Today, I’d like to present a guest post from my friend Betsy at ConsumerFu. Let her know what you think in the comments below and feel free to head over to her blog after you’re done.
If you have plans to start a new business it is important to set it up properly from the outset. After you’ve developed a business plan and before you’ve billed your first customer, make sure you apply for the proper licenses and formalize your business with the appropriate government agencies.
Claim your business name & file for incorporation or a business license
The first thing you should do is to determine if the business name you want to use is available. This will involve filing for incorporation or registering for a business or privilege license with the state, city or county in which your business is located. The agency you file with will conduct a search as part of the filing process, but you can typically find this information online.
It is important to make this your first step because most other paperwork requires your legal business name. If the name you have chosen isn’t available in your state because another business is already operating under that name – or something close to it – you will have to choose another business name and you will need that to apply for your Federal Tax ID number and to open business bank accounts.
Part of selecting your business name should involve a search of registered trademarks. You don’t want to spend money and time developing a business following under a name that belongs to a business in another state that holds a trademark or service mark on the business name. If someone does hold a trademark on your chosen name you can still use the name if your businesses trade in different goods or services.
If you want to trademark your business name to protect your brand the application process is available online, but it is a good idea to hire an attorney experienced with applying for patents and trademarks to handle the process for you.
- The Small Business Administration offers links by state to guide you through the process of establishing a business here.
- The United States Patents and Trademarks Office allows you to search for existing trademarks here.
File your DBA
If you are doing business under a name that isn’t your real name or the name under which your business is incorporated you will typically need to file a DBA (Doing Business As) with the state or local Registrar of Deeds. There may or may not be a fee for this filing, but it is typically a much lower fee than that charged for a business license.
Apply for Federal Tax ID
The application for a federal tax ID, or employer identification number (EIN) is free and can be completed online. Your number is issued immediately upon submission of the form. The federal tax ID or EIN is essential for filing federal income taxes and many companies require an EIN before allowing you to register an account for buying supplies at wholesale prices. You will also need this number to establish commercial bank accounts and apply for credit in your company’s name. Most sole proprietors will not need an EIN.
To determine if you need to apply for an EIN visit the IRS site here.
To apply for an EIN go here.
Apply for state and local tax IDs
If required by the state, county or city in which you will be doing business, you must apply for a state tax ID. Check the county and city in which you will operate to determine if separate tax filings are required and complete required documentation to for each entity. Some of these requirements can be found online, but smaller municipalities may not have their requirements or forms available on their website.
Open business checking accounts
It is important to keep your business and personal finances separate. This not only makes it cleaner when filing taxes, but some companies require that you have a business checking account before allowing you to establish a wholesale purchase account. Keeping your business and personal finances separate also adds another layer of protection if you are ever sued.
Business liability insurance
While not required to start or run all businesses, it is important to protect your business and personal assets by purchasing liability insurance specific to your industry. Anyone who offers a service, gives advice or makes recommendations opens himself up to a lawsuit. Insurance is relatively inexpensive and most companies that offer consumer insurance products also offer basic commercial liability insurance. It is also a good idea to update your personal liability insurance while you’re at it.
I recently went through this process and while I had a good idea of the costs I hit a couple of stumbling blocks when it came to registering my business name. These are the fees I paid.
Track All Your Accounts With Personal CapitalPersonal Capital lets you see all of your accounts in one convenient place. Sign up now for free.
- The fee for registering an LLC in North Carolina is $125. Check with the Secretary of State’s office in the state where you plan to locate your business to determine fees for incorporating your business.
- The basic fee for registering a trademark in the US is $325, but the amount can be more depending on your business type and the number of categories in which you will hold the trademark. Fees will not be refunded if your trademark is too similar to another and your mark is declined. Research is important here.
- City and county fees typically start at $50, but in many areas are based on a best estimate of earnings. The county in which I live does not require a separate business license.
Betsy Muse writes for ConsumerFu where she works to help readers earn more, save more and live a more frugal lifestyle.
Betsy / CollegeMom says
Thank you, Harry! We just finished increasing our personal and business liability insurance coverage as part of our efforts to protect our personal assets. I don’t really do much that is controversial and I try to avoid trouble, but the closer we get to retirement the less I want to take risks with our assets.
Harry Campbell says
Nice, sounds like you guys are well prepared. Thanks again for posting, great article!
Commercail Leasing Sanford Fl says
Harry – Thanks for the great starter tips for business owners. You’ve answered most of the most frequently asked questions we hear in the industry and appreciate the insights you share in your posts.