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I’m thinking about starting a business

Have you ever find yourself hanging out with a friend(s) and someone in the group begins pitching their new business idea.  If you’re like me, the gears start spinning, and I start visualizing what they are describing.  The person giving the pitch is “in the moment” and very excited, so it can be a lot of fun listening to what they have to say. This article will describe some of the things that you may want to consider when starting a new business.

I want to start a business

The type of business you are interested in forming will determine the steps you should take to get started.  For example, if you consider a landscaping business you will need transportation and essential tools such as lawn mower, weed wiper, and blower.  The tools don’t have to be brand new, however, they should be reliable and work well. On the other hand, if you are opening a retail storefront where you will be selling products to the general public, you’ll need a point of sale software, credit card processing, product inventory and a storage space to operator your new business.

Each business has its distinct requirements based on the type of product or service you will render.  My suggestion would be to create a checklist and write everything down. Having a list will help you stay on track with your planning.

  • How do I start a business?
  • What do I need ‘At a Minimum’ to operate?
  • Should I borrow money (family, friends, bank)?
  • Business location (home or commercial space)?

How do I start a business

Forming your business is quite easy.  There are three ways to establish a legal business name (DBA, LLC, Corporation).  Each type of business fits a specific need.  We’ve seen commercials on television that sell a service where they’ll set up Limited Liability Company (LLC) in no time at all.  The reality is setting up a DBA, LLC or Corporation does require too much effort. My official recommendation is always to have legal advice from an attorney while doing so, but it’s not required.

  • DBA (Doing business As) – Here in Michigan, forming a DBA is as simple as going to the county clerk and filling out a DBA form.  In many cases, the DBA Name is filed at the county level, not the state level.  It is an inexpensive way to establish business name so you can open a business bank account under that name. A DBA is limited to one business owner, and the business owner is personally liable for all risks.  Therefore the DBA does not protect/shelter the business owner personally from risks or litigation.
  • LLC (Limited Liability Company) – An LLC  is a legal structure that is used to offer the owners (members/owners) liability protection for business debts and liabilities should a lawsuit arise.  An LLC also provides certain tax advantages such as allocating profits and losses among members and pass thru taxation.  Forming an LLC will offer credibility when attempting to perform business to business transactions.  Unlike a DBA which is filed at the county level, an LLC is filed at the state level.  To establish an LLC, you will need to fill out an ‘articles of organization’ form.  The necessary forms to start a business can be found on your state government’s website.
  • Corp (Corporation) – Corporation offers many of the same protections as an LLC to its owners (shareholders).  A corporation has additional legal requirements from business organizational standpoint (e.g., directions must record annual meeting minutes, etc.).  A corporation is owned by its’ shareholders, this makes transferring business ownership possible thru the sale of stock. Business owners of a corporation are classified as employees.  There are two types of corporations; S-Corp and C-Corp.  The basic differences are explained as follows.
    • S-Corps do not pay taxes at a business level.  The owners are responsible for reporting income/loss on their personal taxes returns.
    • C-Corp pays business taxes. Owners take a reasonable salary and also pay taxes on any distributions.

 

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