Start your new business!
Start your New Business and Avoid Common Mistakes
In our hustle culture, everyone is talking about starting their own “side-gig” or business. What does that mean exactly? Do you need to hire an accountant? Maybe. But maybe that’s not what you need right now. So, what is the minimum legal requirement to start your business? Just 5 steps! Yup, you read that right!
Determine your Business Idea
Select a Business Name
Select your Organization’s Legal Business Structure
Register with the State (if necessary)
Obtain Licenses and Permits (if necessary)
Simple! Except in this case, the devil is most certainly in the details.
Businesses in the United States are registered and managed by each state rather than at a national level. This means that your requirements will vary based on where you are planning to do business. Requirements and fees vary widely by state and by the type of business you’re planning to operate. Your best course of action is to check directly with the Secretary of State (SOS) where you plan to do business to determine your minimum requirements. There are additional details to be sorted out for larger businesses that operate nationally, but don’t worry about that for now.
1. Business Idea
How can you come up with a business idea that works for you? This question has many answers. Simply put, a business idea that works for you should be something that lies at the intersection of your passion, your knowledge, and your customer’s needs.
Many people start without a fully fleshed out business plan and that’s okay. If you feel confident that you’re able to work hard, have good business intuition, and will do whatever is necessary to pursue your dreams, go on ahead. No need to wait for another person to give you permission to start your business.
If you are more cautious and would feel most comfortable having thought through your business idea more fully, write up a (simple) business plan. There are loads of articles and websites that can guide you through this. I recommend checking out www.sba.gov for some detailed information. You can also work with a professional to walk through these steps, answer questions, and keep you accountable.
Common Mistakes and Pitfalls
Selecting a business idea that you’re not passionate about. It takes a lot of hard work and dedication over a sustained period to make a business “successful overnight.” Don’t pick something that you’ll get bored of in a week or a month or even a year. It must be something that will keep your attention for many years.
Trying to appeal to everyone with your business. Just like you as a person won’t be able to befriend everyone in the world, your business shouldn’t try to cater to everyone. The world is much larger than you think and even if 1% of the population is looking for your unique business, in the US that translates to over 3 million customers! Be you and be specific!
2. Business Name
Your name is how you identify yourself. Though you likely did not choose your own name, it affects how people view and interact with you. If you have a unique, foreign, or famous name, people may associate you with previous experiences they’ve had with people or concepts that share your name or name origin. Your business will be no different, so spend the time to make a thoughtful decision.
For small businesses and those with smaller marketing budgets, it is best to focus on clarity and a descriptive name to ensure that your customers can easily find you. Big brand names have immense marketing budgets to educate and constantly remind their potential customers about their company and what they offer. Do you want to create this uphill battle for yourself? Small businesses must be run differently than a large organization - choose your name wisely!
Common Mistakes and Pitfalls
Choosing a name that is not descriptive. With a small business, you want your customers to find you quickly and easily! Make your business name work harder for you, not against you!
Not checking with your state’s secretary of state to make sure your name is available.
Not checking out the available web addresses to see if some variation of your business name is available before registering with the state, assuming you want a web presence.
3. Legal Business Structure
Your legal business structure is how the government (and other organizations) view your business. The type of legal business structure that is available to your business will vary by state. Each state has different laws which grant different protections and can impose specific limitations.
If you have a simple business, your business is low risk for liability, and you personally have nothing to lose (you don’t own any assets like a car, home, or cash savings) - you may opt for sole proprietorship. If you choose to do business under your own name, you may not even need to register with the state with this legal business structure!
However, if you’ll be doing business that is complex (perhaps you’re hiring employees), involves risk of liability (do you need a license or certification to perform your work?), you need privacy, you plan to sell your business in the future, or you have assets that you’d like to protect (like the equity in your personal home or cash savings you can’t afford to lose) - chances are you would benefit from the protections that come with more robust legal structures for your business. These protections come at a cost but can be well worth it. The trick is to have these protections set up long before you need them.
Common Mistakes and Pitfalls
Selecting the wrong legal business structure for your circumstances or situation. For example, if you’re planning to sell your business quickly, setting it up as a sole proprietorship is going to cause problems when you try to sell.
Not working with professionals when you need to. The upfront cost can be jarring, but the protection of a good professional can save you if you run into trouble. Additionally, if they mess up, you can file a lawsuit and seek damages as many professionals have insurance to protect them and you in the event of a mistake.
4. State Registration
Once you’ve decided on the three items above and you’ve determined that you need to register your business, you can seek out your secretary of state’s process for registration. If you elect to register your business on your own, know that you will have to provide personal information that can publicly identify you as associated with the business. If you would like to maintain some of your privacy, there are many solutions. A registered agent or lawyer may be able to assist you with filing your documents with the state. The associated costs will likely be based on the amount of support each professional will provide. Your state’s secretary of state should also have resources to help you with filing.
Common Mistakes and Pitfalls
Not registering with the state when you need to.
Not registering in the right state for your needs.
Not understanding the protections and limitations that your business registration offers.
5. Licensing or Permits
Making money comes with the inevitable - filing taxes. States each have their own department of revenue requirements for obtaining permits to operate within the state as a business. They will have their requirements for obtaining business licenses and permits, including but not limited to - initial filing requirements and recurring reports to maintain good standing. Many cities also collect business income or sales tax, and you may need to file directly with each city you plan to do business in.
Additionally, each state may have their own licensing or certification boards for different types of services offered. For example, the state’s department of labor and industries may verify contractors (also known as a trades person or construction worker) that work on buildings and structures while the state’s department of health may verify a healthcare provider’s (e.g., doctors, nurses, technicians) credentials. Depending on what product or service your business offers, you may need to register with more than one organization.
Common Mistakes and Pitfalls
Not obtaining licenses with the state when you need to.
Not obtaining licenses with the cities when you need to.
Not maintaining the filings at appropriate intervals when you need to.
Not obtaining appropriate permits as needed to operate.
Not obtaining insurances and bonds as needed to operate.
Though many people are afraid of starting a business because the paperwork can seem daunting, it doesn’t have to be so scary. You can learn as you go, or you can learn ahead of time to limit your risk of headaches down the road but know that most mistakes can be fixed and the chances of you getting into serious trouble are low. Do your best to stay informed and to reach out for resources when you feel like you’re in over your head. Otherwise, just keep going and trust yourself to make the right decisions. You got this!
If you’d like one-on-one support for your business venture, feel free to check out my business consulting services here!
“It’s not about ideas. It’s about making ideas happen.”