Do you have a business idea? Turning a small business idea into reality is exciting, but there’s so much to learn that it can be a daunting process. There are lots of things you’ll need to do, such as name the business, pick a registered agent, file formation documentation with the state, file annual reports, and many more chores, along with filing fees and deadlines you’ll also need to keep track of.
To help you keep it all straight, we’ve put together a step-by-step guide to help you utilize your skillset and start a business today.
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Step 1: Naming a business
Know the rules
When choosing a business name, keep in mind that no two businesses within a single state can have the same name. All fifty states uphold this rule. And unfortunately, if you find that the business name you want to use is already in use, adding something like “Corporation” or “LLC” to the end of a business name will not make it recognizably different.
Brainstorm ideas
Whether you’re naming a brick-and-mortar shop or an online store, it’s best to come up with a list of names you like in case your favorite one isn’t available. If you’re struggling to come up with names, try using a name generator tool.
Name generator tools work by taking a few keywords you enter and creating several possible combinations with them. The keywords you enter might be things like the type of business it is, words that describe your product, the name of the street it is on, or your last name.
Even if none of the generated names are the right fit, you’ll be able to draw some inspiration from seeing the many possibilities. And they could come in handy if your top picks are already being used.
Avoid hard-to-pronounce names
If your business name is difficult to pronounce, or exceedingly long or complicated, your potential customer base will struggle to type it into a search engine or to remember it at all. This could potentially cost you a lot of business. So take care to choose a name that is simple and easy to remember.
Check availability in your state
When you file your business name with the Secretary of State’s office for your state, the office will run its own check to confirm that your business name is available. Fortunately, you can save yourself the trouble of guessing whether or not your business name is available.
Most states offer a searchable business name database so entrepreneurs can see what names are already taken. Generally, this search tool is on the secretary of state site.
You’ll simply type in your business name and click the search button. Some search tools have additional parameters you can select such as “in use,” “expired,” and “similar.” You can run free searches with these additions to find out whether there are any similar names to your desired name and whether your desired name has ever been in use before.
Consider reserving the name
If you’re still deciding between a couple of good names or you’re just not ready to file your LLC formation documents yet, you can reserve your business name(s) until you’re ready to file.
Each state has different reservation periods (ranging from 60 to 180 days) and filing fees (ranging from $15 to $120). You can file a business name reservation in just a couple of minutes on the secretary of state’s website.
Step 2: Picking a registered agent
What is a registered agent?
A registered agent is the point-person for your company who will receive important documents like tax notices or legal notices. This person is responsible for checking for these documents regularly and for ensuring that they are addressed in a timely manner to avoid late fees or other penalties.
Who can be a registered agent?
A registered agent must be trustworthy and be available during regular business hours when documents are delivered. People who can serve as the registered agent include the small business owner, the co-founder, the accountant, or another person involved with the business. The only stipulation is that the registered agent must be over eighteen years of age and be around during daytime hours to receive documents as needed.
You can also hire a registered agent service to serve in this role. Northwest Registered Agent, ZenBusiness, and Bizee are a few examples of companies that will receive documents on your behalf and notify you of their arrival. The cost of a registered agent service typically ranges between $100 and $300 per year.
Our picks for the best registered agent services
What are the benefits of using a registered agent service?
Eliminates the hassle
With someone else in charge of this aspect of the business for you, you no longer have to stress about whether there could be a problem that’s getting worse and worse while you are busy with the other parts of the business. You can rest assured that someone else is keeping an eye out for these things for you, so you’re free to focus on the other aspects of running your business.
Removes the need for daytime availability
If one reason for starting your own business in the first place was to be in charge of your own schedule, you may not want to always be available during regular daytime hours.
You may plan to work late into the night and sleep in every day, or you may be planning to travel extensively while someone else runs your business for you, either way, a registered agent service removes your need to be available during business hours.
Paying for a registered agent service will free you to work how and where you want without being at risk of missing any important documents or notifications.
Allows anonymity
If you are a public figure who is well-known in your local area or another community, you may wish to keep your business and your public reputation separate for various reasons.
When you hire a registered agent, it’s their name and business location that’s listed on the formation documents, which provides some anonymity.
Hiring a registered agent service will allow you to keep your anonymity and run your business life and public life separately with no difficulties.
