2 in 5 Americans plan on starting a business in 2023. That said, startup failure rates are a hard reality – 18% of businesses fail within one year, 31% after two years, and 50% after five years. Starting a business from the ground up is an exciting venture, yet it takes hard work, a great deal of research, and careful planning to ensure success. By being careful to get the fundamental first steps right, you can set your business up for best chances of long-term success.
Choose A Catchy Name
Your business name shouldn’t be chosen lightly – it should be catchy, and not too difficult. Keep in mind, you legally can’t use a business name if another registered business in your state is already using it, and it also can’t infringe on another trademark already registered with the United States Patent and Trademark Office (USPTO). You may also want to register a “Doing Business As” (DBA) name, a fictitious name (different from your business’s legal name) used to conduct business. You can use a DBA to create multiple different brands, for example, or to easily rebrand your business, instead of changing its legal name. If “John’s Bike Shop” wanted to expand into repairs, the chosen DBA could be “John’s Bike Repairs”, for instance. Additionally, multiple separate businesses in the same state can use the same DBA, so you also have greater freedom in this regard.
Choose The Right Legal Structure
Choosing the right legal structure for your business is a key step – it essentially determines how much tax you pay, your paperwork requirements, and whether your personal assets are at risk. A sole proprietorship is the most simple legal structure to form, and is ideal for solo businesses. You, as the owner, will be in complete control of your business, however, it does leave you personally liable for all business debts.
Alternatively, a limited liability company (LLC) shields you from liability for business debts. LLCs can be owned by either one or more people, and a registered agent also needs to be involved. A registered agent will form your LLC for you, as well as receive and manage your legal documents on your behalf. An LLC can be formed in any state (even if your business is located elsewhere), and since some states offer financial benefits over others, you’ll want to research your options to ensure you choose the best state for your business. Delaware, for example, is particularly business-friendly. It offers distinctly low state filing fees and franchise taxes. Additionally, Delaware also doesn’t impose any taxes on out-of-state income.
Georgia is another state where it can be beneficial to form an LLC. For example, a Georgia LLC isn’t subject to federal income taxes or double taxation; all profits and losses pass through to the LLC members. All profits are then taxed only once in accordance with each member’s individual income tax rate. If you’re looking to start an LLC in Georgia, there are a number of steps you need to take. While you can opt to be your own registered agent, hiring a registered agent service can take care of the details for you, leaving you free to focus on other priorities.
Obtain An EIN
An employer identification number — also called an EIN or business tax ID — is a unique nine-digit number assigned by the IRS. You use this number when filing business taxes, as well as registering your business, applying for a business loan, and opening a business bank account. Although most businesses are required to get an EIN, sole proprietorships and freelancers technically don’t have to. That said, there are a number of benefits to obtaining an EIN. For example, an EIN can make the process of applying for a business loan faster. Although you don’t need an EIN to apply for such a loan, you do need a business bank account, which, in turn, requires an EIN to open. Also, loan lenders may also check your business credit – having an EIN helps you build your business credit score, and, without this, you may not qualify for a business loan.
Similarly, an EIN can also help you build trust with other businesses, suppliers, and vendors. You may find yourself wanting to work with these third parties, and having an EIN increases the likelihood they’ll want to work with you. Third parties may use your business credit score to determine whether you can be relied on to pay on time. In fact, wholesale distributors commonly ask for a retailer’s EIN before agreeing to work with them.
Starting your own business is an exciting yet challenging time. By choosing a memorable name, opting for the right legal structure, and applying for an EIN, you can put your business on the path to long-term success.