Cash Flow Solutions

Eight-Step Business Startup Checklist

Man considering checklist as he get ready to open his small business

Starting a small business is a dream for many, but actually getting started with the process can feel overwhelming. Follow these steps to draft a thorough business plan, select and register a name, set up your legal structure, find a location, pick the right types of insurance, identify the licenses and permits you need, establish your accounting system, prepare to file your taxes and ultimately set yourself up for success as a small business owner.

One quick note before diving in: Keep track of your expenses and hold on to all receipt for purchases related to starting your business. The cost of meeting with tax advisers, attorneys and consultants to set up your business is tax deductible. You can also claim any fees for registering your business, securing the needed licensure and anything else related to getting your enterprise off the ground. Whatever you pay to create a business, prepare for your first day and organize your operations is deductible as long as the enterprise does officially open.

Step One: Lay the Groundwork

Before you move forward with anything official, you’ll need to do lots of research and brainstorming. Some of this phase will just be keeping your own informal notes, such as putting your idea for a product or service on paper. This is simple but essential to staying on track with everything else in this checklist.

Research, Plan and Get Organized

Your research and planning stage should also include things such as identifying your customers, deciding how often you hope to sell your goods and services and learning more about your potential competitors. You’ll also need to think long and hard about cost. Namely:

  • How much will it cost to produce, market and sell your product?
  • How much will it cost to follow up with customers and fix any problems they encounter?
  • How long will it take before you see any profit — and is that a feasible time frame for you?
  • Will you face compliance issues? If you manufacture or sell food products, for example, you’ll need to comply with the U.S. Food & Drug Administration’s regulations.

After answering these questions, you’re ready to move forward with some more official documentation. Take your time with these documents, and revisit your product or service goals as needed to confirm that starting a business is still practical. Before moving on, you’ll need to create your:

  • Break-even analysis: Estimate how long it will take your revenue to exceed your expenses. This calculation will help you secure appropriate financing for your budding enterprise.
  • Business plan: Your business plan should outline what your company is, how it will succeed, who your competitors are and how your products or services are better, how your company is structured and who will run it and details about your products and services (your product life cycle, its value to customers, whether you’ll pursue copyrights or patents, etc.)
  • Marketing plan: Your marketing plan will change as you continue to develop your business. At this stage, focus on how you’ll attract and retain customers and close sales.
  • Financing: Outline how much funding you’ll need over the next five years and what you’ll be using that money for. Include your long-term financial goal as well, such as expanding to a new market or opening another business.

Step Two: Pick a Name for Your Business

You may have a rough idea of what you want to name your business, but this step is about putting it down officially and making sure your name, logo, slogan and any other intellectual property that you create in the future is easy to protect.

Securing Trademark Protections

The U.S. Patent and Trademark Office places business names in four different categories: arbitrary and fanciful, suggestive, descriptive and generic.

  • Arbitrary and fanciful names, such as “Apple,” are the easiest to protect against infringement because they’re totally unique.
  • Suggestive marks, such as “Coppertone,” are unique but indirectly suggestive of the brand’s industry. These are also easy to protect against infringement.
  • Descriptive marks, such as “Microsoft,” directly describe the industry or product that a brand specializes in — in this case, “microcomputers” and “software.” The Patent Office only approves descriptive marks if they have a secondary meaning that’s unique to the enterprise. This prevents someone from registering a business name like “Computers” and then suing all other companies that have that word in their products or services.
  • Generic marks are descriptive and have no secondary meaning. The Patent Office doesn’t accept trademarks for businesses with generic names.

In addition to picking a proper name, you should search through the trademark database to ensure the name you want isn’t already taken. A search isn’t required to register, but it will help avoid a denied application as well as issues with infringement down the road. Search for spelling variations in your name as well — you want to catch identical and similar marks.

Also, note that you don’t have to officially register a trademark. Under U.S. common law, your brand name is protected the moment you use it commercially. You can also file an “intent-to-use” application, which essentially reserves your right to that mark even though you haven’t opened your business yet. Note that registering officially, though not required, will come in handy if you ever have to confront someone who’s infringing on your intellectual property.

Finally, you may register your name at the state or federal level. The state application process is cheaper and faster, but it only provides protection in your state. This may be sufficient if you don’t plan on doing business across state lines.

Register Your Domain Name

If you plan to use a website for your business, check that the domain you want to use (or one you can use) is available. You may want to purchase your exact domain name as well as potential misspelled names that customers may type so that you can redirect them to the proper URL.

Step Three: Pick a Legal Structure and Fill Out Your Paperwork

The next step is to pick the legal structure for your enterprise. You have one of four options: sole proprietorship, partnership, LLC and corporation. You’ll then need to fill out the relevant paperwork for your business:

  • Partnership: Complete a Partnership Agreement and a Buyout/Buy-Sell Agreement.
  • LLC: Complete your Articles of Organization, Operating Agreement and Buyout/Buy-Sell Agreement.
  • Corporations: Complete your Articles of Incorporation, Bylaws and Buyout/Buy-Sell Agreement.
  • Nonprofit: Complete your Articles of Incorporation and Bylaws.

