Start Your Own Business: 50 Things You'll Need to Do

From insurance to accounting to taxes, here’s what you need to do to start a business.

Thinking about starting a business? You’re not alone. Every year, thousands of Americans catch the entrepreneurial spirit, launching small businesses to sell their products or services. Some businesses thrive; many fail. The more you know about starting a business, the more power you have to form an organization that develops into a lasting source of income and satisfaction. For help with the beginning stages of operating a business, the following checklist is a great place to start.

Evaluate and Develop Your Business Idea

1. Determine if the type of business suits you.
2. Use a break-even analysis to determine if your idea can make money.
3. Write a business plan, including a profit/loss forecast and a cash flow analysis.
4. Find sources of start-up financing.
5. Set up a basic marketing plan.

Decide on a Legal Structure for Your Business

6. Identify the number of owners of your business.
7. Decide how much protection from personal liability you'll need, which depends on your business's risks.
8. Decide how you'd like the business to be taxed.
9. Consider whether your business would benefit from being able to sell stock.
10. Research the various types of ownership structures:
· Sole proprietorship
· Partnership
· LLC
· C Corporation
· S Corporation
11. Get more in-depth information from a self-help resource or a lawyer, if necessary, before you settle on a structure.

Choose a Name for Your Business

12. Think of several business names that might suit your company and its products or services.
13. If you will do business online, check if your proposed business names are available as domain names.
14. Check with your county clerk's office to see whether your proposed names are on the list of fictitious or assumed business names in your county.
15. For corporations and LLCs: check the availability of your proposed names with the Secretary of State or other corporate filing office.
16. Do a federal or state trademark search of the proposed names still on your list. If a proposed name is being used as a trademark, eliminate it if your use of the name would confuse customers or if the name is already famous.
17. Choose between the proposed names that are still on your list.

Register Your Business Name

18. Register your business name with your county clerk as a fictitious or assumed business name, if necessary.
19. Register your business name as a federal or state trademark if you'll do business regionally or nationally and will use your business name to identify a product or service.
20 . Register your business name as a domain name if you'll use the name as a Web address too.

Prepare Organizational Paperwork

21. Partnership:
· Partnership agreement
· Buyout agreement (also known as a buy-sell agreement)
22. LLC:
· Articles of organization
· Operating agreement
· Buyout agreement (also known as a buy-sell agreement)
23. C Corporations:
· Pre-incorporation agreement
· Articles of incorporation
· Corporate bylaws
· Buyout agreement (also known as a buy-sell agreement or stock agreement)
24. S Corporations:
· Articles of incorporation
· Corporate bylaws
· Buyout agreement (also known as a buy-sell agreement or stock agreement)
· File IRS Form 2553, Election by a Small Business Corporation

Find a Business Location

25. Identify the features and fixtures your business will need.
26. Determine how much rent you can afford.
27. Decide what neighborhood would be best for your business and find out what the average rents are in those neighborhoods.
28. Make sure any space you're considering is or can be properly zoned for your business. (If working from home, make sure your business activities won't violate any zoning restrictions on home offices.)
29. Before signing a commercial lease, examine it carefully and negotiate the best deal.

File for Licenses and Permits

30. Obtain a federal employment identification number by filing IRS Form SS-4 (unless you are a sole proprietorship or single-member limited liability company without employees).
31. Obtain a seller's permit from your state if you will sell retail goods.
32. Obtain state licenses, such as specialized vocation-related licenses or environmental permits, if necessary.
33. Obtain a local tax registration certificate, a.k.a. business license.
34. Obtain local permits, if required, such as a conditional use permit or zoning variance.

Obtain Insurance

35. Determine what business property requires coverage.
36. Contact an insurance agent or broker to answer questions and give you policy quotes.
37. Obtain liability insurance on vehicles used in your business, including personal cars of employees used for business.
38. Obtain liability insurance for your premises if customers or clients will be visiting.
39. Obtain product liability insurance if you will manufacture hazardous products.
40. If you will be working from your home, make sure your homeowner's insurance covers damage to or theft of your business assets as well as liability for business-related injuries.
41. Consider health & disability insurance for yourself and your employees.

