If you are considering starting your own small business in the U.S., here are seven key steps to help you plan, organize, and access the resources you need to make your dream of self-employment and business ownership a reality.
1. Determine the legal structure of your business.
There are six distinct identities that can be established for an American small business (i.e., sole proprietorship, limited liability company (LLC), cooperative, corporation, partnership and an S corporation.
Each business structure has unique advantages that provide protection from personal liability, as well as opportunities to develop your small business into an asset that might be sold in the future. However, before you determine the best structure, evaluate your long-term growth and business expansion plans.
For consultants or individuals who intend to have only one employee (themselves) a sole proprietorship can be established. While operating as a sole proprietorship is less complicated than incorporating your business (income is taxed as personal earnings), a sole proprietorship is not protected from personal liability.
Meanwhile, many businesses choose to incorporate, as it provides a number of legal, liability and financial advantages. If your plan is to take your business public in an IPO and sell it at some point in the future, establishing an incorporated business is necessary. As a distinct legal business entity, your incorporated small business can also qualify for small business loans, grants and financing that is typically not available to sole proprietorships.
2. Decide on a business location.
Where you do business can be as important as how you do business. If your business is service based and requires foot traffic for customers, choosing the right location can either make or break your potential income. If your business is not in a position to purchase a retail or office location, annual leasing can provide the space you need as a startup to grow.
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Small business loans that are tied to purchasing real estate (for operational space) can qualify for SMB business or real estate loans to help you get established.
3. Register your legal business name (DBA)
Commonly known as a DBA, this legal document registers your business name, and is often the first step toward creating your small business profile. Choosing a name for your business is an important aspect of marketing and branding.
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Once you have selected a business name, you can approach your municipality to register yourself “Doing Business As” (a.k.a. DBA) with your chosen small business name.
After you have registered a DBA, other businesses are not able to use the same name, so it is an important trademark exercise as well, protecting your business identity against imitators in the same market.
Typically, DBA’s can be filed online, and cost less than $150 to register in most states. Finding a business formation attorney in Mississippi or any other state can help you expedite setting up a legal small business opportunity.
4. Obtain business licenses and permits
If your small business is within a federally regulated industry, including aviation, alcohol or tobacco production, sales or wholesale distribution, or agriculture products or services, federal licenses and permits are required. For other industries, including child care, food or catering and restaurant services, state and municipal (county) licenses may also be required.
If you are not sure what specific licenses pertain to your business in the United States, you can access a complete directory of requirements by state on the U.S. Small Business Administration website.
5. Register your small business for state and federal taxation
Most businesses and service industries are required to collect state and federal tax. If you sell products and services to other countries, or outside of your state, you are required to adhere to the retail taxation laws that govern the state where your business resides; however, if you do not live and operate your business in the state, you are not required to do so.
In addition, if you are selling a product (wholesale or retail), it is mandatory to collect taxes at the point of purchase. State and federal sales tax licenses must be acquired, which provide an identification number for your business, enabling you to pay taxes monthly or quarterly.
There are deadlines for submitting sales tax to both federal and state agencies (as applicable), as well as fines for late payment. Many retail businesses use accounting software like Quickbooks and Xero to calculate taxable earnings and submit on a monthly basis via electronic payment.
6. Secure startup capital
Consider how you will finance your startup. The U.S. Small Business Administration (SBA) offers a website that is full of resources for small business owners and sole proprietors who are looking for state or federally funded grants, loans and special programs.
Visit the SBA website for more information about financial opportunities, equipment and real estate (business site) loans for veterans, women, minorities, and entrepreneurs who qualify under the American Disabilities Act (ADA).
7. Hire employees or contract laborers
Before your small business can really grow, you may need to hire more people. Before you begin, however, part of your business plan should establish staffing projections on the type of help your business will need.
A statutory employee is one that is a salaried or hourly employee. This category can include full-time sales staff, administrative personnel, agents, commissioned staff or service professionals.
A statutory non-employee is classified as self-employed in the eyes of the American labor laws, even though they may work a standard amount of hours for your business.
Finally, an independent contractor is self-employed, paid per project for services, and invoices the business directly for business-to-business payment.
A review of labor laws and requirements is necessary before hiring staff for your business, and there is variance regarding employer responsibilities depending on the state that you live and work in.
Before making new hires, the U.S. Department of Labor guidelines on record keeping for employees should be reviewed. Business owners must acquire and safely store information, including the employee age, address, hours worked, salary or hourly rate of compensation, and other key reporting information, for participation in federal programs and processing applicable income taxes and social benefits.
Small businesses (less than 500 employees) are in fact big business in the United States, accounting for 99.7% of registered U.S. business entities, contributing on average up to 63% of net new jobs in the private sector annually, and over one third of the gross export value in North America. For individuals who want to own their own business, the resources, support and financing exists to support small business growth.
This article has been edited and condensed.
Connie Jelliffe is a lawyer at Hancock Law Firm, a full-service law firm that offers legal services like estate planning, family law, business formation, civil litigation and more. Connie has graduate degree from the University of Southern Mississippi and the Mississippi College School of Law. Connect with @HancockLawFirm on Twitter.