Latest posts by David Pike
- 6 Step Checklist to Structure Your Business - March 22, 2021
- How to Validate Your Business Idea - May 22, 2018
- How to Generate and Execute Your Next Business Idea - March 14, 2018
You’ve decided to take the plunge and start your dream business. You’ve decided what your new company is going to do and have formulated your overall strategy.
Now it’s time to complete a checklist of necessary tasks to set up and structure your business:
Name your business
You want to have a unique name that consumers will remember. Your business does not have to share a name with your product and can be an umbrella name for your company. This can be helpful in case you expand to other products or services, so you won’t have to rename your company.
For example, you might sell a unique product called Dog Cleansing Wash. Let’s say down the road you start to sell a Cat Cleansing Wash, so it would behoove you to name your company Pet Soaps.
To come up with ideas, brainstorm until you have a list of five to 10 company names. Then, search online to see if there is a company or website that already uses that name. Check with your Secretary of State to see if there is a business already using your chosen name. For most states, you can do this online.
If, after your research, you still have several potential names, test them out with friends and family to see which one they like the best. Once you have decided on a name for your business and get the necessary trademark protection, you are ready for the next step.
Buy a domain name, set up an email addresses and a business phone
After you decide on a business name, you need to register a domain for your website. You will want a unique and memorable domain name, and the shorter the better. If your business name is long, you will want to use a condensed domain name.
For example, if your business is named Tony’s Lawn Care Service, you might choose to use something succinct like “tonyslawn.com,” over “tonyslawncareservice.com.”
Strongly consider using .com since it is more professional than other domain extensions such as .biz, .co and .info. Of course, you’ll have to conduct research to make sure your preferred domain name is available.
Once you’ve confirmed that it is, there are many domain registrars from which you can choose. Besides selling domain names, some registrars also sell mailboxes for email addresses and include website builders. The most popular combined domain registrars/hosting/website builder companies are Squarespace, Wix and Weebly.
From personal experience, I’ve found it easier to keep domain name, website hosting and mailbox billing all in one place. Once you buy your domain name, you should then buy email addresses associated with it. When starting out, I would suggest buying just one mailbox for your domain, either [email protected] or [email protected]
It’s also important to have a business phone number. While you could consider using your personal phone number, having a separate business line is preferable. Google Voice is free and allows you to have a second phone number that Google assigns to your cell phone. This second number will serve as your business phone number. Download the Google Voice app to your smartphone and use it to call customers, partners and vendors.
Incorporate your business
You need to form a legal entity to protect your personal assets from business debts and liabilities. Forming a legal entity also provides you with additional credibility and legitimacy. Common options for legal entities are limited liability companies (LLCs), S corporations and C corporations.
The benefits of an LLC include reduced paperwork, less stringent reporting and a more flexible management structure. Also, since LLCs are flow-through entities (business income/loss is passed through to the owner’s tax return each year), it makes tax time much easier. With LLCs, you do not take a salary since all income flows directly through your tax return. This is how you pay yourself from the company.
If you are planning to take outside investment, forming a corporation makes more sense. Corporations provide an easier vehicle for outside investors to invest in your company. If you decide to go this route, you have two options: an S corporation or C corporation.
S corporations are more closely related to LLCs in that they are flow-through entities. In S corporations, the number of shareholders (individuals who own stock in a corporation) is capped at 100, and shareholders must be U.S. citizens or resident aliens.
In C corporations, you can have as many shareholders as you want, and there are no restrictions on their citizenship. However, C corporations are not flow-through entities, so the business must pay corporate income tax. To avoid double taxation at the end of the year, you will want to pay yourself a salary throughout the year.
After deciding upon a legal entity, you can create the entity independently using your Secretary of State’s website or you can use a service, like MyCorporation, which adds minimal cost.
Keep in mind that formation fees vary by state. Some people argue that you should form your LLC or corporation in Nevada or Delaware regardless of where you live since they have more business-friendly laws and tax treatment. However, I am a proponent of incorporating your company in the state in which you live. By doing this, you can avoid having to pay a registered agent in a different state to receive and forward your mail to you.
Apply for an Employer Identification Number (EIN) online
After you form an LLC or corporation, apply online for an EIN from the IRS. The EIN is mandatory since you need it to report taxes, open a business checking account and apply for licenses. After applying online, you will receive the EIN instantly on the confirmation screen.
Obtain licenses and permits
What licenses and permits do you need to operate your business? Depending on the type of business you start, there may be licenses required at the federal, state, county and city level.
Research which permits and licenses you need. For the federal level, the SBA is a good place to start. For the state level, reach out to your state’s business licensing department. For the city level, check with your city’s business affairs office.
For example, let’s say you are starting a taco truck. You will probably need a food truck operating permit. Or perhaps you are launching a pet grooming service. In that case, you may need an animal care permit.
Open a business checking account
Once you have your LLC/corporation filing receipt and EIN, go to a bank branch and open a business checking account. For simplicity, I would recommend using the bank where your personal account is. This way, you can have both your personal and business accounts on your online portal in one place.
In addition, many local banks offer promotions and reduced fees for having multiple account relationships at one bank, and you’ll be able to access easy account transfers and online payroll services for contractors and employees all in one place.
Now that your business is structured, you are several steps closer to launching your dream company!