Start Your Business in 2022

Happy New Year!

This is the time of the year when everyone makes resolutions and “try” to hold true to them. Whether it’s to lose weight, get your finances in order, or go on that trip you’ve always dreamed about, we all want to do more and be better.

Well, what about that business you have always been thinking about? 2020 and 2021 have taught us many things, but the main thing it taught us was that Time is of the Essence.

So why haven’t you started that business? It’s time to realize your full potential.

Starting a business involves planning, making key financial decisions, and completing a series of legal activities.

Below are ten necessary steps to get your business started in 2022.

1. Conduct Market Research - Like many things, preparation is necessary when starting a business. Therefore, the first step in starting a business is to make sure you gather enough information about your potential customers and other businesses already operating in your area.

You want to use this information to create a competitive advantage for your business. This competitive advantage will not only help the doors to open in your business but also assist with keeping those doors open.

Questions to consider during this phase of starting your business are as follows:

• Demand: Do my potential clients have a desire for my product or service?

• Market Size: How many potential clients would be interested in my offering?

• Economic Indicators: How much does my potential client make?

• Location: Where are my potential clients located? How far can my business reach?

• Market Saturation: How many businesses are offering what I am offering?

• Pricing: What does my potential client already pray for this product/service?

2. Write Your Business Plan - It is common that this step of starting a business is overlooked or avoided. Businesses that typically do not require any capital investment to get started will typically get started without this important document.

But, I am here to tell you, you are severely lacking in jumpstarting your business if you skip creating a Business Plan. See your business plan as the foundation of your business. It is the roadmap for how your business needs to be structured, run, and grow. A solid business plan will guide you through each stage of starting and managing your business.

There are two different types of business plans: traditional or lean startup. Traditional businesses plans are more common. This business plan style uses a standard structure and encourages you to go into detail in each section. Typically, a business that creates a traditional business plan requires more work up front, making the business plan dozens of pages long.

A lean startup business plan is less common. They focus on summarizing only the most important points of the key elements of your plan. This style of the business plan doesn’t take long to create and is typically only one page.

3. Fund Your Business - One way that step two helps with this step is that your business plan will inform you of how much money you will need to start your business. Yes, it costs money to start a business. How you choose to fund your business could affect how you structure and run your business.

Every business has different needs, and because of this, no financial solution is one-size-fits-all.

Below are listed different ways of funding your new startup:

• Self-Funding: Self-fund allows you to leverage your own financial resources to support your business. It can come in the form of turning to family and friends for capital, using your savings accounts or even tapping into your 401(k). Self-funding allows you to retain complete control over your business, but you also take on all of the risks.

• Venture Capital from Investors: There are investors who will give you funding to start your business. However, venture capital is normally offered in exchange for an ownership share and active role in the company. The majority of venture capitalists will, at a minimum, want a seat on the board of directors. Be prepared to give up some portion of both control and ownership of your company in exchange for funding.

• Crowdfunding: Crowdfunding raises funds for a business from a large number of people called crowdfunders. These crowdfunders are not technically investors because they don’t receive a share of ownership in business and don’t expect a financial return on their money. What they do expect is a “gift” from your company as thanks for their contribution. Typically that gift is a product you plan to sell or other special perks. Crowdfunding is a very low risk for business owners and you get to retain full control of your company.

• Small Business Loan: If you want to maintain complete control of your business but still do not have enough funds to start, consider a small business loan. This is where that business plan comes into effect. To qualify for a small business loan, you will need to produce a business plan, expense sheet, and financial protection for the next five years. These tools will help you decide how much capital you need to ask for and will also help the bank to understand they re making a smart choice by giving you a loan.

• SBA Guaranteed Loans: It’s not always easy getting a traditional business loan. In those instances where a traditional business loan doesn’t work, you can look into SBA-guaranteed loans. Sometimes a bank will view your business as too risky to lend money to. However, the SBA can agree to guarantee your loan. By doing so, the bank has less risk and is more willing to give your business a loan.

