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How to Start a Small Business: A Step-by-Step Plan for Entrepreneurs

insurance, small business
  |   4 minute read

start-small-businessThe U.S. alone has 30.2 million small businesses in operation—and more opening their doors every day. Whether a home-based business, an ecommerce shop or a brick-and-mortar store, entrepreneurs must follow a few key steps to get their idea off the ground.

If you’re looking to start a new business, here’s a helpful guide to follow.

1. Choose Your Idea, and Write a Business Plan

You can choose between various formats when writing a business plan (Bplan has more than 500 templates to download). Whatever plan makes the most sense for your business, consider:

  • What products or services will you offer?
  • What does your ideal customer look like? What market will you serve?
  • How much will your charge? What are your projected sales?
  • What operating expenses do you expect to have? Do you need financing to start?
  • Who is your competition? What makes your business unique?

Having a clear vision of your business will help shape future decisions around your operations, sales and marketing, and growth goals. A completed business plan may also be required to secure financing, such as a small business loan.

2. Decide on the Business Structure

When starting a business, entrepreneurs can choose from several legal business structures:

  • Sole proprietorship: No paperwork or filing fees. Owner has full control and maximum flexibility, but no legal protection against personal liability. Sole proprietors must also pay self-employment tax.
  • Partnership: There are different types of partnerships, but in general involve multiple professionals contributing to the business and sharing in profits and losses.
  • Limited liability corporation (LLC): An LLC designation protects the owner(s) from being held personally liable for losses by separating personal and business assets. However, an LLC still has fewer formalities than a corporation.
  • Corporation: C-corp, B-corp and S-corp all fall under the category of a corporation. As the most complex business structure with the most regulatory requirements, it’s an uncommon designation for a small business.
  • Nonprofit: Similar to a corporation, starting a non-profit requires filing articles of incorporation, as well as filing for tax-exempt status. They also require that you establish bylaws and a board.

Generally speaking, a more informal structure like a sole proprietorship offers the owner the most control and flexibility, but little to no legal protection. On the other end of the spectrum, corporations and nonprofits are far more complex and have extensive regulatory requirements, in exchange for tax incentives and less individual liability.

Most small businesses choose to operate as a sole proprietorship, partnership or LLC. With your business plan outlined, you should have a clearer idea of how you plan to run the business. Weigh the pros and cons, and choose the structure that’s right for your business.

3. Register the Business Name

At a minimum, the new business must be registered with the federal government. Depending on where you plan to operate, you may need to file with state and local governments as well. (Before registering, confirm that no existing businesses have a similar name.)

You also must apply for a tax identification number, or Employer Identification Number (EIN). An EIN is required to pay business taxes, and is also often used for other administrative purposes, like:

  • Opening a business bank account.
  • Buying small business insurance.
  • Establishing business credit.

Learn more about the benefits of an EIN.

4. Determine Your Accounting Process

Establishing an accounting process for your business is important to keep track of funds, so you know what money is being brought in and what is being spent. If operating as an LLC, it’s also important to keep your personal and business funds separate. Accounting software, a business bank account and a business credit or debit card are all ways to help keep funds separate.

Keep detailed records of receipts and invoices, and consider hiring a professional for bookkeeping or at least filing taxes annually.

5. Set Aside Money for Business Taxes

Most businesses must file taxes annually and pay estimated taxes quarterly, so it’s important to have enough money set aside for these expenses.

If you hire employees or independent contractors, you will have additional filing requirements and may need to withhold additional funds for taxes (for example, payroll taxes).

6. Get the Proper Insurance Coverage

The only small business insurance required by law is workers’ compensation insurance. Depending on what state you operate in and how many employees you have, you may be required to carry a workers’ comp policy.

Most businesses should also carry general liability and commercial property insurance. Other policies may be applicable depending on the specifics of your business operation; to learn more, read Insurance Policies Small Businesses Need.

7. Research Other Licenses, Permits or Requirements

Depending on the nature of your business, you may be required to have specific licenses or permits to operate. For example:

  • OSHA requirements
  • Payroll tax requirements
  • Vendor license

Find out what may apply to your business before starting up.

8. Market Your Business

You’re ready to open up shop. How do you find your first customers?

Outline a marketing plan for your business that answers:

  • Who is your target audience?
  • What challenge are they solving with your product or service? What else do they care about?
  • What are the alternatives? What makes your business unique or preferable?
  • How do they buy? Where do they look for information?
  • What questions do they have? What features do they compare?
  • How long do they shop? How many sources do they consult before making a purchase?

The answer to these questions should help shape your messaging, marketing channels and go-to-market strategy.

Need Small Business Insurance?

If you need help with small business insurance, WorkCompOne was built by and for small business owners, so you can stay compliant for less time, money and hassle than traditional insurance agencies.

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This is not a comprehensive guide and should not be treated as legal advice or legal recommendation. If you have questions about legal and tax compliance as it pertains to your specific circumstances, consult an attorney or tax professional.

 

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Tags: insurance, small business