As society continues to deal with economic challenges, millions of individuals have become jobless or unemployed. The loss of a job can be devastating for individuals as well as family members. While these unexpected changes can create fear and uncertainty, some may perceive job loss as a nudge to start a small business.
According to TRUiC, an organization comprised of entrepreneurs, small businesses make up more than 99 percent of all businesses in the United States. Alabama is cited as a great place to launch a small business because of its low tax burden and low labor costs. Starting a business is scary, but the following information will help to make your dream a reality.
Starting a business requires extensive research about your business idea, potential customers, and competition, for starters.
- Determine if there is a need for your business idea. Are you filling a service or product void in your community?
- Gather information on similar businesses already operating in your community.
- Identify potential customers.
Create a Business Plan
Business plans help entrepreneurs to develop business goals and define what it takes to accomplish these goals.
- Traditional business plans are more common. They have a standard structure and are very detailed.
- Lean startup plans are less common. They focus on summarizing only the important key points of your business.
- Your business plan layout needs to include plans for the next three to five years of operation.
Determine Legal Structure
Business structure indicates the legal structure of a business in a given state and how it operates.
- Know the four main types: sole proprietorship, general partnership, corporations, and the limited liability company (LLC).
- Determine how much tax you will have to pay.
- A business structure will also determine the requirements to register a business.
Obtain an EIN Number
Businesses need an employment identification number (EIN) to pay employees, to file tax returns or to report employment taxes. On the other hand, when used for identification and not employment tax purposes, it is referred to as the taxpayer identification number (TIN).
- The EIN is a nine-digit number that is assigned by the Internal Revenue Service (IRS).
- Apply for an EIN or TIN through the IRS website for free.
Register for State Tax ID
Business owners receive a state identification number when they register a business.
- Register your business to make it a distinct legal entity.
- The state tax ID number allows owners to hire employees and to direct taxes on their behalf. It is different from your federal tax ID number.
Note: Click here to access Alabama’s Business Tax Online Registration System.
Business License and Permits
Business licenses and permits may be necessary for taxes, loans, hiring employees, and to set up a bank account.
- There is a variety of local permits and licenses that may be mandatory.
- Registration allows a company to do business in a city, county or state.
- Register a business at your local county courthouse, probate office or city hall.
- Business owners may need to show proof of an EIN to register.
If you are opening an LLC:
- LLC registration is done through the Alabama Secretary of State. It is a two-step process. After registering your business, then submit the application to form the LLC.
Open Business Bank Accounts
Business bank accounts are important assets to small businesses and proof that owners conduct business activities separate from personal activities.
- Business owners will need state incorporation papers and an EIN.
- All partners whose names need to be on the account must be present.
- Select a bank that best suits your needs.
- Create a business bank account that helps to build a company credit profile.
Set Up Accounting System
Accounting enables a business to track income and expenses, as well as manage the financial operations of a business.
- Consider whether to hire an accountant or handle the accounting on your own.
- Be sure to keep up with profits and losses.
Like home insurance, business insurance provides some protection from liabilities.
- Become familiar with regulations in the industry.
- Identify insurance options.
- Look into liability insurance, including insurance for manmade or natural disasters.
Hiring the right employees can make or break a business.
- Look for candidates with skills that match a job’s requirements. This includes soft skills, such as communication, problem solving and teamwork.
- Make sure you have the proper paperwork before you hire an employee.
- Be sure to use forms from the IRS.
Starting a small business can be scary since it requires learning as much as you can about the process of owning and operating a business. Being informed helps to remove some of the fear, uncertainty and self-doubt you may experience. Use this information to help you to get started on running a successful small business.