Making It Official
You’ve tested your business idea, conducted market research, and even trademarked a company name. What’s next?
In our previous blog, we discussed the questions that you should ask yourself when you first have a business idea. If the answers to those questions have led you to move to the next step, you need to know what it will take to make it official.
1. What legal documents do I need to start my business?
Even if your background is in law, it can be difficult to navigate all the legal requirements of starting a business. This is particularly the case if you are in an industry that is highly regulated like healthcare or finance. Regardless of industry, you still have to register your business with the government to be considered legal and legitimate. To do this, you have to determine the right structure for you.
2. What is my business structure?
There are four main types of classifications to consider: LLC, S Corp, C Corp and DBA. How you register will affect other aspects of your company, such as how you file your taxes, so it is important to choose wisely.
● Limited Liability Company (LLC) protects the business owner from being held responsible for damages or debt created by the business entity. Some companies in industries like banking and insurance are prohibited from filing as a LLC.
● S Corp differs from other structures mainly because of the tax filing status. You can put the profits and losses on your personal tax return and the business won’t be taxed.
● C Corp makes the shareholders legally responsible for the actions of the company and any debt accrued by it.
● Doing Business As (DBA) is known as a sole proprietorship. This is the most common and basic structure. This is a one-person business, in which you are receive all the profits and are responsible for all losses and debts.
You’ll need to fill out paperwork no matter which structure you select. You can locate the exact forms and see the costs by checking your Secretary of State’s website. Your structure status will be filled out in an articles of incorporation, a set of documents that provides company information including your name, purpose, and location.
There are also specific state requirements and depending on what type of business and industry you are in, there may be additional requirements that you have to meet. You can search for them by state here.
If you have employees, you’ll need to get an employer identification number (EIN) from the IRS. The service is free and you can apply for one on the IRS website here.
3. What kind of insurance do I need?
There are many different types of insurance policies that a business should consider, but which ones do you absolutely need? Again, this varies based on the type and industry. However, two of the most basic insurance policies are general and professional liability.
General liability covers physical damage that happens at your place of business. If you lease or rent a location, property owners usually require proof of insurance. Professional liability, also called Errors and Omissions (E&O), covers damage or negligence that is a result of services or counsel provided by your company. In other words, if you give someone advice and it backfires, in some cases, they can hold you accountable.
Although general and professional are the two primary policies that most businesses need, explore your options. You may want to consider vehicle insurance if you make deliveries to your customers or cyber liability if you have a large tech company. If you employ a certain number of in-house workers, you’ll need insurance for that too. The number varies by state, so make sure to check it out for your location.
4. What documents do I need to open a business bank account?
Even if you are a sole proprietorship, you will probably want to set up a business bank account. It will be simpler to separate your personal and business finances this way. In many cases, you can open a business account online. The documents and information that you will need depend on which structure you’ve registered. You can find the requirements by structure here. For companies in industries like gambling or telemarketing, you’ll have to go through the process in-person.
5. What are the startup costs?
How are you going to pay for all of the items needed to launch and operate your business? It’s an obvious question, but the answer might get complicated. Luckily, there are a few starting costs calculators that you can use to help you through the process. For instance, Entrepreneur’s calculator focuses on current and fixed assets, inventory and available money in the bank. The Wall Street Journal’s breaks down your possible expenses, assets and costs into easy-to-understand sections that guide you through it.
If you tested out your idea with a MVP, as we discussed in our first blog, then you should already have a decent range of how much money you need to develop your product and what price point you can sell it at. You should also have a better idea of your customer base.
6. How will I source financing?
If you don’t have a large lump of cash stashed away, then bootstrapping your business is likely not an option. You’ll have to consider other funding options, which may include: applying for a business or personal loan, crowdfunding or securing venture capital.
If your business isn’t self-funded you may be giving some level of control to investors or other shareholders. It is crucial that you consider your funding options and partners carefully, because you could be working with them for years to come.
7. Do I have a documented business plan?
If you haven’t already been documenting your business plans, you need to now. A business plan fully outlines almost every aspect you can think of for running a company. It can include: your strategy, goals, mission, culture, values, findings from your market research, marketing strategy, hiring procedures and employee conduct, budget and much more. A business plan helps you identify any possible issues, mitigate risk and develop strategies for the future.
8. What baseline tools and resources do I need to properly launch my business?
MVPs are incredibly valuable to prepare for a company launch, but there is much more involved. For instance, do you have business cards with a branded logo and design? Do you have a company website? Has it been user tested? You may need anything from uniforms to store signs, so it is important to account for it in your operating costs and to make sure that it is ready before you go live.
9. How will I keep all of these things organized?
Whether you use a Google Sheet or a contact and document management system, you need to establish some way to organize and store business information. No matter what method you use, remember not to store sensitive information anywhere that is not secure. Some documents may require a physical home, so you may want to reach out toa document storage company.
The process to make your business official can be overwhelming and make you feel like you are swimming in paperwork. However, it is a necessary step that all companies have to take so that they can set the framework needed to launch and grow. Check out the next blog and find out how 10twelve can help you build your business.