Starting a new business is not for the faint of heart. Sure, thinking of a clever name and designing a logo is fun and exciting, but many of the other necessary steps are not such a barrel of laughs.
Writing a mission statement and choosing cool desks will be a big waste of time if you don’t lay the proper legal and financial groundwork to make your business function properly.
Whether your new startup is creative, retail or technological, you should use the following steps as a checklist and a roadmap as you inch your way toward actually starting up.
1. What’s in a Name?
First, make sure that the name you choose is legally available. As unique as it may be, there might already be another business out there with the same name. No one wants to print business cards and get a sign made only to receive a cease & desist letter that brings you back to square one. You can check the U.S. Patent & Trademark Office website for other trademarks on the name.
If you plan on incorporating, first check with your state’s office handling business organizations (i.e., corporations, etc.) to see if the name’s already in use. Even if it is, you might still be able to go ahead with it if your business offers drastically different services than the other one. Finally, assess the name for web-readiness. Check to see that a suitable domain is available by doing a search on a domain database. If it is, claim that domain! And claim the name on various social networking sites that you’ll undoubtedly utilize as you start getting the word out.
Once you’ve done all of your homework and established that the name is available, you should waste no time in registering the trademark or reserving it with your state as a DBA (Doing Business As) if the company name is different from your own.
2. Choose a Business Structure
You have several viable options when it comes to a business structure. Most likely, you’ll start off as a sole proprietorship or an LLC (limited liability company), but it really depends on the type of business and the organization of owners.
A sole proprietorship gives you sole ownership, but the total liability is not limited to the assets of the company. LLCs, however, offer the best of a couple of worlds. You get a corporation’s limited liability, but a partnership’s tax benefits and flexibility. The other options include a partnership, a cooperative and a corporation. Do a bit of research and talk to other small business owners or a business attorney to learn more about the benefits of each and the one that will work best for you.
3. Federal Tax ID
Starting a business is somewhat like giving birth to a child who has to have its own identity. If you want to stay cool with the IRS (and I know you do), one of the most important parts of your baby business’s identity is its tax identification or EIN (employee identification number). The new online application has really streamlined the process. Keep in mind that if you end up changing your business’s structure at any point as your company grows, you’ll need to apply for a new EIN.
4. Employment Laws
Your business may start off as a one-man band, but if you survive the beginning, you’ll probably end up hiring an employee or two before long. Though this employee may be a close friend or relative, you still need to follow the legal steps involved in hiring. There’s much more to it than just agreeing on a salary and contractual terms.
Within 3 days of hiring, you’ll need to verify the new hire’s eligibility to work in the U.S. by filling out an I-9 form, which should be kept on file for at least 3 years. Yes, you still need to do this even if the employee is your little sister, whose U.S. birth you personally witnessed. The other biggie here involves taxes – your employee must fill out a W-4 to certify tax exemption, and you need to complete a W-2 to report paid wages for each employee.
When it comes to insurance and leave benefits, much is left up to you as the employer. You’re required to have worker’s compensation for employees, but most other benefits are optional and will be something you determine as a part of your contract. In general, you should educate yourself about employee rights and responsibilities under federal and state laws in order to establish and maintain a healthy work environment.
5. Permits, Licenses & Certifications, Oh My!
The type of permits, licenses and certifications you’ll need really depends on your state and your industry. A new coffee shop in Chicago will certainly have very different requirements from a new plumbing company in Cleveland. Make sure that your startup is operating legally by checking the specific requirements for your field in your state.
6. Business Banking
Once your business really gets going, you shouldn’t just be using your personal bank account. Before you begin researching what various banks can offer you, determine what’s important to you in a financial institution. Do you need online banking or is it more important to you to have a local branch nearby? Might you need a loan or a line of credit down the line?
Figure out your main priorities and then compare and contrast offers from different banks. And remember, starting your company with one bank doesn’t mean you’re locked in for life. As your business and financial needs change and develop, you can always transition your account to a different bank that better suits your needs.
To keep track of your finances, it’s a good idea to invest in accounting software, such as QuickBooks. The program will keep important records for you all on its own, so that you don’t have to spend unnecessary time doing inventory or balancing your checkbook.
It’s easy to get carried away with the excitement of starting a new business you’re passionate about. Just make sure that you also set aside lots of time to do the many unglamorous tasks associated with getting a company off the ground. There are many resources for start-ups offered on the government’s Small Business Administration and various chambers of commerce, and much of it you can absolutely figure out on your own.
When in doubt, however, don’t be afraid to seek the advice of an attorney who specializes in business startups. He or she can help you wade through the jargon, tax codes and seemingly endless documents. Getting started off on the right foot is too important to leave anything to chance. And, in the end, an efficient attorney will probably end up costing you less than online legal services. In the case of your new business, it’s always better to be safe than sorry.
Andrew May, owner and president of May Law, PC, is a Chicago FINRA attorney specializing in financial services, commodities, futures, foreign exchange, options and securities law. With over 18 years of experience, Andrew has represented clients ranging from individuals and small business to Fortune 500 firms. For more information, visit May Law, PC or find him on Google+.
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