Set Up Your Books

42. Decide whether to use the cash or accrual system of accounting.
43. Choose a fiscal year if your natural business cycle does not follow the calendar year (if your business qualifies).
44. Set up a recordkeeping system for all payments to and from your business.
45. Consider hiring a bookkeeper or accountant to help you get set up.
46. Purchase Quicken Home and Business (Intuit), QuickBooks (Intuit) or similar small business accounting software.

Set Up Tax Reporting

47. Familiarize yourself with the general tax scheme for your business structure. (See Tax Savvy for Small Business, by attorney Frederick Daily.)
48. Familiarize yourself with common business deductions and depreciation. (See Deduct It! Lower Your Small Business Taxes, by attorney Stephen Fishman.)
49 . Obtain IRS Publications 334, Tax Guide for Small Business, and 583, Taxpayers Starting a Business.
50. Obtain the IRS's Tax Calendar for Small Businesses.

As you can see, starting a business involves making quite a few initial decisions and getting policies and paperwork in place. For more information about and help with starting a business, consult the following Nolo resources: Legal Guide for Starting and Running a Small Business, by attorney Fred Steingold; Wow! I’m in Business, by attorneys Richard Stim and Lisa Guerin; or Quicken Legal Business Pro (software).
© 2009 Nolo

Learn About Business Ownership Structures

Learn about the corporation, LLC, partnership, and sole proprietorship.

Before you can decide how you want to structure your business, you'll need to know what your options are. Here's a brief rundown on the most common ways to organize a business:
· sole proprietorship
· partnership
· limited partnership
· limited liability company (LLC)
· corporation (for-profit)
· nonprofit corporation (not-for-profit), and
· cooperative.

Sole Proprietorships and Partnerships

For many new businesses, the best initial ownership structure is either a sole proprietorship or -- if more than one owner is involved -- a partnership.

Sole Proprietorships

A sole proprietorship is a one-person business that is not registered with the state like a limited liability company (LLC) or corporation. You don't have to do anything special or file any papers to set up a sole proprietorship -- you create one just by going into business for yourself.

Legally, a sole proprietorship is inseparable from its owner -- the business and the owner are one and the same. This means the owner of the business reports business income and losses on his or her personal tax return and is personally liable for any business-related obligations, such as debts or court judgments.

Partnerships

Similarly, a partnership is simply a business owned by two or more people that hasn't filed papers to become a corporation or a limited liability company (LLC). You don't have to file any paperwork to form a partnership -- the arrangement begins as soon as you start a business with another person. As in a sole proprietorship, the partnership's owners pay taxes on their shares of the business income on their personal tax returns and they are each personally liable for the entire amount of any business debts and claims.

Sole proprietorships and partnerships make sense in a business where personal liability isn't a big worry -- for example, a small service business in which you are unlikely to be sued and for which you won't be borrowing much money for inventory or other costs.

Limited Partnerships

Limited partnerships are costly and complicated to set up and run, and are not recommended for the average small business owner. Limited partnerships are usually created by one person or company (the "general partner"), who will solicit investments from others (the "limited partners").

The general partner controls the limited partnership's day-to-day operations and is personally liable for business debts (unless the general partner is a corporation or an LLC). Limited partners have minimal control over daily business decisions or operations and, in return, they are not personally liable for business debts or claims. Consult a limited partnership expert if you're interested in creating this type of business.

Corporations and LLCs

Forming and operating an LLC or a corporation is a bit more complicated and costly, but well worth the trouble for some small businesses. The main benefit of an LLC or a corporation is that these structures limit the owners' personal liability for business debts and court judgments against the business.

What sets the corporation apart from all other types of businesses is that a corporation is an independent legal and tax entity, separate from the people who own, control and manage it. Because of this separate status, the owners of a corporation don't use their personal tax returns to pay tax on corporate profits -- the corporation itself pays these taxes. Owners pay personal income tax only on money they draw from the corporation in the form of salaries, bonuses, and the like.

