Setting up your own business is exciting. However, creating a business is a serious step for anyone. Do it properly to avoid the most common mistakes people make. Then relax and enjoy all the benefits owning your own business can bring.
Decide the Business Structure
The type of business structure is extremely important. The correct business structure will protect you from personal liability and allow the business to flourish. Each state may have its own specific types, but here are the general structures. Sole Proprietor – Simple but no asset protection. Partnership – Requires agreement and some owner protection. Limited Liability Company – Requires state approval and filing. Good owner protection. S Corporation – Requires state approval and filing. Must file a special election with the IRS and meet certain qualifications. Good owner protection. C Corporation – Requires state approval and filing. Good owner protection. See your advisor to find the best choice for you.
Get Tax Identification Numbers and Business Licenses
Every business needs a federal tax identification number. Some businesses may require a state identification number as well. Check the requirements in your state. Depending upon your state and type of business, you may also require a business license to operate in your town. There may be state and city requirements. You should also check for special licenses. If your business works with, or creates toxic substances, there may be a toxic chemical license as well. If you are paying yourself a salary or have employees, set up a procedure to deposit payroll taxes for the state and federal government. You may also need to set up a Workers Compensation Account with your state or private insurer. Set up a separate bank account for the business using the business tax identification number. Do not mix your personal funds with your business account. Get a good accountant to help you. Remember, no matter what business you are in – pay your taxes FIRST.
Additional Resources
For the web savy individual, information about choice of business entity, tax identification numbers and business licenses are available on the web. You should always discuss your choices with the help of your trusted advisors. You are the expert in your business. They are the experts in theirs.