How To Start A Small Business Successfully – Bento Small Business BootcampSmall Business Management
You’ve got a great idea for a business. Now what? In this bootcamp Bento walks you through the process of successfully starting a small business, from great idea to grand opening.
Starting Your Business Checklist
We’ve put together a list of everything you need to do to get your business up and running. Make it super easy by printing out this checklist and checking off each item as you finish it.
☐Choosing A Business Structure
☐Getting A Business Checking Account
☐Paying For Business Expenses
☐Creating Business Cards
☐Making A Website
Before you decide to start a business, you should run the concept by trusted family members and friends to get their honest opinions – you might get some interesting responses that could change the way you approach your idea.
While not required, it’s a good idea to create a business plan that examines your industry and sets forth a blueprint for success – don’t forget that if you’re going to be looking for business funding, most financial institutions will require that you have one.
Make sure you have sufficient savings to fund your venture. (Don’t have enough capital to start the business? Check out the Small Business Administration’s small-business financing resources for info on getting loans, grants, or venture capital, or our article on small business funding options.)
Choosing A Business Structure
There are several ways to structure your business, each with their own advantages and disadvantages. Let’s take a look at the options:
- Sole Proprietorship: This is the most basic type of business. You are the only person involved, and you make all the decisions.
- Advantages: You don’t have to file any paperwork to get started. You have complete control over the company. You don’t have to file separate taxes.
- Disadvantages: You are the only person involved, so you carry all the liability. It’s very hard to get a business loan or bank account. The pressure of doing everything with no help can be overwhelming.
- How to make it happen: You don’t technically have to officially incorporate—you can choose to just continue to use your personal bank account and file personal income tax. However, to protect your brand, you should consider filing a fictitious business name (FBN), also called a “Doing Business As” (DBA) name with your county or state. Rules vary by state: some don’t recognize DBA names at all, others just require you to fill in a form, but most require you to publicly announce your FBN in a newspaper. The SBA has links for filing a DBA in every state.
- Cooperative (Co-Op): Cooperatives are run by and for the members (sometimes called “user-owners”). A board oversees operations, but all members have voting power.
- Advantages: Cooperatives can leverage their membership to get discounts from suppliers. The system is democratic; everyone’s vote has equal weight, regardless of how many shares they own. Because they rely less on individuals than other types of businesses, cooperatives stay more stable over time.
- Disadvantages: Because greater investment doesn’t grant greater power, getting large investments can be difficult. If the membership gets too small or too apathetic, the co-op can fall apart.
- How to make it happen:
- Start by filing articles of incorporation with your Secretary of State.
- Write cooperative bylaws that spell out member benefits and responsibilities. Consult with an attorney to ensure that your bylaws don’t conflict with any laws.
- Create an application for co-op membership. It should explain member rights and benefits, and include spaces for contact and billing information.
- Hold a charter member meeting to ratify the bylaws and elect a board of directors.
- Partnership: The company is owned by two or more people who share the responsibilities, risks, and profits or losses.
- Advantages: Starting a partnership is fairly straightforward and inexpensive. Sharing the responsibilities (and funding, often) makes life easier. Ideally, you and your partner(s) will have different skill sets that dovetail nicely. Employees will work hard for the incentive to “make partner.”
- Disadvantages: You are liable not only for your own actions, but your partners’ as well. All actions must be agreed on by partners, which can lead to arguments and tension. Profits must be shared, even if one partner puts in much more effort than another.
- How to make it happen:
- Establish a business name. If it’s something other than the partners’ names (e.g., Smith & Wesson), you most likely need to file a fictitious business name in your county.
- Register your business with your Secretary of State.
- Obtain all required licenses and permits.
- Get a business tax ID (a.k.a. employer identification number or EIN) from the IRS.
- Corporation (C Corporation Or C Corp): Corporations are complex entities that are owned by shareholders but hold their own liability. Shareholders are initially limited, but when a corporation “goes public,” it opens up shares of stock to the public in an initial public offering (IPO).
