Friday, December 13, 2013

The Business of Going into Business: Using the Letter of the Law (and More) For Your Business Startup

Unfortunately, the U.S. economy is not rebounding as fast as anyone would like.  High unemployment rates have many Americans considering establishing their own businesses. If this is something you’re contemplating, remember, it's one thing to start a business...and quite another to start a successful business.  So before you decide to hang out a shingle, here are a few best practices, both legal and practical, for you to consider.

Getting Started – Make a List and Check it Twice
You probably don’t head to the grocery store without making a shopping list.  Your new business should not be of any less importance.  Here is a basic (but certainly not exhaustive) list of some business essentials:
  • Decide on a business entity.  This is the most important step.  Will this be a Limited Liability Company (LLC)? A corporation?  A partnership?  A qualified CPA or attorney will be able to walk you through the process of obtaining the correct documents to establish your business identity.  Note:  This decision can impact your personal assets directly; more on this in the next section.
  • Get a place, and some space.  Will you be working out of your home or are you planning to have a “brick and mortar” establishment for your customers?  Make sure your work environment has enough space to allow for potential employees, customers, and products.  And be sure you have enough funds on hand for a monthly lease or rent.
  • Set up the proper bank accounts (and get checks) at your financial institution.  Consider banks other than the national chains.  Smaller banks, such as The Commerce Bank of Washington offer fantastic customer service for small and growing businesses. 
  • You'll want to establish a Federal Tax ID number.  Some business owners use a Social Security Number, but it might be a better idea to file for a Federal Tax ID.  You'll also need a State Unified Business Identifier (UBI) number.  Also file a Master Business Application and a City Business license to make sure you’re following local and state ordinances.
  • An Electronic Federal Tax Payment System (EFTPS) makes paying taxes for employees a breeze.  Alternately, consider outsourcing your payroll and tax payment needs to a bookkeeping service. In Seattle, I recommend Pearson Business Management Services.
  • You'll need to keep track of every dollar coming in and going out.  Unless you hire a CPA, you'll need business and accounting software to keep all of those financial columns in line.
  • Malpractice insurance, employee health insurance, business insurance: make sure all your insurable exposure is covered.
  • Head to the Office Supply Store.  Marketing materials, computer equipment, furniture, copier, phones, postage meter, stationery, business cards are just some of the items you'll need.   
  • Set up your mail accounts.  Don't open those doors without setting up accounts with UPS, FedEx, or whatever postal and/or delivery service you plan to use.

Protect Your Assets
As I mentioned earlier, protecting your assets is the most important step during a business startup.  If you choose to go into business as yourself (e.g.: John A. Smith's Shoe Repair), you run the risk of unlimited liability against your personal assets – your bank account, your house, your car – in the event something goes wrong.  It's much better to do business as an LLC or a corporation so that your personal assets are kept separate from your business assets.  Discuss with your attorney or accountant the potential benefits of filing taxes as an S-Corp, an option available to both corporations and most limited liability companies. 

Personally, I recommend LLC over a corporation.  There are a lot of formalities associated with becoming a corporation: annual meetings, reports to shareholders, bylaws, amendments, etc.  With an LLC, you have the flexibility of being recognized by the IRS as an S company without all of the formalities. 

Obviously, there's a lot to think through before becoming your own boss.  If it is something you’re seriously considering, contact us to discuss all of the options available to you to protect your assets, and put your new business legally in the best position to succeed.