4. Pick Your Business Location - Your location determines different things. For instance, your business location determines the taxes, zoning laws, and regulations your business will be subject to. You will need to register your business, pay taxes, and get licenses and permits where you choose to colocate your business.

Where you choose to locate your business depends partly on the location of your target market, business partners, and your personal preference. In addition, you should consider the cost, benefits, and restrictions of different government agencies.

5. Choose a Business Structure - The business structure you choose influences everything from day-to-day operations to taxes and how much your personal assets are at risk. You want to choose a business structure that gives you the right balance and legal protections and benefits.

How much you pay in taxes is determined by the business structure you choose. You will need to choose a business structure before registering your business with the state. Most businesses will also need to get a tax ID number and file for the appropriate licenses and permits.

Consider the common business structures below:

• Sole proprietorship: This business structure is easy to form and gives you complete control of your business. This structure automatically applies if you do business activities but don’t register as any other kind of business. A sole proprietorship does not produce a separate business entity. Basically, this means your business assets and liabilities are not separate from your personal assets and liabilities. You can be held personally liable for debts and obligations of your business. This could be a good choice for low-risk businesses and owners who want to test their business idea before actually forming a more formal business.

• Partnership: This is the simplest structure for two or more people to own a business together. There are two types of partnerships: limited partnerships and limited liability partnerships. Limited partners have only one general partner with unlimited liability and all other partners have limited liability. Those with limited liability typically have limited control over the company, which is documented in the partnership agreement. The one without limited liability, the general partner, is also responsible for paying self-employment taxes. Limited liability partners are similar to limited partnerships but give limited liability to every owner. All partners are protected from debts against the partnership, and they are not responsible for the actions of their partners. Partnerships can be a good choice for businesses with multiple owners, professional groups, and groups who want to test their business idea before forming a more formal business.

• Limited liability company (LLC): LLC’s protect you from personal liability in most instances. Your personal assets won’t be at risk in case your LLC faces bankruptcy or lawsuits. Members of an LLC are considered self-employed and must pay self-employment tax contributions towards Medicare and Social Security. This can be a good choice for medium to higher-risk businesses, owners with significant personal assets they want protected, and owners who wanted to pay a lower tax rate than they would with a corporation.

• Corporation: A corporation, sometimes referred to as a C corp, is a legal entity that is separate from its owners. It can make a profit, be taxed, and be held legally liable. They offer stronger protection to its owners from personal liability, but the cost to form a corporation is higher than other structures. They require must more extensive record-keeping, operational processes, and reporting. Corporations also pay income tax on their profit. In some cases, corporate profits can be taxed twice when the company makes a profit and again when the dividends are paid to shareholders on their personal tax returns. Corporations also have a completely independent life separate from their shareholders. If a shareholder leaves the company or sells their shares, the C corp can continue doing business relatively undisturbed. Corporations can be a good choice for medium- or higher-risk businesses, those that need to raise money and businesses that plan to "go public" or eventually be sold.

• S Corporations (S Corp) is a special type of corporation designed to avid the double taxation drawback of regular C corps. S corps allow profits, and some losses, to be passed through directly to owners’ personal income without ever being subject to corporate tax rates. You must file with the IRS to get S Corp status, which is different from registering with your state.

• B Corporations, also called a benefit corporation, is a for-profit corporation recognized by most US states. This corporation is different from a C corp in purpose, accountability, and transparency. They are driven by both missions in profit. Shareholders will hold this corporation accountable to produce a public benefit in addition to a financial profit. The personal benefit maybe in the form of an annual benefit report which demonstrates their contribution to the public good.
  

• Nonprofit Corporations are organized to do charity, education, religious, literary, or scientific work. Their work benefits the public and therefore receives the tax-exempt status, meaning they don’t pay the state of federal income taxes on the profit. This type of corporation must file with the IRS to get tax exemption status. They have to follow organizational rules, which are very similar to the C Corp. They also need to follow special rules about what they do with any profits they earn. They are also referred to as 501(c)(3) corporations.

6. Choose Your Business Name: Some of us have had the name of our business in our minds for days, months, and even years. Picking your name is not an easy feat. It required creativity and market research. However, once you have decided on a name that represents your brand, you will want to register the name to protect it.

