How to start a business: a complete guide
Many people have a dream or an aspiration for their careers. For some it’s to become an expert in their chosen field. For others, it’s to make a big, noteworthy achievement. And for others, it’s to become their own boss. For those who want to learn how to start a business, we have put together a guide to help you get the ball rolling today.
Pick Your Business Type
Before you start your business, you should consider the overall type of business and industry you’re going to choose. For tax purposes, the IRS defines businesses based on four different types of models: sole proprietorships, partnerships, corporations, S-corporations, and limited liability companies (LLCs). These different business models share some key elements regarding startup and development, but each one also has unique elements and requirements. Let’s look at each model and see how to start a business using it.
The first and perhaps simplest business model, sole proprietorships are businesses maintained by one owner. They’re unincorporated with any larger company and allow you to have complete control over the direction and operation of your business, while also having to shoulder all the expenses and responsibilities. In the U.S., business regulations can vary between states and industries. In general, to start a sole proprietorship, you select a business name, file an assumed name certificate with your county’s register of deeds, obtain all necessary licenses and permits, obtain zoning clearance if needed for a physical business location, and obtain an employer ID number (EIN) from the IRS.
A step up in complexity, partnerships are similar to sole proprietorships except with the addition of one or more business partners. While you have to share control and profits from your business in a partnership, you can also divide up the cost and responsibilities of running it. Starting a partnership requires all invested parties to choose a business name, draft and sign a partnership agreement that lays out the terms and responsibilities of each partner, complete/comply with all tax and regulatory requirements, and obtain the proper business insurance.
Corporations & S-Corporations
A corporation is a business model where company shares are sold to build up business capital. In return, the company’s profits are divided among the shareholders as dividends. This type of business model allows you to build capital without taking out loans, borrowing money or pursuing grants that may have stringent requirements to obtain, but it also means control of the company can go to whomever is the majority shareholder. Starting a corporation involves choosing a name in compliance with your state’s corporation rules, appointing a board of directors to manage the company, filing articles of incorporation with your state and paying the filing fees, creating corporate bylaws that lay out company rules of operation, holding an initial board of directors meeting, issuing stock certificates to the initial shareholders, and obtaining necessary licenses and permits.
An S-corporation, meanwhile, is slightly different. It has the same starting steps, but for tax purposes, all the corporate income, losses, deductions, and credits go to the shareholders. Some entrepreneurs start this type of corporation to avoid having to file income tax returns as a corporation. Instead, all income and losses are reported by the shareholders in their individual tax returns.
The final business model is a limited liability company, or LLC. This state-regulated business type is owned by its members, who can be individuals, corporations, other LLCs, or even foreign entities. Some states also allow single member ownership. Starting an LLC requires its members to choose a name in compliance with state regulations, file articles of organization with your state’s corporate filing office (Usually the Office of the State Secretary), determine if the LLC will be managed by its members or by one or more member-selected appointees, comply with tax and regulatory requirements, file your first annual report with the state, register the LLC in any other states where you intend to do business, and appoint one or more registered agents for service of process.
Spending Money to Make Money
When starting a business of any kind, one of the biggest factors is funding. Business experts say startup businesses can take six months to a year to launch, up to four years to start turning a considerable profit, and seven to 10 years to start achieving long-term goals of growth. Meanwhile, you’ve still got to pay your annual costs. For example, experts say a startup business with five full-time employees may pay an estimated $184,830 per year. Expenses you can expect include rent for business space, website design and hosting, payroll, advertising, supplies, permit and license renewals, and insurance. Before you start a business, create a business plan with goals
The adage “save money for a rainy day” applies to business as well as personal finances. Business advisors recommend building up and maintaining enough capital to keep your business running at its existing staff size for at least six months without steady income.
When planning out how to start a business, make sure to look into financing options. Business loans, borrowing from family and friends, and applying for government grants can get you the capital you need to get started. However, loans and borrowing money means you’ll have to pay it back at some point, and government grants often have qualifications to meet before you get any funding.
Start Out with a Franchise
With all the responsibilities and costs that come up when you start a business, it can be a daunting prospect. If you’re new to business ownership, you might want some guidance and assistance, which is why you should consider signing on with a franchise.
A franchise is a company that owns a brand name and line of products and/or services and signs agreements with entrepreneurs like you to make use of that brand. The franchisor provides not only use of the brand name and logo, but other services, such as training, administrative support like advertising and marketing, a business model to follow, site selection assistance, proprietary materials and technology, and more. In return, you as the franchisee pay a franchise fee, and sometimes other fees as well, depending on the agreed upon contract and services provided.
Get Started with Expense Reduction Analysts
If after reading all this, you’d like to start a business consulting franchise, then consider signing on with ERA. We’re a top business consulting franchise that helps other companies find savings in their operations, analyzing how they work and helping them maximize their efficiency. If you’d like to learn more about starting your own consultancy where you collaborate with analysts to help businesses prosper, request a copy of our franchise opportunity prospectus now!