Note that some additional requirements will vary depending on your location. For example, most states require that LLCs and corporations register their name with the Secretary of State or Department of Corporations. If you have an LLC, you may also have to file a “Doing Business As” (DBA) certificate with a city clerk. This certificate allows your LLC to operate under a trade name.

Step Four: Pick a Location for Your Enterprise

If you plan on doing business in an office space, you’ll need to secure an acceptable location. Check that the square footage is sufficient for your needs now and for any plans you have for expansion in the future. If adding to your office or moving to a new location isn’t part of your business strategy, make sure you secure the appropriate space now. The same goes for the building’s features — check that it has what you need now and what you’ll need five years down the road.

A few other considerations to consider include:

  • Rent or mortgage: Your business plan should include projected costs for rent or mortgage payments. Stick to your budget or redo your calculations if you go under or below your projections.
  • Neighborhood: Are there competitors close by? How easy is it for your customers to access the office? And what’s the market like in that specific area? Demographics and product preferences can vary from block to block, so do your research carefully before signing a lease. Think about parking and delivery access as well.
  • Zoning laws: Check the local zoning ordinances, and note that these differ across townships and boroughs. Confirm that you can legally sell your desired products or services before putting a deposit down on a location.
  • The terms of your lease: Check the terms of your lease carefully before committing. Note that you may also try to negotiate a lower price. As a business owner with a plan to rent a building for at least five years, this is certainly worth a shot.

Step Five: Purchase Insurance

Check whether you’re required to offer insurance, and consider additional insurance benefits as a perk for your employees. Federal law requires that employers with 50 full-time or equivalent (i.e., 100 part-time) workers must provide a health insurance plan that meets the mandated minimums. Small businesses may also benefit from the following types of insurance:

  • General liability insurance
  • Property insurance
  • Business owner’s insurance
  • Commercial auto insurance
  • Workers’ compensation
  • Professional liability insurance
  • Directors and officers insurance
  • Data breach insurance
  • Homeowner’s insurance
  • Renter’s insurance
  • Life insurance
  • Personal automobile insurance

Step Six: Secure the Needed Licenses and Permits

You should have identified the licenses and permits that you need during the research phase. Now is the time to secure those records. This includes applicable state licenses, business licenses, local permits and licenses and a seller’s permit if you’re entering the retail space.

Consider consulting with a small business attorney to confirm that you’ve secured all the necessary licensure before you open your doors. This specialist can also advise you about what types of insurance would benefit your business, whether you’re properly complying with zoning laws, and what taxes you’ll need to pay.

If you’re starting a corporation, partnership or LLC, you’ll need your Employer Identification Number (EIN), also known as a Federal Tax Identification Number, for tax purposes. You can apply to receive your number online with the IRS.

Step Seven: Set Up Your Accounting System

Next, you need to get your accounting system set up. Your accounting needs will vary widely based on your number of employees, industry, hours of operation, profit margins and several other factors. Answer these questions to help you get set up:

Which Accounting Software Do You Need?

There are tons of accounting software options on the market, and many come with features that you don’t need. Look for something made for your industry specifically, or ask a fellow business owner with similar needs what they use.

Cash or Accrual Method?

Will you account for your revenue when it’s received and for your expenses when they go out (cash method)? Or will you account for revenue when it’s earned and for expenses when they’re incurred? The cash method is common for small enterprises, but larger operations often go with the accrual method.

Fiscal Year or Calendar Year?

You can track your expenses over any 12-month period that ends on the last day of any month except December (fiscal) or from Jan. 1 through Dec. 31 (calendar). You’ll use this period to track your federal income tax.

Do You Need Help With Your Books?

Do you need a contractor to help you get your accounting software set up so you can take over? Or would you benefit from a permanent hire who handles all your accounting? You may also hire specialists to go over your records during tax season or work with an outside firm to manage your accounting needs.

Step Eight: Plan for Your Taxes

All businesses must file an annual income tax report, but the tax rate — the percentage applied to your adjusted gross income to determine what you pay in taxes — varies based on your business type, classification and income bracket.

Start your business off right by being aware of your tax obligations and available deductions. For example, if you live in a state that has state income tax, you may be exempt from federal sales tax but have to collect, report and pay state sales tax. You’ll also need to account for property taxes, excise taxes, employment taxes and more. Consider working with a tax adviser to guarantee that all your bases are covered and that your deductions are optimized when you file.

There are many steps to starting a business, but don’t get overwhelmed. Take it slow and finish one step at a time. Before you know it, you’ll be far down this list and well on your way to cutting the ribbon for your new business. If you find you may need working capital along the way to help complete some projects, consider reaching out to an online lender. This is a fantastic way to secure the loans and other resources you need to achieve long-term success as an entrepreneur.

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