- Advantages: You are not liable for the corporation’s actions. Corporate tax rates are typically lower than individual rates. Raising money through stock is easier than other methods. Quality employees are attracted to benefits and stock options corporations can offer.
- Disadvantages: Setting up a corporation is much more complicated and expensive than other business types. They are also much more heavily regulated by federal, state, and local agencies, and often taxed at all three levels. In addition, some revenues are taxed twice: the corporation pays income tax, and then the shareholders pay personal taxes on their share.
- How to make it happen:
- Decide on a name for your business, which will likely be a fictitious business name.
- File the required paperwork to start a corporation with your Secretary of State. This usually involves articles of incorporation and possibly other items—check requirements in your state.
- Get all business licenses and permits required by local, state, and federal regulations.
- Obtain an employer identification number from the IRS.
- Limited Liability Company (LLC): An LLC is somewhere between a corporation and a partnership, offering the best aspects of each.
- Advantages: LLCs have the lower liability of a corporation and the tax advantages and operational flexibility of a partnership. Profit-sharing is decided by members, so some may earn more for more work.
- Disadvantages: Many states require that the LLC dissolve when a member leaves. Members must pay self-employment taxes, including Social Security and Medicare contributions.
- How to make it happen:
- Pick a business name. The naming rules for LLCs are stricter than for other types of businesses, so make sure you follow the guidelines.
- Create articles of organization and file them with the relevant state agency.
- Write an operating agreement.
- File any required licenses and permits for your business.
- If required by your state, announce the formation of an LLC in your local newspaper.
- S Corporation (S Corp): With this alternative to a C Corporation, shareholders still have limited personal liability. But unlike a C Corporation, the company does not pay taxes, so profits are not subject to double taxation. LLCs can also choose S Corp status for taxation purposes.
- Advantages: The main advantage is the lower tax rate. For LLCs with S Corp status, the company is not dissolved when an officer leaves.
- Disadvantages: The procedure for forming an S Corporation is more arduous and expensive than for other types of companies. Some states do not recognize S Corporations or do not allow them full tax advantages. Operations are under strict guidelines. And shareholders are limited to “reasonable compensation,” so the tax savings may not outweigh the desire to be handsomely paid.
- How to make it happen:
- Not-For-Profit (Nonprofit): If your business purpose is “charitable, religious, educational, scientific, literary, testing for public safety, fostering national or international amateur sports competition, [or] preventing cruelty to children or animals,” you can get tax-exempt status by incorporating as a not-for-profit organization.
- Advantages: All income related to the not-for-profit activities is exempt from taxation. Individuals who support your organization do not pay taxes on their donations, either.
- Disadvantages: You’ll never get rich off a not-for-profit organization. Finding donations and volunteers can be difficult. Many not-for-profits close within a few years.
- How to make it happen:
- First, make sure there’s a real need for your service in your community, and that no other organization is already addressing it.
- Write a mission statement.
- Create a business plan for your nonprofit.
- Set up a board of trustees.
- Incorporate as a nonprofit. The steps are similar to a regular C Corporation.
- Apply for (501)(c)(3) status with the IRS.
Getting A Business Checking Account
While sole proprietors can get away with using personal checking accounts, you should get a separate business checking account for any other type of business. Mingling your personal and company money is confusing come tax time, and more importantly, it opens you up to personal liability, meaning you risk losing your personal assets if your company gets sued!
Be warned that business checking accounts often have more fees than personal checking accounts. You may be charged not just for overdrafts, but for exceeding a certain number of transactions, carrying too low of a balance, and exceeding a deposit limit, in addition to monthly fees just for having the account. It’s important to read the fine print before you sign anything, and NerdWallet has a handy tool for finding a business checking account with no monthly fees.
To qualify for a business bank account, you will have to submit paperwork. This could include your federal tax ID, partnership agreement, certificate of incorporation, charter, and/or fictitious name certificate, depending on your business type.
