The Small Business Administration (SBA) defines small businesses as companies with less than 500 employees and average sales below 7.5 million dollars annually. This definition, however, is relatively wide, encompassing many businesses that are relatively large. Therefore, the government and the Small Business Administration have a different classification for smaller businesses.
Very small businesses, or micro-businesses, are organizations with less than a million dollars in revenue and less than 20 employees. When individuals open a new business, this is generally the size of business that is started.
So, how to start your own business in the right way?
Opening a business in the United States is relatively simple. Each state varies slightly; however, for the most part, the process is somewhat similar.
New business owners need to sign up at the federal and the state level. However, before signing up, entrepreneurs will need to decide on a couple of important details.
The first will be selecting a name for the business. Most states, such as Florida with their Sunbiz website, provide access to perform searches and verify that the name selected is available for use.
Once the business determines its name, the next step is to select a business structure. The available structures include sole proprietorship, partnership limited liability company (LLC), C-Corp Corporation, S Corp Corporation, among others. While each serves a specific purpose, most new businesses use LLC or S Corp structures because of the tax structure provided. It’s important to know the LLC and S corporation differences so that you can identify which one is right for your business. In basic terms, these two popular business structures provide legal protection given that the government will treat the organization as a separate entity, thus protecting owners from liability. Additionally, LLC and S-Corps have some tax advantages that avoid double-taxation.
Once the business selects a tax structure, they can apply for an Employer Identification Number (EIN), which is a number that businesses use for tax purposes. Although it is not necessary in all cases, experts recommend it as it avoids business owners from having to use their social security numbers and other personal information. Additionally, it is free and easy to obtain as the IRS provides a way to apply online.
If the new business chose S-Corp as a structure, then the company will need to complete Form 2553, Election by a Small Business Corporation.
Most state websites also allow business owners to create and file Articles of Incorporation that legalize the entity. This step should be completed after filing with the IRS and after obtaining an EIN number, as this number will be used in the state’s incorporation process.
With the name of the new organization and the corporate structure selected, new business owners can use the online services and open the business at the state level. This step is relatively quick, and business owners can often download and print the documents instantly. These documents are what banks and other financial institutions will ask to open business accounts.
The final step in opening a new business is to file for local permits. Keep in mind that the United States has government in the local, state, and federal level. Therefore, entrepreneurs need to consider each and fulfill all requirements.
Newly founded organizations can reach out to the local chamber of commerce or their local business development office and seek assistance with filing for permits or meeting local ordinances. Once the business is ready, seek assistance from professionals such as Global PEG to grow your business and brand visibility.
Ultimately, starting a business is a simple process and does not require large sums of money. Furthermore, most states have simple processes that allow companies to be created within a couple of hours.
People interested in starting their own business should not be discouraged, as the process is fast and simple!