MUST READ: Before Opening a Business!
Opening a Business:
Research and Planning: The first step to starting a business is conducting thorough research of your market and your intended service. Before opening the actual business, a plan must be developed to help you initiate your business model and become a successful business owner.
Utilize Resources: During the planning stage, you must take advantage of all the resources at your disposal. Utilize free training and counseling services to facilitate the preparation and expedite your ability to expand and garner finances to carry-out your business plan.
Deciding on a Location: After you have decided on your particular product or service and have evaluated your market, you must tangibly create a business plan. All business plans follow a precise template and must fortify your intended business model. The business template will act as a road map; the business plan will tangibly outline your goals and the means to achieve such goals.
Zoning Laws: After obtaining a business plan you must seek advice concerning your intended business’ location. To complete this step you must understand and comply with the zoning laws of that particular location. Choosing an area that is customer-friendly will aid in the development of your business.
Industry Laws: In addition to acknowledging and comprehending the zoning laws of the particular location, you must also understand the variety of laws that govern how a business is conducted in general, in addition to the specialized laws that regulate specific industries. For instance, there are environmental regulations instituted by the U.S. Environmental Protection Agency (EPA) and coordinating state environmental agencies that are responsible for regulating the impact of a business on an environment. The EPA will develop and enforce such regulations to implement environmental laws enacted by Congress. Additionally, finance law is present to ensure fair competition and protect the financial interests of companies and investors. Furthermore, laws on advertising and online business also exist to regulate the markets and ensure a fair and competitive industry.
Financing your Business: Once the business plan has been developed and the laws which surround your industry are understood, you must raise money to finance your business venture. To encourage entrepreneurship, the Federal Government of the United States offers an assortment of loans and grants to potential business owners. The following examples are the most common forms of business loans:
a. Term Loans: These types of loans are the most common general purpose loans. Term loans are used to finance working capital, business expansion, acquisitions, and refinancing. The business owner repays these loans through monthly installments over a term based on the expected lifespan of the assets being purchased.
b. Short Term Loans: These sources of financing are typically set up for terms of one year or less and are repaid in a lump sum at the end of the term, as opposed to monthly. Short terms loans are offered in smaller amounts—typically less than $100,000—and are best used to stock seasonal inventory or embark on small investments with quick returns.
c. Equipment Financing: Typically obtaining this type of loan is relatively easy because the equipment purchased serves as direct collateral for the loan. Additionally, these types of loans are less risky; if you fail to make payments and a lien does not exist against your house or personal real estate, you only lose the equipment you purchased.
d. Lines of Credit: This form of financing is typically offered to insure against cash flow problems. As oppose to getting a lump sum loan, the financial institution will allow you to borrow up to a certain amount per year; the money is taken in increments in coordination with the business’ needs.
e. Government Grants: In addition to loans offered by financial institutions, an individual may receive a Government grant—which acts as a loan or avenue for financing—depending on the industry you are in and the business plan you have developed.
Types of Business Formations: After you have secured your finances, you must determine the legal structure of your business. Evaluate the taxing methods and liability issues of each form and decide whether you are going to form a sole proprietorship, a partnership, an LLC, a corporation, a non-profit, or a trust.
a. Sole Proprietors: This form of business is unincorporated; a sole proprietorship is essentially an independent contractor, a consultant, or a freelancer. No forms are required to establish this type of business. The only thing you will need to affirm this classification is to report your business income and expenses on your Form 1040 Schedule C. A Sole Proprietorship is the easiest business to set up and the easiest to dissolve.
b. Corporation: A corporation is a type of incorporated business that is regarded as a separate entity. This classification provides a measure of legal and financial protection for the shareholders present in the business model. The shareholders of a corporation possess limited liability protection and full discretion over the amount of profits they can retain or distribute. Corporations must have at least one shareholder and are typically regarded as for-profit entities.
c. Partnerships: Types of unincorporated businesses that possess separate personalities from their shareholders. Dissimilar to corporations, a partnership must have at least one General Partner who assumes unlimited liability for the business venture. Two shareholders must be present to be considered a partnership; this type of business distributes all profits and losses to their shareholders without regard to any profits retained by the business for cash flow purposes.
d. S-Corporations: Must have at least one shareholder but cannot have more than 100 shareholders. If a shareholder provides a service to the business, the S-Corporation must pay that shareholder a salary—the salary is a separate payment from profits, distributions, or losses.
Registering your Business: Once you have chosen the legal structure of your business you must register your business’ name with your local State Government, specifically with your State’s Department of Revenue. You must register your business with this agency if your business is required to collect a sales tax, exceeds a certain gross income, or is a buyer of special products. The rules associated with registering your business will vary between each state. However, the process is not complicated and typically requires the filing of a master business application.
Federal Tax Number: Following this step, you must obtain a Federal Tax Number. All businesses are required to pay state, Federal, and local taxes. As a result, a business must register with the IRS to receive a tax number or permit. If your business has employees, is a partnership, or a corporation, you must obtain an Employer Identification Number found on Form SS-4 through the IRS. Businesses that operate within a state are required to register for one or more tax-specific identification numbers, licenses, or permits. Unemployment insurance tax, sale and use tax (a seller’s permit), and income tax withholding licenses are all needed.
Obtaining Licenses or Permits: The next step to starting a business will require every business to obtain one or more Federal, state or local license or permit to legally operate in the country. Depending on the business you develop, a license can range from a basic operating license to a specialized permit. Regulations will vary by sector, state and locality, so it is vital to understand the rules where your business is located and the licenses needed to carry out your specific job function.
Hiring Employees: Once you have obtained the necessary documents, permits, and licenses you must engage in a detailed plan to hire employees to help distribute your business’ products. There are numerous sources you can use to hire employees. However, you must first understand your regulatory requirements as an employer before you can engage in hiring efforts. After you have obtained an Employee Identification card and have set up records for withholding taxes, you must file an Employee Eligibility Verification form (Form 1-9) to verify an employee’s eligibility to work in the United States. The I-9 is kept on file for 3 years after the date of hire or 1 year following the employee’s termination, whichever comes later. The United States Immigration and Customs Enforcement (ICE) Agency will conduct routine workplace audits to ensure that an employer is properly completing and holding onto the I-9 forms.
a. Following this, you must report all newly hired and re-hired employees to a State directory within 20 days of their hire date; the Personal Responsibility and Work opportunity Reconciliation Act of 1996 requires this process to be initiated.
b. An employer must also obtain worker’s compensation insurance.
c. A business who hires employees must pay unemployment insurance tax under certain conditions. If your business is required to pay these taxes you must register the business with your state’s workforce agency.
d. All businesses with employees are required to obtain disability insurance.
e. To diminish liability, all employers are required by Federal and state laws to display certain posters or warning signs in the workplace that will inform employees of their basic rights and the employer’s responsibilities under labor laws.
f. After these steps have been satisfied, you must file your taxes. Typically each quarter your business must file income tax withholding, social security and Medicare taxes. You must file IRS Form 941, Employer's Quarterly Tax Return. Small businesses with an annual income tax liability of $1,000 or less may file IRS Form 944, Employer's Annual Federal Tax Return, instead of Form 941. You must also file IRS Form 940, Employer's Annual Federal Unemployment (FUTA) Tax Return, if you paid wages of $1,500 or more in any calendar quarter or you had one or more employees work for you in any 20 or more different weeks of the year.
