How To Start A BusinessFebruary 22, 2013

The decision to start a small business is a significant one that involves making key financial decisions and completing a series of legal activities. A successful entrepreneur isn’t always the classic, bull-by-the-horns risk-taker of legend. Sure you’ll need passion, drive and a good idea. But moxie will only get you so far. You’ve got to know your strengths and know how to make the most of them. Most importantly you must be organized, a planner and persistent. Below is a basic guide for those considering starting their own business and for those that have already started businesses that might be looking to improve their business structure.

Personality Traits

Personality goes a long way in starting your own business and the business is often a reflection of those that start it.  Successful business owners are creative, resourceful, organized, patient, sociable and persistent. In addition, before making the decision to start a business an entrepreneur needs to determine if the business idea is simply a hobby or a legitimate business idea.

Business Plan

A business plan is an essential roadmap for starting a business. By committing the plan to writing it forces business owners to establish goals and confront weaknesses. A complete business plan will address each of the following areas:

• Executive summary — The executive summary is often considered the most important section of a business plan and highlights the strengths of the plan. This section briefly tells your reader where your company is, where you want to take it, and why your business idea will be successful.
• Company Description – The company description provides a high-level review of the different elements of your business. This gives readers and potential investors a quick understanding of your business goals.
• Market Analysis — The market analysis section of your business plan should illustrate your industry and market knowledge as well as any of your research findings and conclusions.  This can include things such as a description of the target market, pricing targets, how you intend to gain market share and a competitive market share analysis.
• Management and Operations Plan — This section should include your company’s organizational structure, details about the ownership of your company, profiles of your management team, and the qualifications of your board of directors. This section should also include the legal structure of your business and related information.
• Marketing and Sales Plan — In this section, the first thing you want to do is define your marketing strategy. Marketing is the process of creating customers, and customers are the lifeblood of your business. There is no single way to approach a marketing strategy and this is a continuous process that needs to be adjusted as the business grows.
• Funding Plan – If you require funding for your business, you need a funding plan. This plan must include your current and future funding needs along with an explanation of what the funding will be used for.
• Financial Projections – If you own an established business then historical data will be required regarding the businesses performance. If you are starting a new business, future projections (generally five year projections) will be required to show how you expect the business to perform.

Choosing The Right Business Structure

Perhaps the most important benefit of forming a separate legal entity is business liability protection which is often referred to as the “corporate shield.” Shareholders, limited partners and limited liability company members, among others, are generally not liable for the liabilities of the company in which they have an ownership interest. However, until a company is formed, the entrepreneur is acting in a personal capacity and is personally liable. Consulting a legal professional is advised in this process so the correct entity can be formed for your business. The most popular types of entities are:

• Sole Proprietorship — An unincorporated business owned and run by one individual with no distinction between the business and you, the owner. You are entitled to all profits and are responsible for all your business’s debts, losses and liabilities.
• Partnership – A partnership is a business where two or more people share ownership of the business. Partners within a partnership contribute to all aspects of the business including money and running of the business. Partners also share in the profit or loss in the business. In addition, limited liability partnerships limit the liability of certain (passive) partners.
• Limited Liability Company — A limited liability company is a hybrid type of legal structure that provides the limited liability features of a corporation and the tax efficiencies and operational flexibility of a partnership. The “owners” of an LLC are referred to as “members.” Depending on the state, the members can consist of a single individual (one owner), two or more individuals, corporations or other LLCs.
• S Corporation – An S corporation is a small corporation whose owners have elected to be treated as a partnership for tax purposes by the IRS under “Subchapter S.” S Corps are considered unique and separate entities thus limiting the liability of those that own it.

Business Name and Registration

Choosing a name of the business is important because it reflects your brand identity and will need to be registered with the appropriate state within which you plan to start your business. Corporations, non-profits, limited liability companies and partnerships are all required to be registered with states. The exception to this are sole proprietorships which are not required to be registered at the state level although many states require the owner use their name as the business name. All businesses, regardless of business structure, may also be required to do a fictitious business name filing if the business is conducted in any name other than the individuals or entity’s legal name which is referred to as dba or “doing business as.”

Licenses and Tax ID

If your business is involved in activities supervised and regulated by a federal agency – such as selling alcohol, firearms, commercial fishing, etc. – then you may need to obtain a federal license or permit. In addition, most states have licensing requirements depending on the industry your business is in and where it’s located.

Businesses may also be required to have an Employer Identification Number (EIN). This is also known as a Federal Tax Identification Number, and is used to identify a business entity. Generally, businesses need an EIN.  When starting a business you should consult an attorney to determine if your state requires a state number or charter.

Ryan A. Hintzen

Attorney

The Hintzen Law Firm, PLLC