The process of starting a business can be daunting if you have never gone through it before. You will need to develop a detailed strategy so that you avoid pitfalls and maximize your chance of success. In addition to considering logistical issues, such as the best location for your business, you will need to meet legal requirements for establishing the business. These vary depending on the business structure that you choose.
First Steps in Business Formation
You should make sure to develop a strong business plan that provides the details for how your business will be run. It should explain how you will finance the business in its early stages, and it should describe where the business will be located. You should think carefully about how your business will generate a profit, or excess revenue in the case of a nonprofit. Having this foundation laid out in advance should make it easier to finance your business and convince talented people to join you in running it.
In some cases, depending on the type of business that you form, you may need to register your business with tax authorities at the federal and state levels. You also may need to register the name of your business with the appropriate government agency. If you plan to hire employees, you will want to get a federal tax ID and potentially a state tax ID. In addition, you may need to get licenses from the state or federal government and purchase insurance for your business to protect it from liability.
One option that some prospective business owners consider is buying an existing business instead of starting a new business. This can be a useful strategy because it allows you to capitalize on the goodwill of the existing business and gain access to its customer base. However, businesses that are being sold often have problems that may not be immediately apparent. You should thoroughly investigate a business that you are thinking of buying so that you are not exposed to unexpected liabilities or harmed by its poor reputation. Read more here about the first steps in business formation.
Business Ownership Structures
Choosing the structure that your business will take is one of the most important and lasting decisions that you will make during the formation process. Ownership structures range from sole proprietorships and general partnerships to corporations, limited liability companies (LLCs), and limited liability partnerships (LLPs). Entities with less formal structures will need to meet few (if any) formation requirements, and the everyday process of managing them can be simpler. On the other hand, more formal types of structures may offer tax advantages and at least some protection from personal liability if your business is sued.
A less conventional type of business structure is a franchise. This involves paying an existing business for the right to use its name and other distinctive features, such as its trademarks. Often, a business owner will form a corporation or another formal entity, and then that entity will pay a larger corporation for franchise rights. Many examples of franchises are found in the food and hospitality industries.
Some business owners are not aiming to make a profit but instead are seeking to further a certain cause or mission that is important to them. They can found a nonprofit organization, from which excess revenue will go toward supporting its mission. If you are starting a non-profit, you will need to make sure that you have money left over after paying employees and covering other necessary costs of operation. You may be eligible for various types of benefits from the federal and state governments, including tax exemptions. Read more here about common business ownership structures.