getting started takes a lot of time and sweat…but the future financial freedom is absolutely worth your effort.
With your own business, you’ll be able to take charge of your financial future, and create a better life – and more opportunities – for you and your family. In fact, you can get the whole family involved. They’ll feel included, and become invested in your success, since it will feel like their success, too.
Over the years, I’ve helped many ambitious entrepreneurs launch their first companies. Many have been successful, some have not. But the most successful of the bunch all started the same way…with step 1.
Step 1: Write a Business Plan
The overwhelming majority of business start-ups fail, but you can land yours in the success pile by planning ahead. Creating a comprehensive business plan takes a good deal of time and a lot of research and math, but the benefits to you and your company will far outweigh your efforts. In fact, a well-written business plan can help you secure funding, and set your business on the most profitable path. Your CPA – and if you don’t have one, you really should – can offer immeasurable help with your business plan. The SBA (U.S. Small Business Administration) website contains a wealth of advice on creating your first business plan.
Step 2: Choose and Register Your Business Name
Naming your business is more complicated than ever: It has to be informative, creative, catchy, web-ready, and unique. But the work doesn’t stop once you’ve come up with the perfect name. Now you have to make sure that name isn’t already taken online or offline. If you accidentally step on someone else’s trademark, it can cost you a bundle.
Once you’ve done a thorough search and settled on a name, you’ll need to officially register your company’s DBA (“doing business as”) name, usually with the state government or county clerk’s office. If you decide to use your own name for your business name – super common for freelancers – you don’t have to worry about any of this. But if you do decide to go with a DBA name, click here to learn more about how to make sure you can use it and register it so no one else can.
Step 3: Set Your Structure
Every company is built on a legal framework that determines two very important factors: tax treatment and personal liability. You’ll choose the starting structure based on the type of company you’re launching, your personal financial situation, and legal requirements (if any exist in your state).
There are five basic ways to set up your business:
- Sole proprietorship
- LLC (limited liability company)
- S corporation
- C (or regular) corporation
The structure you choose determines which forms you’ll need to fill out, what fees you’ll need to pay, if and how the business will pay taxes, and whether your personal assets will be protected from business troubles. Keep in mind, when it comes to your company, the legal structure is not set in stone – as your company grows and changes, you can upgrade your business entity. Click here to get the inside scoop on each type, so you can figure out which is best for your company.
Step 4: Secure Financing
No matter what kind of business you’re starting, you need start-up cash. That money needs to cover your initial set-up expenses, and at least a few months worth of operating expenses – there’s no way of predicting when you’ll be bringing in enough money to cover your company’s costs. But there’s one thing a lot of new business owners overlook: themselves. When you’re trying to figure out how much money you need, remember to include enough to cover your living expenses during the lean start-up phase.
Once you know how much you need, you’ll be able to figure out if you can fund the start-up yourself, or if you need to bring in cash from outside sources. Before you ask for outside funding, you’ll need to decide whether you want to fund your business with debt (a loan that you’ll have to pay back) or equity (selling a piece of the business). From there, you have a lot of options, whichever way you decide to go. The SBA has several different loan programs, all designed to help small businesses get off the ground.
Step 5: Get Your Business Tax IDs
Every business comes with taxes: income taxes, withholding taxes, employment taxes…the list goes on. And in order to pay those taxes, your business needs its own federal tax ID number called an EIN (Employer Identification Number). If your company is set up as a partnership or corporation, or if you have employees on payroll, your business needs an EIN. On top of that, you may need a state tax ID number, depending on the type of business you run and which states you do business in.
The exception: If you’re a freelancer operating your businesses as a sole proprietorship, you can get away with using your Social Security number if you want to for federal tax purposes. Everyone else, though, click here to see if your company needs an FEIN, and here to apply for it. As for potential state tax obligations, all businesses (including sole proprietors) could be affected. The SBA offers a comprehensive state and local tax requirements guide here.
Step 6: Get Business Licenses and Permits
State and federal licenses and permits are required for certain businesses – you can’t operate legally without them. On the federal side, you’ll need a license or permit if your company is in a federally regulated industry – like selling alcohol. You can find out whether your business needs a federal license and how to get one here.
As for state laws, the vast majority of businesses require some kind of license or permit, but the rules vary greatly depending on where you are and where you’re doing business. If you’re a professional (CPA, dentist, veterinarian, or plumber, for example), you’ll probably need a license to run your business. If you’re selling products or services to the general public, you may need an operating permit or a sales tax permit. And if you’re running your business from home, you may need a special permit for that (and possibly permission from your homeowner’s association). The Secretary of State’s office for your state will have information on what permits may be required, as will your city and county government websites.
Step 7: Hit the Ground Running
You’ve done all the prep for starting your business, and now you’re ready to go. All of your hard work will be worth it when your profits start rolling in, bringing you closer to your financial goals.
Want More Detailed Information on Starting a Business?
I just finished writing a new book, all about starting your own business! It will be available December 12th, 2023.
Not only does it go more in-depth on all of the topics here, it covers even more information you’ll need to know to successfully start and run your own business. It also shows you how to handle any obstacles thrown in your way as you’re starting and growing your business.
Click on the button below to learn more about my new book, Starting a Business 101