Starting a small business is the beginning of an exciting journey. One that has potential for hard work, high rewards, and amazing impact on your community. We share some initial steps to take when you are wanting to get your small business started.
Understand if your business idea is a sound one, with market research to help validate your idea. Create a business plan which can be a guide for your leadership and for other stakeholders. A savvy business plan is a critical part of seeking a small business loan.
Related: Community Bank Shares Top 3 Tips for Small Business Loan Seekers
Determine Your Business Structure
There are a few options regarding the legal structure in which your business will operate. As you begin to start your new business, it is important to decide which business type will fit your situation best. This will impact taxes, personal liability, and other considerations as your business gets up and running. Since each business structure can come with its own tax concerns and requirements for forming and operating the business, it is recommended that you consult an attorney, an accountant, or a business counselor to see which option might be best for your situation, and what guidelines you’ll need to follow.
- Sole Proprietorships: Sole proprietorships are the easiest to form but your business assets and liabilities are not separate from your personal ones, and you can be held personally liable for any business obligations and debts.
- Partnerships: Partnerships are good for two or more people when it comes to owning a business, but the amount of liability can differ based on whether the business is a limited partnership or a limited liability partnership.
- Limited Liability Companies (LLCs): An LLC is a more formal business structure with a variety of requirements and can protect owners from personal liability should the business be faced with a lawsuit or bankruptcy.
- Corporations: Corporations are more costly to form and require extensive records and reporting. An advantage of a corporation is that a business will also be able to sell stock to raise funds.
Make it Official — Register Your Business
You’ve determined your business plan, name and structure, so now it’s time to register your business. Based on your state, there may be specific registrations or permits needed. Check with your Secretary of State’s Office for all required state-level registrations.
You’ll need your free federal tax ID number — called an Employer Identification Number or E-I-N — from the IRS. To apply for it online, go to ein.irs.gov and follow the instructions. You will need information such as your business name, mailing address, Social Security Number, and details about your business structure. The EIN will be available immediately upon completion of the online form.
Once you have an EIN, there might be occasions when you will need replace or change it if the name or address of your business changes, or if there is a change in ownership. You’ll be able to find more information on the official IRS governmental website. In addition to your federal EIN, you might also need to get a state tax ID number. These are important for filing federal or state taxes, hiring employees, getting licenses and permits, and opening a bank account for your business.
Get Your Business Funded
Your new small business is going to take money. Your business plan (see above) should include information about projected sales, expenses and profits. You’re also able to set up a business bank account to keep personal and business banking separate. Need help with banking for your business? Check out our options and contact us for help.
Many entrepreneurs start with self-funding by drawing money from savings or retirement accounts. Just keep in mind that while this bootstrapping approach can be a great way to get off the ground, it can also be costly if things don’t work out.
A business or personal credit card is another option to help cover expenses. While there are differences between the two, cards often come with rewards programs. When used responsibly, they can also help build your credit score.
Family and friends can also be funding sources, but it will be important to be clear about how and when the money will be repaid. Yet another option is crowdfunding, where money is raised through many small donors. Businesses funded in this way often offer products or rewards based on the size of the donation. Just make sure you are aware of any fees charged by the crowdfunding platform you choose.
A business loan from a financial institution is also a possibility, but it can be harder to obtain until your business has a track record. If you decide to pursue this possibility, talk with your financial institution about your options, or visit the Small Business Administration at sba.gov to look into other programs. Fidelity Bank is happy to help! Connect with our business lending team to discuss what options might be right for you.
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