Step 3: Filing business formation paperwork
There’s a certain process to follow to set up a business in each state. The process is basically the same no matter which state you live in, but it does vary based on the business structure you choose. Here’s a look at the general process:
1. Find formation documents on state website
If you are forming an LLC or limited liability company, you’ll need to file Articles of Organization in your state. This same form is also called a Certificate of Formation in some states.
If forming a Corporation, you’ll need to file Articles of Incorporation in your state.
You can find either of these forms online at your Secretary of State’s website. Either form can be filled out and submitted online, or printed, filled out with black ink, and dropped off in person.
2. Fill out the documents
To fill out either of those forms, you’ll need to have your business name, the period of duration (whether you plan to be in business indefinitely or only temporarily, and if so for how long), and the date you wish your business to officially become a business. You’ll also need to provide the name and address of your registered agent.
If you are both the owner and the registered agent, you are allowed to use the same address in both fields. But PO Box addresses are not allowed. If your business is online and has no physical address, you’ll have to use your home address.
3. Submit paperwork and pay the filing fee
Once you’ve submitted the paperwork, you will be required to pay the filing fee. The filing fee varies by state. Usually, the cost is between $50-$150, but there are some states that charge a higher fee. The secretary of state’s website will provide the exact fee in your state.
4. Wait for state approval
Most states provide approval within a week or so, but you also have the option to pay extra to expedite the process in most states. This expedited processing fee usually costs around $50-$100.
Once approved by the state, your business is officially set up.
Step 4: Look into licenses, tax IDs, and insurance
As a business owner, filing formation documents with the state is just the first step. You should also consider looking into the following items:
State business licenses or permits
In most states, if your business sells goods or tangible personal property, you are required to collect sales tax. Usually about 7%. In order to legally collect sales tax, you’ll need to apply through your state’s Department of Revenue to file for a Registered Retail Merchant Certificate, or similar certificate, depending on the state.
Check with your state’s Department of Revenue office to see whether you need to follow these steps.
To find out whether you’ll need any specific local licenses, check with your local Small Business Development Center. They’ll be able to inform you of any additional steps you will need to take based on your location and business type.
State and federal tax ID numbers
The rules regarding state tax ID numbers vary by state. Generally, if your business is a sole proprietorship or an LLC in which you are the only person involved, you may be able to use your personal social security number as your tax ID number.
If your business will be an LLC that will have any employees, however, or your business will be a corporation, you’ll likely need a tax ID number from both the state and federal government.
To obtain your state tax id, visit your secretary of state website or the state’s department of taxation. For the federal id, which is called a federal Employer Identification Number (EIN), check with the IRS.
Business insurance
There’s a vast number of insurances that a business could benefit from, so we’ll just cover some standard options.
General liability insurance
General liability insurance is important if you will have a physical building for your clients to enter, especially if you sell products in the building, making it a store rather than just an office building where consultations or similar services might take place. This insurance usually includes product liability insurance and will help cover your business’s legal fees when a customer slips on the floor or encounters a problem with a product they purchased from your business and wants to sue you for it.
Professional liability insurance
Professional liability insurance will help cover your business’s legal fees in the event of a client trying to sue you for a mistake in the professional services you provide, such as making an error on a client’s financial statement or accidentally omitting an important piece of information on your client’s tax forms.
Business income coverage
Business income coverage is a type of insurance to help replace income lost in the event of an emergency, such as temporarily closing during repairs due to a fire. This insurance will cover a portion or all of your estimated lost income during the time that your business is closed so that you are able to make ends meet in the face of financial difficulty and help your employees do the same.
Your business could also benefit from property insurance, workers’ compensation insurance, and car insurance. The Small Business Administration (SBA) has a more extensive list of possible insurances that could benefit your business.
Step 5: Understand additional documents associated with your business launch
There are a few other “official documents” you should know about when it comes to launching your new company, which include:
Annual reports
Most states require LLCs and corporations to file an annual report or a biannual report. The required information varies by state, but usually includes the names and addresses of all owners and managing members of the business, a description of all business activities by the business in that state within that fiscal year, and the name and address of the business’s registered agent.
Typically these reports are filed with the secretary of state’s office and a filing fee ranging from $50-$800 by state is required to submit it.
