7 Things You Don’t Want to Miss » Small Business Bonfire
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Small businesses play a significant role in the American economy. Nearly all US businesses–99.9 percent of them, to be exact–are small businesses. In 2020, the US had 31.7 million small businesses, employing over 60.6 million individuals.
It might look easy to set up your own small business, but there’s also a lot of meticulous preparation behind the scenes. To exist legally as a small business in the United States, you must comply with federal and state requirements.
Dealing with legal issues might seem intimidating, especially if you’re new to these terms and practices. It’s always best to get professional legal counsel, but you can take this post as a starter pack for when you make the jump into business ownership.
1. Choose a Business Structure
First on your list is deciding what kind of business entity you’d like to start. A business structure determines how you run your business, who manages it, the taxes you need to pay, how you split your profits, and how your business interacts with the government.
Below are the most common business structures you may encounter:
- Sole Proprietorship. There is only one business owner in a sole proprietorship, with no separation between personal and business finances. This business structure is where most small businesses start.
- Partnership. Each partner will be personally liable for any business debts and obligations similar to a sole proprietorship. A signed partnership agreement will determine each partner’s responsibilities.
- Limited Liability Company (LLC). An LLC is a legal entity completely separate from its owners, now legally called its members. It protects its members from personal liability while enjoying pass-through or minimal taxation.
- Corporation. A corporation is also a separate legal entity, protecting its owners from personal liability. However, corporate taxes are hefty, and many shareholders experience double taxation when splitting profits. For these reasons, this legal structure is better suited for larger businesses.
2. Decide on a Business Name
Deciding on a business name is important in establishing a brand identity that potential customers can remember. Once you pick a name, it is highly recommended to protect it. You could register your business name in different ways.
- An entity name protects your business name at a state level.
- A trademark protects the names of your business, products, and services at a national level.
- Doing Business As (DBA) does not provide any legal protection but allows businesses to operate under other names than the one they used for their business entity registration.
3. Apply for Required Certifications, Licenses, and Permits
Depending on the type of business you want to establish, you might be required to apply for specific certifications, licenses, and permits.
For example, if you’re in the food and beverage business, you might need to obtain a health permit and a food service license along with your regular business permit.
These papers ensure that you and your staff are capable of providing safe and quality food to your customers. These also assure that anyone who comes in isn’t likely to get sick after eating at your restaurant.
4. Get an EIN
An employer identification number (EIN) is a nine-digit identifier unique to your business. It provides the Internal Revenue Service (IRS) the capability to identify businesses for tax purposes.
Applying for an EIN is completely free, and the business owner or representative only needs to have a valid Taxpayer Identification Number. The IRS now has an online EIN application portal, making it more convenient for small businesses to register.
5. Open a Business Bank Account
Once you’ve gotten an EIN, you can open a business bank account. This is ideal for businesses owners who wish to keep their personal and business finances separate.
Besides protection from personal liability, business bank accounts also add a degree of professionalism to your business transactions. Customers or fellow businesses could transact with your business account instead of your personal account.
A business bank account also provides your business with additional purchasing power, and you could take out loans for major business expenses.
6. Pay Business Taxes
Every business needs to pay taxes. The kinds of business taxes you need to pay will depend on your business structure. These taxes include income tax, estimated tax, self-employment tax, employment taxes, and excise tax.
If you’re not too well-versed in tax laws, hiring an accountant or using accounting software to help you file your taxes would be wise. Make sure to file your taxes on time to avoid fines or penalties for your business.
7. Purchase Business Insurance
Running a business always involves a degree of risk, no matter how capable its management is. Getting business insurance helps protect your business from any damage caused by unforeseen circumstances.
Here are some common types of business insurance:
- General liability insurance. This insurance type is highly recommended for all business types. It covers most liabilities, including property damage, bodily injury, medical expenses, libel, slander, etc.
- Workers’ compensation insurance. This insurance covers employees that get hurt on the job. This is a requirement for all businesses with employees.
- Unemployment insurance. This type of insurance is another requirement for businesses with employees. It assists workers in times of depression or when they cannot find jobs.
- Disability insurance. This policy assists people who can no longer work because of disability. This insurance type is also required for all businesses with employees.
- Product liability insurance. For manufacturers, distributors, wholesalers, or retailers, this insurance type protects against financial loss due to injuries or harm caused by a defective product.
- Professional liability insurance. This protects your business from financial loss due to errors, malpractice, and negligence.
- Commercial property insurance. This insurance type provides coverage for land, buildings, and facilities that might suffer damage from floods, storms, fire, or vandalism.
- Home-based business insurance. For businesses that run from the business owner’s home, this insurance provides coverage for business equipment and injuries.
Complying with these requirements is essential for your business to run without any legal hiccups. Still, nothing beats professional advice. Before taking any significant business steps, hire qualified counsel to help you navigate the essential legal processes.