Like corporations, LLCs provide limited personal liability for business debts and claims. But when it comes to taxes, LLCs are more like partnerships: the owners of an LLC pay taxes on their shares of the business income on their personal tax returns.

Corporations and LLCs make sense for business owners who either (1) run a risk of being sued by customers or of piling up a lot of business debts, or (2) have substantial personal assets they want to protect from business creditors.

Nonprofit Corporations

A nonprofit corporation is a corporation formed to carry out a charitable, educational, religious, literary, or scientific purpose. A nonprofit can raise much-needed funds by soliciting public and private grant money and donations from individuals and companies. The federal and state governments do not generally tax nonprofit corporations on money they take in that is related to their nonprofit purpose, because of the benefits they contribute to society.

Cooperatives

Some people dream of forming a business of true equals -- an organization owned and operated democratically by its members. These grassroots business organizers often refer to their businesses as a "group," "collective," or "co-op" -- but these are often informal rather than legal labels. For example, a consumer co-op could be formed to run a food store, a bookstore, or any other retail business. Or a workers' co-op could be created to manufacture and sell arts and crafts. Most states do have specific laws dealing with the set-up of cooperatives, and in some states you can file paperwork with the secretary of state's office to have your cooperative formally recognized by the state. Check with your secretary of state's office for more information.

You may want to also read LLC or Corporation? How to Choose the Right Form for Your Business, by Anthony Mancuso (Nolo).

© 2009 Nolo

Sole Proprietorship Basics

The sole proprietorship is the simplest legal structure for owning your own business.

A sole proprietorship is a one-person business that is not registered with the state as a corporation or a limited liability company (LLC).

Sole proprietorships are so easy to set up and maintain that you may already own one without knowing it. For instance, if you are a freelance photographer or writer, a craftsperson who takes jobs on a contract basis, a salesperson who receives only commissions, or an independent contractor who isn't on an employer's regular payroll, you are automatically a sole proprietor.

However, even though a sole proprietorship is the simplest of business structures, you shouldn't fall asleep at the wheel. You may have to comply with local registration, business license, or permit laws to make your business legitimate. And you should look sharp when it comes to tending your business, because you are personally responsible for paying both income taxes and business debts.

Personal Liability for Business Debts

A sole proprietor can be held personally liable for any business-related obligation. This means that if your business doesn't pay a supplier, defaults on a debt, or loses a lawsuit, the creditor can legally come after your house or other possessions.

By contrast, the law provides owners of corporations and limited liability companies (LLCs) with what's called "limited personal liability" for business obligations. This means that, unlike sole proprietors and general partners, owners of corporations and LLCs can normally keep their house, investments, and other personal property even if their business fails. If you will be engaged in a risky business, you may want to consider forming a corporation or an LLC.

Paying Taxes on Business Income

In the eyes of the law, a sole proprietorship is not legally separate from the person who owns it. The fact that a sole proprietorship and its owner are one and the same means that a sole proprietor simply reports all business income or losses on his or her individual income tax return -- IRS Form 1040, with Schedule C attached. As a sole proprietor, you'll have to take responsibility for withholding and paying all income taxes -- something an employer would normally do for you. This means you'll have to pay a "self-employment" tax, which consists of contributions to Social Security and Medicare, and pay estimated taxes throughout the year.

Registering Your Sole Proprietorship

Unlike an LLC or a corporation, you generally don't have to file any special forms or pay any fees to start working as a sole proprietor. All you have to do is state that your business is a sole proprietorship when you complete the general registration requirements that apply to all new businesses.

Most cities and many counties do require businesses -- even tiny home-based sole proprietorships -- to register with them and pay at least a minimum tax. In return, your business will receive a business license or tax registration certificate. You may also have to obtain an employer identification number from the IRS (if you have employees), a seller's license from your state, and a zoning permit from your local planning board.

If you do business under a name different from your own (such as "Custom Coding" instead of "Jim Smith Graphics"), you usually must register that name -- known as a fictitious, or assumed, business name -- with your county.