There are four different ways to register your business name:

• Entity name protects you at a state level

• Trademarks protect you at a federal level

• Doing business as (DBA) doesn’t give legal protection, but it might be legally required

• Domain name protects your business website address

7. Register Your Business: After deciding on the perfect business name, it is time to make it legal and protect your brand. Registering your business is as simple as registering your name with state and local governments for most small businesses.

If you don’t register your business, you could miss out on personal liability protection, legal benefits, and tax benefits. Most businesses don’t need to register with the federal government, but some must register for trademark protection or tax-exempt status with the federal government.

If your business is a limited liability company (LLC), corporation, partnership, or nonprofit corporation, you'll probably need to register with any state where you conduct business activities.

Typically, you’re considered to be conducting business activities in a state when:

• Your business has a physical presence in the state

• You often have in-person meetings with clients in the state

• A significant portion of your company’s revenue comes from the state

• Any of your employees work in the state

Some states allow you to register online, and some states make you file paper documents in person or through the mail. Most states require you to register with the Secretary of State’s office, a Business Bureau, or a Business Agency.

8. Get Federal and State Tax IDs: State tax ID and Federal tax ID numbers (also known as an Employer Identification Number (EIN)) work as your business's social security number. They let you pay your state and federal taxes to the government agencies. Getting a federal ID number or EIN is free and should be done right after registering your business.

You will need an EIN number if you:

• Pay employees

• Operate as a corporation or partnership

• File tax returns for employment, excise, or alcohol, tobacco, and firearms

• Withholds taxes on income, other than wages, paid to a non-resident alien

• Uses a Keogh Plan

• Works with certain types of organizations.

Getting a state tax ID number ties directly to whether your business must pay state taxes. Tax obligations are different at state and local levels. To know whether you need a state tax ID, you will need to research and understand your state’s laws regarding income taxes and employment taxes.

9. Apply for Licenses and Permits: Most small businesses need a combination of licenses and permits from both federal and state agencies. The requirements and fees vary based on business activity, location, and government rules.

If a federal agency regulates you, you will need to get a federal license or permit. Requirements and fees depend on the business activity and the license or permit agency. Some licenses and permits will expire after a set period of time.

10. Open a Business Bank Account: You have finally made it to the last step and should be ready to start accepting or spending money as your business. A business bank account will help you stay compliant legally and protected.

Once you register your business (if not a sole proprietorship) and get a federal EIN, you can open a business bank account.

Most business bank accounts offer perks that don't have a standard personal bank account.

• Protection. Business banking offers limited personal liability protection by keeping your business funds separate from your personal funds. Merchant services also offer your customers purchase protection and ensure that their personal information is secure.

• Professionalism. Customers will be able to pay you with credit cards and make checks out to your business instead of directly to you. Plus, you'll be able to authorize employees to handle day-to-day banking tasks on behalf of the business.

• Preparedness. Business banking usually comes with the option for a line of credit for the company. This can be used in the event of an emergency or if your business needs new equipment.

• Purchasing power. Credit card accounts can help your business make large startup purchases and help establish a credit history for your business.

Make sure you shop around and find an account with low fees and good benefits. You want to consider: introductory offers, interest rates for savings and checking, interest rate for lines of credit, transaction fees, early termination fees, and minimum account balance fees.

You will need documents to open a business bank account. These documents include:

• Employer Identification Number (EIN) (or a Social Security number, if you're a sole proprietorship)

• Your business's formation documents

• Ownership agreements

• Business license

This is your roadmap to starting your business in 2022. It is time you change your work status to self-employed.

It is time you manifest your dreams and become the business owner you have always desired to be.

It’s not going to be an easy road, but one thing I know as a business owner and from hearing from my clients, it’s worth the hard work to be your own boss.

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Essence Clark Virtual Consulting can assist you with all of the above-listed steps to start your business today.

Book your consultation today to discuss how we can assist with the creation of your business. (https://calendly.com/essenceclark/30min)

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