Whether you’re diversifying income streams or pursuing your passion, launching a new business or expanding a side hustle can be an exciting and rewarding endeavor. By carefully planning and properly setting up your business from the beginning stages, you can maximize tax benefits, ensure compliance and position your business for success. While not a comprehensive list, the following considerations may help you as you develop and build your new business venture.
Planning & Research
Planning and conducting research should be the first step when you are thinking about starting a business. Consider the following when you are beginning:
- Do Your Research: Before you start any business or undertaking, do your research and understand the industry you’re getting into, including the market, your target customers and your competition. Ensure you have a good understanding of the financial aspects of starting and running a business, such as startup costs, marketing and your continued operational costs.
- Create a Business Plan: Think of a business plan as a roadmap for your business. It should include your goals, strategies and financial projections. Consider creating short-term and long-term plans.
- Set Up Your Business Finances: This includes setting up a bank account, obtaining a credit card and setting up your accounting system. Your finances are the lifeblood of your business, so you need to ensure all financial aspects are set up properly.
- Ensure You Are Adhering to Laws and Regulations: Depending on the type of business you’re starting, you may need to obtain certain permits and licenses or apply for other needs. The specific requirements vary from state to state, so you’ll need to find out what’s required in your area.
- Other Considerations: There are additional aspects to consider when starting a business, depending on the type of service or industry you are entering. Will you need to invest in technology or equipment? What level of insurance coverage will you require? Will you work independently or do you require staff? Incorporate these details into your business planning.
Structuring Your Business
To avoid unintended tax consequences or other complications while setting up your business, explore the different types of business structures along with the advantages and disadvantages associated with each. Depending on your personal liability appetite, tax implications and future growth plans, it’s important to choose the structure that’s the right fit for you and your business. Common small business structures include:
- Sole Proprietorship: Small, individual business owners are automatically considered sole proprietors if they do business activities but do not register as any other kind of business. This structure gives you complete control of your business but does not produce a separate business entity, meaning you can be held personally liable for your business debts.
- Limited Liability Company (LLC): Typically, LLCs protect business owners from personal liability, meaning their personal assets, including homes, vehicles and savings accounts, will not be at risk if the business faces bankruptcy or lawsuits. Profits and losses can be passed to your personal income without facing corporate taxes. LLC business owners must also pay self-employment tax contributions towards Medicare and Social Security.
- Partnership: Partnerships are intended for two or more people who own a business together and are typically structured as limited partnerships (LP) and limited liability partnerships (LLP). In an LP, one owner has unlimited liability (and therefore, more control) in the company and must pay self-employment taxes. Profits are passed through to personal tax returns. With LLPs, each owner has limited liability in the company, is not responsible for the actions of other partners and is protected from debts against the partnership.
Naming Your Business
After you’ve decided on a name that reflects your brand, you will want to register it with the appropriate agency, depending on your situation and location. Types of business names include:
- Doing Business As (DBA): DBAs allow you to conduct business from a different identity than your personal name, receive a federal tax ID number (EIN) and open a business bank account. DBAs may be required in your specific state, county or city.
- Entity Name: Registering an entity name may protect the name of your business at the state level, as most states do not allow you to register a name that has been used by someone else.
- Trademark: Registering a trademark may protect the name of your business while helping you avoid costly trademark infringement lawsuits at the federal level.
- Domain Name: Consider registering for a domain name, also known as your website address or URL, if you are going to be creating a website for your business. This helps protect your business, as no other business can use your domain name as long as you own it.
Once you have completed your planning and research, decided how you will structure your business and determined and registered a name that fits your brand and vision, you can begin planning for how you will go to market. Marketing is a crucial aspect of launching a new business and reaching your target audience. There are a variety of channels you can use, including building a website, reaching out to the community and creating a robust social media presence.
Janover’s Outsourced Accounting Solutions team can assist you in planning and structuring your dream business from the beginning. Our professionals are here to address your specific needs while identifying areas for opportunity, allowing you to focus on what’s important: growing your business. See our Outsourced Accounting Solutions page to learn more or contact a Janover professional today.