In practice, lots of businesses are small enough to get away with ignoring these requirements. But if you are caught, you may be subject to back taxes and other penalties.

© 2009 Nolo

Partnership Basics

Learn more about the simplest business structure for companies with more than one owner.

By definition, a partnership is a business with more than one owner that has not filed papers with the state to become a corporation or LLC (limited liability company). There are two basic types of partnerships: general partnerships and limited partnerships. This article discusses general partnerships, the more common structure in which every partner has a hand in managing the business.

The partnership is the simplest and least expensive co-owned business structure to create and maintain. However, there are a few important facts you should know before you begin.

Personal Liability for All Owners

First, partners are personally liable for all business debts and obligations, including court judgments. This means that if the business itself can't pay a creditor, such as a supplier, lender, or landlord, the creditor can legally come after any partner's house, car, or other possessions.

There are a few exceptions to this personal liability. Some of the partners can have limited personal liability if the partnership is set up as a limited partnership. This is a partnership in which only the general partner, who runs the business, has personal liability, while the limited partners, who are basically passive investors, can lose no more than their stake in the partnership. Also, some states allow special limited liability partnerships (LLPs). More commonly, though, businesspeople who are particularly concerned about personal liability choose to incorporate their business or operate as a limited liability company (LLC).

Joint Authority

In addition, any individual partner can usually bind the whole business to a contract or other business deal. For instance, if your partner signs a year-long contract with a supplier to buy inventory at a price your business can't afford, you can be held personally responsible for the money owed under the contract.

There are just a few limits on a partner's ability to commit the partnership to a deal -- for instance, one partner can't bind the partnership to a sale of all of the partnership's assets. But generally, unless an outsider has reason to know of any limits the partners have placed on each other's authority in their partnership agreement, any partner can bind the others to a deal.

Joint Liability

Each individual partner can be sued for -- and required to pay -- the full amount of any business debt. If this happens, an individual partner's only recourse may be to sue the other partners for their shares of the debt.

Because of this combination of personal liability for all partnership debt and the authority of each partner to bind the partnership, it's critical that you trust the people with whom you start your business.

Partnership Taxes

A partnership is not a separate tax entity from its owners; instead, it's what the IRS calls a "pass-through entity." This means the partnership itself does not pay any income taxes on profits. Business income simply "passes through" the business to the partners, who report their share of profits (or losses) on their individual income tax returns. In addition, each partner must make quarterly estimated tax payments to the IRS each year.

While the partnership itself doesn't pay taxes, it must file IRS Form 1065, an informational return, each year. This form sets out each partner's share of the partnership profits (or losses), which the IRS reviews to make sure the partners are reporting their income correctly.

Creating a Partnership

You don't have to file any paperwork to establish an ordinary partnership -- just agreeing to go into business with another person will get you started.

Of course, partnerships must meet the same local registration requirements as any new business. Most cities and counties require businesses to register with them and pay at least a minimum tax. You may also have to obtain an employer identification number from the IRS, a seller's license from your state, and a zoning permit from your local planning board.

In addition, your partnership may have to register a fictitious or assumed business name. If your business name doesn't contain all of the partners' last names (for instance, you want to use "London Landscapes" instead of "Harper & Reed Landscapes"), you usually must register that name -- known as a fictitious or assumed business name -- with your county clerk.

While the owners of a partnership are not legally required to have a written partnership agreement, it makes good sense to put the details of ownership, including the partners' rights and responsibilities and their share of profits, into a written agreement.

Ending a Partnership

One disadvantage of partnerships is that when one partner wants to leave the company, the partnership generally dissolves. In that case, the partners must fulfill any remaining business obligations, pay off all debts, and divide any assets and profits among themselves.

If you want to prevent this kind of ending for your business, you should create a buy-sell agreement, or buyout agreement, which can be included as part of your partnership agreement. A buy-sell/buyout agreement helps partners decide and plan for what will happen when one partner retires, dies, becomes disabled, or leaves the partnership to pursue other interests. For example, such an agreement might allow the partners to buy out a departing partner's interest, so business can continue as usual.

© 2009 Nolo