In most cases, sole proprietorships are not required to submit an annual report. But be sure to check with your state to confirm, as failure to do so will result in any business, whether a sole proprietor or LLC or corporation, losing its “good standing” with the state.
A business that is not in good standing is at risk of accruing additional fees and paperwork by the state or even being dissolved by the state when the situation becomes severe enough.
Operating agreement
An operating agreement is not legally required in most states, however, just about every business expert would recommend creating one. An operating agreement, as the name suggests, explains how the company will work. It provides an in-depth look at its daily operations, which people are responsible for overseeing which parts, and how profits and losses are managed.
Even if you never need it for any legal reasons, it’s really helpful to have these details laid out so that you can refer back to them in the event of misunderstandings or other difficulties between individuals in the business. If everyone has agreed to the operating agreement, then they’ll need to abide by what they agreed to or else be demoted or removed from the company.
An operating agreement is usually created during the infant stages of a business and updated as the business grows.
While the document isn’t something you have to submit to any government entities, it’s not something you should skip. A lawyer can help you draw an agreement up, or you can always find a template online to get started and upgrade to a more official version as your business grows to need it.
Find out how to start a business in your state
FAQs about starting a business
Do I need a business plan?
A business plan is not required by any government entities for you to start a business. However, if you are seeking any financial assistance such as small business grants, loans, or investor commitments, you’ll likely need a very detailed business plan to explain how you’ll create a successful business.
Without a business plan, lenders or angel investors won’t feel confident enough to support your business. Even friends and family may want to see a business and marketing plan before investing.
What do I need to include in a business plan?
After you conduct market research, you’ll put together your business plan. A business plan could be summarized as your business’s theoretical résumé. It lists the goals and objectives of your business and how you plan to attain them. It also identifies the product/service, the target market, the management team, where the business will operate, and your own business experience.
Parts of the plan include market research, promotional strategies, current and projected balance sheets, income statements, and a financial plan including current cash flow. It outlines how, when, and where financial support will be obtained, and how any small business loan will be repaid. The plan provides general operating information, along with information about where the business is now, where it has been, and where it is going.
Do I need to open a business bank account?
A new business should open bank accounts to keep personal and business finances separate. You might consider getting business credit cards too and implementing accounting software. Doing business with separate accounts will make life much easier during tax time.
What records do I need to keep for my startup?
You’ll need to keep records for your own assessment of the business to guide you in how to improve your operations and income over time, as well as records for the state and the IRS regarding things related to business taxes.
There are, however, basic financial records all businesses keep that may be needed by both parties. Records such as journals and ledgers (like a checkbook register), accounts receivable, accounts payable, records of sales, inventory, cash receipts, and cash disbursements.
Records must also document mileage, meal expenses, and entertainment costs that may be written off against the business’s gross income. If you plan to hire employees, additional records are required.
Keep in mind that all financial records are historical documents. This includes tax returns and the documentation for those returns.
Business documents such as filing of the business name, incorporation/partnership papers, sales tax permit, federal employer identification number, and insurance records must be retained indefinitely. Some of these records, such as incorporation papers and tax permits, must be kept for three or more years after the business closes.
For yearly tax returns, the IRS says to keep the records for three years after the filing of that year’s taxes. Records involving property must be kept for the entire time the property is owned plus an additional three years at a minimum.
How should I keep business records?
It is most prudent to have both a digital and a physical copy of your records. Having an additional backup hard drive of your digital records won’t hurt either. It may seem redundant to keep multiple versions of your records, but this way you’ll have much less of a headache dealing with the aftermath of a fire or a hacker infiltrating your system, or a careless employee misplacing or deleting a hard drive since you have multiple other copies.
How can I start a business with little to no money?
There are some businesses that require large capital investments to get off the ground, but there are plenty of micro-businesses that can be started from home for just $3,000 or so. If you’re open to ideas, you can review this list of low-cost businesses that are easy to start.
For those with bigger ambitions, the ones that require more money, the best thing you can do is make a plan. Figure out how much money you need to start. Now, take a look at your personal finances and see how long it will take you to save the startup cash.
Keep in mind, you can also try to get a cash infusion from friends and family or a local bank.
You can also look into startup grants and government loans that are designed to help entrepreneurs with initial costs.
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