Paying For Business Expenses
Once you have a business bank account, you can start using it to pay for supplies, business travel, client lunches, and anything else business-related. However, these days very few places will accept checks, so you’re likely to need a different payment method. Here are your basic payment options:
- Cash: You could make regular withdrawals from your checking account and pay expenses in cash, but this method has numerous downsides. You’ll have to visit the bank often to get money. Cash is very hard to track, so if you lose a receipt, there’s no way to prove that the transaction happened. Giving employees access to cash puts you at high risk for theft or fraud. Carrying large amounts of cash can be dangerous. And you can only use it for local transactions.
- Business credit card: You can use business credit cards almost anywhere, and they often have rewards programs. However, banks are often hesitant to extend lines of credit to new businesses, so you may not qualify. If you do qualify, you may end up paying much more than expected in fees, interest, and employee misspending.
- Business debit card: Your bank may issue a debit card for business when you open a business checking account. Policies vary, but many banks place limits on the number of cards you can issue to employees and the daily spend limits. Also, bank-issued debit cards usually do not allow limitations on spending categories, so you risk expense leaks from employees who make unauthorized purchases. A prepaid business debit card like the Bento card gives you more control with limits on what employees can purchase and real-time reporting on how they’re using the cards.
Another advantage of business debit cards over business credit cards is that your business automatically qualifies without a credit check, so they’re much easier to get. To get a Bento card, for example, you just have to connect your bank account and verify the amounts of two small test transactions. There is no credit check, so once you are confirmed, you’re ready to go.
Check out this rundown on business credit cards vs. prepaid business debit cards for more info.
Creating Business Cards
A number of sites let you design your own cards, choose your cardstock, and order the number you need. Check out Vistaprint, Moo, and 24HourPrint. Most office-supply chains let you design your cards online and pick them up at the nearest store. Try Staples, FedEx Office, or Office Depot.
If design isn’t your forte, consider hiring a professional to create your business card for you. 99Designs has a creative way to design business cards: submit a brief detailing what you need, and dozens of designers will submit ideas. All you have to do is pick your favorite. If you are really on a budget you can use Fiverr, but since many of these freelance designers are oversees (but speak English), finding one worthwhile could cost you more in time and frustration.
Making A Website
Don’t have the budget to hire a web-design firm? Good news: it’s easier than ever to make your own website. You don’t need to know HTML or CSS; just choose a template, add images and text, drag and drop fields, and you’ll have a professional website in a matter of hours. Wix gives you a free website, although you have to pay to remove the “powered by Wix” banner at the top and bottom. GoDaddy offers affordable plans and a free domain name when you sign up for a year. Squarespace has industry-specific templates for musicians, restaurants, artists, and more.
Selling products? It’s time to rethink the cash register. Online payment methods are making it easy to accept credit card payments without an expensive credit card reader. Square offers a credit card reader that plugs into your smartphone, a tablet-based POS system, and now a contactless reader for Apple Pay and credit card chips. Competitors with similar systems include PayPal Here and Intuit GoPayment, each of which integrates with its parent company’s other features.
If your business offers services, a number of companies are working to make your invoicing easy. PayPal invoices, payable with PayPal or credit card, deposit directly into your account. If you use Quickbooks for accounting, you can send invoices that allow credit card or ACH payments, and payments will automatically record in your ledger. Other payment systems feature multiple payment options and extra features such as time tracking. Harvest has a straightforward interface, while Zoho gives you loads of other business-management tools.
Put the business checkbook away and try one of the many online options for paying your bills. Google Wallet lets you send money to anyone with a Gmail address. Venmo lets you pay anyone who has a phone number or email address. And if your vendor sends you an online invoice that accepts credit cards, you can pay it with a debit card for business like Bento.
Starting a business is exciting, but is also fraught with questions, an undefined path, and risk. Now, with the Internet, you have access to information at your fingertips that was unimaginable years ago and minimizes many of the unknowns. No business owner walks the same path, but following a guide like this and accessing the expertise of people who have already walked a similar path is invaluable. If you don’t have a mentor, then you might want to seek one out at a SCORE. No matter what your path, if you always take one step forward everyday in building your business, your success is inevitable.