How to Legally Start a Small Business
in 10 STEPS
1 - Conduct market research
Market research will tell you if there’s an opportunity to turn your idea into a successful business. It’s a way to gather information about potential customers and businesses already operating in your area. Use that information to find a competitive advantage for your business.
2 - Write your business plan
Your business plan is the foundation of your business. It’s a roadmap for how to structure, run, and grow your new business. You’ll use it to convince people that working with you — or investing in your company — is a smart choice.
3 - Get over the company-name thing.
Many people agonize endlessly over dreaming up the perfect company name. Don't. If you're waiting until you come up with the perfect name, you're also waiting to start making money.
Instead, at least for now, forget branding and unique selling propositions and all the business-identity stuff. And don't worry about finding the perfect URL or website design or promotional literature. You're putting those carts way before your business horse, too.
Just pick a name so you can get the administrative ball rolling.
Remember, your business can operate under a different name than your company name. (A "doing business as" form takes minutes to complete.) And you can change your company name later, if you like.
4 - Get your Employer Identification number (EIN).
An EIN is the federal tax number used to identify your business. You don't need an EIN unless you will have employees or plan to form a partnership, LLC, or corporation.
But even if you don't need an EIN, get one anyway: It's free, takes minutes, and you can keep your Social Security number private and reduce the chance of identity theft, because if you don't have an EIN, your SSN identifies your business for tax purposes.
Note: If you're using an online legal service to set up an LLC or corporation, don't use it to get your EIN. Instead, apply online at the IRS website. You'll have your EIN in minutes.
Now it's time to head to your locality's administrative offices.
5 - Register your trade name.
If you won't operate under your own name, your locality may require you to register a trade name. In most cases, you'll get approved on the spot.
6 - Get your business license.
Your county or city will require a business license. The form takes minutes to fill out. Use your EIN instead of your Social Security number to identify your business (for privacy reasons if nothing else).
You may be asked to estimate annual gross receipts. Do your best to estimate accurately, but don't agonize over it. You're just providing an estimate.
7 - Complete a business personal-property tax form (if necessary).
Businesses are taxed on "personal" property, just like individuals. Where I live, no form is required for the year the business is established.
If you are required to file a business personal-property tax form and you plan to work from home using computers, tools, etc., that you already own, you won't need to list those items.
If you purchase tangible personal property during your first year in business, you will list those items when you file your business personal-property tax form the following year.
8 - Ask your locality about other permits.
Every locality has different requirements. In my area, for example, a "home occupation permit" is required to verify that a business based in a home meets zoning requirements.
Your locality may require other permits. Ask. They'll tell you.
9 - Get a certificate of resale (if necessary).
A certificate of resale, also known as a seller's permit, allows you to collect state sales tax on products sold. (There is no sales tax on services.)
If you will sell products, you need a seller's permit. Your state department of taxation's website has complete details, forms, etc., if you decide to apply online, but most localities have forms you can complete while you're at their administrative offices.
10 - Get a business bank account.
One of the easiest ways to screw up your business accounting and possibly run afoul of the IRS is to commingle personal and business funds (and transactions). Using a business account for all business transactions eliminates that possibility.
Get a business account using your business name and EIN, and only use that account for all business-related deposits, withdrawals, and transactions.
Pick a bank or credit union that is convenient. Check out your local credit unions; often they provide better deals than banks.
BONUS - Set up a simple accounting spreadsheet.
Worry about business accounting software like QuickBooks later. For now, just create a spreadsheet on which you can enter money you spend and money you receive.
Bookkeeping is simple, at least at first. All you need are Revenue and Expenses columns; you can add line items as you go.
Instead of spending hours playing with accounting software, dreaming up potential expense and income categories, and creating fancy reports with no data, spend that time generating revenue. As long as you record everything you do now, creating a more formal system later will be fairly easy. It will also be more fun, because then you'll have real data to enter.
And now you're an entrepreneur, with all the documents to prove it.
(Oh. I didn't have to pay for lunch.)