A Simple Guide to Starting A Small Business

Introduction

Starting a business is a major endeavor that brings both rewards and struggles. If you are looking for freedom from the typical job or hoping to find a work schedule that accommodates your family, starting a business can be very beneficial. Developing a business gives you a sense of independence and a way to achieve greater financial goals.

Entrepreneurs need a good idea to start a business, but the logistics of owning a business includes monetary concerns such as taxes and employee benefits, as well as careful attention and planning. So, listen to the old popular phrase "don't quit your day job" until you have a solid financial cash flow. Please consider the training you might need to properly ensure you can sustain a business.

Business Structures

Sole Proprietorships

The vast majority of small businesses start as sole proprietorships. These firms are owned by one person, usually the individual who has day-to-day responsibilities for running the business. Sole proprietors own all the assets of the business and the profits generated by it. They also assume complete responsibility for any of its liabilities or debts.

Limited Liability Company

The limited liability company (LLC) is still considered a relatively new type of hybrid business structure that is now permissible in most states. It is designed to provide the limited liability features of a corporation and the tax efficiencies and operational flexibility of a partnership.

Subchapter S Corporations

A subchapter S, better known as an S corporation, enables the shareholder to treat the earnings and profits as distributions and have them pass through directly to their personal tax return. The catch here is that the shareholder, if working for the company, and if there is a profit, must pay himself or herself wages and meet standards of "reasonable compensation."

Corporations

A corporation chartered by the state in which it is headquartered is considered by law to be a unique entity, separate and apart from those who own it. A corporation can be taxed, it can be sued, and it can enter into contractual agreements. The owners of a corporation are its shareholders. The shareholders elect a board of directors to oversee the major policies and decisions. The corporation has a life of its own and does not dissolve when ownership changes.

Partnerships

In a partnership, two or more people share ownership of a single business. Like proprietorships, the law does not distinguish between the business and its owners. The partners should have a legal agreement that sets forth how decisions will be made, profits will be shared, and what steps will be taken to dissolve the partnership when needed.

Starting a Business

Here are ten basis steps to help you establish your business.

Step 1:

Research and write a business plan. A business includes everything from marketing, your competition, to how many products or services you must perform each month to make a profit. For more information, visit www.sba.gov.

Step 2:

Take advantage of free training and counseling services for start-up companies.

Step 3:

Determine the legal structure of your business and decide whether you are going to form a sole proprietorship, partnership, LLC, corporation, a non-profit, or a cooperative.

Step 4:

Obtain the appropriate business licenses and permits. Get a list of federal, state, and local licenses and permits required for your business.

Step 5:

Get a tax identification number from the IRS.

Step 6:

Register your business name with your state government.

Step 7:

Register for state and local taxes, worker's compensation, unemployment, and disability insurance.

Step 8:

Choose a business location. If applicable, get advice about choosing a customer-friendly location and complying with zoning laws.

Step 9:

Finance your business by finding government backed loans, venture capital, and research grants to help you get started.

Step 10:

Hire employees if needed. It is an employer's responsibility to learn the legal steps needed to hire employees.

Starting a small business brings tremendous rewards and a few heartaches. Be sure it's what you want to do and that you have the necessary money it takes to meet your household expenses for a minimum of six months. Also, don't be afraid to get the training you need. There are plenty of workshops out there for small business owners to meet any budget.

UNP-0023, June 2011, Roger A. Richardson, Ph.D., Extension Urban Economic Development Specialist, Alabama A&M University

For more information, contact your county Extension office. Visit http://www.aces.edu/counties or look in your telephone directory under your county's name to find contact information.

Published by the Alabama Cooperative Extension System (Alabama A&M University and Auburn University), an equal opportunity educator and employer.

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