Becoming an entrepreneur usually starts with an idea. You have a new product in your head, a service you think everyone will want, or even a new approach to something that already exists. Your dreams then become about how to be your own boss, make your own hours, and rake in a lot of cash while you are at it. While all of these things are possible when you open your own business, there are, unfortunately, many details that your big entrepreneurial dreams might miss.
The fact is, starting a business is a lot of work, and there is a lot that you need to do. It’s not just about marketing a product or service and getting people to buy it. There are several legal requirements that you must meet, and you should not try to avoid them. Getting caught could lead to big problems for any business, and you don’t want to have to experience them. Here are six requirements for small business owners that you need to know about as you start a new business.
A Legal Entity
It’s important to make your business a separate legal entity. This will separate it from your personal finances and identity. That way, you would be protected if something bad were to happen to your business. Plus, most business financing providers and lenders require you to have a legal entity in place. You also cannot apply for permits and licenses without one.
There are several options for a business entity. You can be a sole proprietor. This means you own everything about the business and take on all risks and profits. You can also create a limited liability company (LLC). This provides the strongest protection for your personal assets, and you can be the only member of the company, or you can have others as members as well. A corporation will have several shareholders, meaning that the risk is spread around, and there are often several people making decisions. You need to choose the type of business entity that makes the most sense for you and your business.
A Registered Business Name
To have a business, you need to have a unique name. There are several possible issues with using someone else’s name, such as copyright lawsuits and even simple confusion in the market. In addition, there are different standards for registering a business name depending on the type of entity you will be operating under. Make sure to follow the correct process. You can apply with your state for your name and then also with the U.S. Patent and Trademark Office. Assuming that no one else has beaten you to the punch, you will have trademark protection for your name and brand.
When planning a business, never forget about how important insurance is. If you are not properly covered, you could face a lawsuit or needing to replace your building and not having the assets to do it. With insurance, you can protect yourself against costs that might otherwise cripple your business.
There are some insurance protections that you must have by law, as well. For example, if you have employees, then every state but one requires you to have workers’ compensation coverage. If you operate a vehicle, then you should have commercial auto insurance. No matter how small or safe, every business should have general liability insurance. When shopping for insurance, you must take the time to read and understanding different insurance policies so that you know that you have the coverage you need and you are not paying for coverage you don’t. Insurance will not just protect you financially, but it will also give you confidence that your business can survive any negative incidents that might come its way.
If your business has employees, you need an employer identification number (EIN) from the IRS. The EIN functions like a social security number does for individuals. It is used by the IRS for tax purposes, for one. You can also use it to open bank accounts and apply for loans. You will need it to apply for business permits and licenses as well. You can quickly apply for an EIN online and have it set up immediately. While having one is not legally required, it’s always a good idea as it provides another layer of separation between your business and personal assets and liabilities.
Pay Your Taxes
Before starting a new business, you should look into the type of taxes and amounts you will be paying. You will need to pay income tax, but you will also have to pay municipal, state, and federal taxes. If you have employees, you will also need to pay payroll tax. The structure of your business will determine how you are taxed as well, so taxes should also play a role in deciding on that structure. Never try to avoid paying your taxes. If your eventual assessment seems too much to bear, then contact an attorney to help you negotiate payment terms with the IRS to help ease the burden.
Every business has legal requirements that they need to follow. Some of them are financial oversight, others are safety-related, and there are many more besides. If you want to operate a business, you must ensure that you comply with any laws and regulations that you are subject to. For instance, if you transport medical waste, you must comply with the rules. Failure to do so will not just put the environment, yourself, your staff, and society in harm’s way, but it could also lead to legal penalties. Don’t take risks. An upfront investment into compliance will save you many headaches down the road, even if it feels like a lot in the short term.
Running a business can be exciting and profitable. However, while you definitely want to keep your eyes on the prize, you don’t want to miss important details. There are certain things that you must do to keep your business legitimate and allow it to grow over time. Taking these steps right away will help you avoid pitfalls down the road and allow you to focus on what you do best, which is to grow and operate your business.