Finance 101: Starting a Business

Sure, the thought of starting a business sounds overwhelming, but with the right knowledge and resources, you can do it!

Whether you are looking to turn a hobby into a business (check out the article: Where To Start When Turning Your Hobby Into a Business), or ready to make a full time career change, the concepts for forming a business are the same.

The CGS Team is going to walk you through the key items you need to know to actually start a business. Don’t let fear or lack of knowledge stop you from doing what you really enjoy!

Step 1: Write Your Ideas Down

A business plan outlines what your company is, what goals your company has, and how to achieve those goals. Most companies have formal business plans, but if you are just starting, then your business plan will be a work in progress.

Ask yourself the following questions:

1. What products or services will my business provide?
2. Who will be most interested in these products or services?
3. What short term and long-term goals does my business have?

Read the article Turn Your Idea into a Business for more tips on this step. Understanding what your business is and what it provides is key to targeting potential customers in the future.

Writing down your business goals keeps you focused and reminds you what you are working towards. For more information on creating a formal business plan, check out the How to Write a Business Plan article from the Small Business Administration.

Step 2: Determine What Type of Business You Will Have

Is your business going to be a store based company or an online business? Will it be a store location with a website that sells the same products?

An online business is less costly since there are no location expenses. However, marketing an online business requires different strategies. Take the time to get an idea of what type of start-up expenses you will likely incur.

Step 3: Determine Your Financial Situation

It is not cheap to start a business. There are fees associated with forming your business in your state of work. Every business, (online or store front), has start-up costs.

Will you be working full-time and focusing on your business after work? Will you have employees or associate who will be working for you?

If you have a company website, who will create and maintain it? Understanding that expenses are inevitable when starting a business will make it easier for you in the long run.

If it is not financially feasible to start a business right now, give yourself some time to save and then come back to it. There are also government backed loans or grants available.

Most banks also offer business loans, based on your credit history. Not sure how to get a bank loan? Check out 5 Ways to Approach a Bank Loan. Prepare yourself for a lot of expenses with little to no return initially.

Step 4: Form a Legal Business Entity

You can form businesses in several ways. You have the option of starting a corporation, partnership, limited liability company (LLC), or sole proprietorship.

A sole proprietorship means that you are the sole owner.

Sole proprietorships require a “DBA” or “doing business as” with the state where your business is located. If you are planning on starting your business with a friend or family member, a partnership may be the way to go.

A partnership splits ownership between two individuals. It does not necessarily have to be a 50/50 split either. You must file a partnership agreement outlining the percent of ownership.

A limited liability company is similar to a sole proprietorship. However, it separates you from your business. If your company were sued, only the company is liable and your personal assets are not on the line.

A sole proprietorship does not separate liability from you and your company, as, essentially, you are the company.

A corporation is reserved for businesses that will have multiple owners, called shareholders. Since a corporation is the most formal, annual meetings and up to date bookkeeping are a necessity.

Check out the Rundown on Business Entities article for more detailed information on business entities.

Step 5: Get Your Tax ID and Register for State & Local Taxes

Once your business has been formed and filed with the state where your business is located, you need to get your business a tax ID. If you have a sole proprietorship or LLC, your tax ID will usually be your social security number.

Even if your business does not generate revenue, most states required businesses to file a franchise tax return annually. To obtain your company’s tax ID number, visit the IRS website.

To obtain local and state tax information, check out your state’s Secretary of State Website to understand exactly what you need.

Step 6: Open for Business!

Once all the legalities are completed, you can get everything ready for opening. Develop your website, open your storefront location, get your records in order, and start marketing!

Related: 6 Online Business Ideas to Take You to the Next Level

Maintaining a business is a whole different ball game than starting it, but you can’t maintain a business until it starts! Be open to growth and change, research your target market, and expect the unexpected!

Have you started a business recently or in the past? What would you want to share with the community about your experience?

Sharing your thoughts and feedback allows others to grow and learn from your advice! Look out for more articles on being self-employed and running a business in the future!

-The CGS Team