As an entrepreneur who wants to turn your passion into a profitable venture, starting up your business can be exciting and overwhelming at the same time, it requires planning, detailed work, preparation, and consistency.
One of the first steps in starting your business properly is registering your small business. It establishes your business legally and ensures that you run your business according to the various rules and regulations that apply to running a business relating to what you sell, where you are, and your size.
Necessary Tools for Legalizing Your Business
- Right Business Structure: The first step to registering your business is choosing the right structure. There are various business structures to consider, including;
- Sole proprietorship: This is the most common business structure, owned and controlled by one person. It is easy to set up, as all debts, liabilities, and profits are recorded on the owner's personal income.
- Partnership: This is a business structure where two or more people co-own and control the business. In a partnership, profits, losses, debts, and liabilities are shared among the individuals, and they are both responsible for the business.
- Corporation: A business owned by different people who elect a board of directors to manage the business. These people (shareholders) are not personally responsible for the company's debts or losses. This means that the business is being run with the money the business makes.
- LLC (Limited Liability Company): This is a business structure that combines features of both a corporation and a partnership. It allows for partnership or sole ownership in paying taxes and doesn’t make the partners responsible for the finances of the business. The main goal is to distribute income to the partners.
2. A Suitable Business Name: Many people make the mistake of not doing proper research before selecting their business name.
The right name for your business can significantly influence your brand identity and leave a lasting impression on the market.
It is important that your business name inspires positive feelings and expresses the mission and vision of your business. Additionally, you should check if your intended business name is already taken by someone else. Establishing a strong brand online with your business name is essential for online marketing. A clear, mission-driven name will make it easier for your target audience to find you.
For example, someone selling jewellery having “jewellery shop” in their name like “Exquisite jewellery shop”. Anyone who searches for a jewellery shop is very likely to find you at the top of their search. This is how important choosing a good name can be beneficial to your business.
3. Employer Identification Number(EIN): An Employer Identification Number (EIN) is a unique number assigned to your business by the Internal Revenue Service (IRS) for the purpose of taxes and banking. It serves as an essential way to identify your business. To obtain an EIN, you'll need to provide basic information about your business, including its name, address, and structure.
Your EIN number must be kept secure and used whenever you need to identify your business. It's like the social security number for your business, and therefore essential for various business activities, such as filing taxes, opening a business bank account, hiring employees, and conducting financial transactions.
Additionally, having an EIN allows your business to establish a credit history, which can be beneficial for obtaining loans and credit lines in the future.
4. Licenses and Permits: Permits and licenses are important legal documents essential for the smooth and effective running of your business. Find out the required licenses based on your specific industry and location to avoid legal issues for your business.
Contact the agencies responsible for issuing the licenses you need, gather the necessary documents for processing, and pay the required fees. Once you obtain the license, make sure to display it according to the rules and regulations.
Additionally, joining the relevant associations in your location may be necessary to obtain certain permits for your business. Failure to comply with licensing requirements can lead to government penalties.
5. State Agency Registration: Once you have chosen your business structure and business name, and obtained your EIN and licenses, the next step is to register your business with your state agencies.
During the registration process, you'll file the necessary paperwork, register for taxes based on your business structure and location, and get the type of insurance required.
You'll also need to comply with any additional state-specific requirements related to your business. It is highly recommended to consult your local agencies for comprehensive information and guidance.
6. Business Bank Account: After completing the necessary steps, it is essential to open a dedicated business bank account for accountability and credibility. This separate account allows you to see how much you make, what you spend, and on what you spend. It is also great for simplifying tax reporting.
Maintaining a separate business account helps separate your personal money from the business money. It establishes your business as independent and helps you manage both personal and business finances with ease.
Having a business account helps you stay professional and trustworthy. When selecting a bank, choose one that specializes in small business banking to receive the adequate services and support that your business needs.
7. Payment of Tax Obligation: Paying taxes is a vital aspect of running a successful business, as failing to meet tax obligations can lead to the government closing your business or charging you big fines.
By understanding your tax responsibilities and fulfilling them diligently, you can establish a reputation for financial responsibility. This positive track record of paying your taxes creates a solid foundation for attracting future business investors, sponsors, partnerships, and other potential growth opportunities.
Proper tax management also allows you to plan and budget your money appropriately, make better decisions for your money and ensure that your business grows.
In Conclusion, registering your small business may be stressful but it’s important as it establishes your legitimacy and protection of yourself and your business.
Seeking professional help and guidance while registering will help you avoid mistakes in your registration and save you time and money.
Starting a business requires careful planning, attention and continuous learning, therefore it is important to be aware of important tools, rules, and models that ensures the success of your business.