4 Things You Need to Know Before Starting a New Business

by | Aug 11, 2021 | Blog, Resources

Once you’ve decided whether you want to start a side hustle or go full time with your small business idea, you’ll need to have a plan in place to launch a successful venture. If you have an idea of what you want to do, you’ll need to create a thorough business plan. You need to have a clear idea of what you want your business to be, write out a plan, think through financing, decide on a structure, and make a marketing plan.

1. Evaluate and Develop Your Business Idea

Refine your idea.

If you’re thinking about starting a business, chances are you already have an idea of what you want to sell online or in the market you want to enter.

Write your business plan

The first step toward writing your business plan is deciding what kind of business you want to start: an online store, a brick-and-mortar retail location, a service business, etc. Once you’ve decided on which type of business you’re starting, you can begin thinking about who will be involved in running the business and where you’ll find customers.

Create a list of potential products/services that will be offered by your new company.

This is called “the long tail” because there’s less competition on each individual product than if you were selling one item per customer. You’ll also need to decide whether you should offer physical goods or services. For example, if you run a cleaning service, would you rather clean someone’s home or office? Or maybe you’d like to start a dog walking service instead.

Fund your business

Create an income statement for your new venture. Calculate how much it will cost to start up, operate, and maintain your business. Find out what kind of financing is available to help with startup costs. Decide whether or not to raise capital from investors. If so, find out about different types of investments. Learn more about taxes on small businesses.

2. Decide on a Legal Structure for Your Business

Determine whether to incorporate or form an LLC. Consider forming a partnership with another person if it makes sense for your situation and is legal in your state. If you are considering incorporating, consider using a professional service provider who can help you navigate through all aspects of incorporation.

How much you pay in taxes, your ability to raise money, the paperwork you need to file and your personal liability are all influenced by your business structure. If you’re starting a new business, it’s important that you understand what kind of entity is best suited for your needs. There are two main types of entities available to small-business owners: corporations and limited liability companies.

Sole proprietorship

Sole proprietors are still able to get a trade name. The IRS defines a sole proprietorship as “an individual engaged in carrying on a trade or occupation under his own name.” The term does not apply to partnerships, corporations, limited liability companies, trusts, estates, government entities, churches, etc., unless they have been formed

Limited liability company (LLC)

An LLC is a type of legal structure used primarily for businesses. It provides its own set of benefits over traditional partnerships and corporations. Unlike a corporation, where shareholders hold equity stakes in the firm, LLC members do not receive shares of stock. Instead, they become partners in the business.. In addition, unlike a corporation, LLCs cannot be owned by nonresidents. Finally, LLCs offer greater flexibility than both corporations and partnerships because they allow multiple managers within the same organizational framework.

S Corporation

An S corporation is a type of pass-through entity. This term refers to how profits from a business flow through to its owner. An S corporation doesn’t pay any taxes at all until after it distributes earnings to its shareholders. At that point, each shareholder receives his or her pro rata portion of the total profit earned during the year.

S corps avoid double taxation and are the most important thing about them. An S Corporation is similar in concept to a partnership, except that instead of having partners who share ownership equally, they own shares which may vary in value depending upon how much each shareholder contributes.

C Corporation

C Corporation Structure: The most common type of corporation structure is called a “C” or “closely held” corporation. The number of owners who own more than 50% of the shares is less than 100. These companies can also be referred to as small businesses because their size makes them eligible for certain benefits under federal law. In addition, these types of companies often qualify for favorable state laws regarding minimum capitalization requirements, limited liability protection, and other advantages.

Partnership

A Partnership is an association between 2 or more persons where each person owns part of it. A partnership has many advantages such as joint ownership, shared profits and losses, and protection from creditors. It’s important that you understand how these benefits work so you know what kind of partnership will best suit your needs.

The most basic form of partnership is called a General Partnership. In this type of partnership there is 1 Partner who acts as the General Partner and another Partner who acts as the Limited Partners.

3. The Basics

Depending on your individual situation, a corporation may save you money on taxes, or it may cause you to pay more in taxes. Each state has its own rules about how to incorporate, but here is some basic information you’ll need:

Your Business Name

The first thing you need is a good business name. A great way to find out if it’s right for you is by asking yourself some questions: Is this name easy to remember? Does it sound professional and trustworthy? Will people know what I’m talking about when they hear my company name? If not, then maybe it isn’t the best choice. You can also ask friends, family members and colleagues who might use your services whether they would recommend your new business name.

Names of Decision-Makers

The name of each individual who will be making decisions on behalf of the company should appear somewhere in the articles of incorporation. This includes any individuals that may become shareholders, employees, consultants, advisors, etc., as well as anyone else with an interest in the company. If there are multiple people named in the articles of incorporation, they need to be listed alphabetically by last name.

Names of Business Owners

Depending on the state you choose to be incorporated, then you must name at least one person who will be an officer or director of the company. You might want to consider naming yourself as the sole owner of the corporation. This way, there’s no chance that anyone else could claim ownership rights over any part of the business.

Your Business Address

You should also provide a physical address in the state where you are incorporating. This may not necessarily mean that it’s your home address; rather, it could be any place where mail is delivered regularly. If you do choose to use your residence as the registered office, make sure there isn’t already another company using that address.

Obtain Necessary Licenses and Permits

Register the name of your new business with the appropriate government agency in each jurisdiction where it does business. This is usually done through an online process that allows you to register multiple names at once.

4. Stay on-top of your books!

You should know where all cash goes before starting any new business ventures. You’ll want to track every expense so you can make sure it aligns with your overall goals. For example, if you’re looking at opening up an e-commerce store, you might consider setting aside some extra income each month in order to cover shipping fees. Once you’ve got this down, you’ll be able to better budget when planning future expenses.

Common Methods for Financing a New Business

Understanding the pros and cons of each option is the first step in choosing the best method. The following sections will walk through these details so that you have an idea of where they stand before making any decisions.

Some ways of financing a business might be better suited to your needs. Understanding how each business financing option works can help you narrow it down. Our business development team at ZOMMA Group can help you secure funding for your new business.

Bookkeeping

Before starting your first set of books, it helps to understand how these different kinds of accounts work together. For example, if you’re tracking expenses, then you need to know what kind of transaction will be recorded on this particular line. If you want to track employee hours worked, you’ll also need to know whether those hours should go into paid time off or vacation time. The most important thing when creating new accounts is deciding where they belong.

The decision on a bookkeeping method comes down to how much time you want to spend doing your books versus how many hours you’re willing to put into them. Single-entry bookkeepers typically take less time because they aren’t entering multiple lines of information about each transaction. However, this approach also makes it harder to track what happened during the year. It’s possible that you don’t know where your income came from or how much was spent until after the year ends.

Understand your tax burden.

If you’re an entrepreneur who’s paying yourself a salary or taking home more than $100k annually, then you’ll likely owe federal income taxes. But what about the rest? Do you need to file for personal property taxes? Are there sales taxes that apply to your company? What about franchise taxes? If you don’t know where to start, ZOMMA Group recommends consulting with a CPA. We will help you understand all aspects of taxation so you can plan accordingly.