If you have a great business idea and you’re ready to take the next step, the Royal Credit Union business team has put together some information to help you get started! Every business has to begin somewhere. With this guide to starting your own business, you’ll get a basic understanding of the process and be ready to move forward with getting your business off the ground.
Step 1: Plan, Plan, Plan
A business without a plan is like a car without a steering wheel! Take time to create a business plan. Your plan should explain what problem your business will solve, and which people are your target customers. Put your plan down on paper so you have something to show others. Define your customers and get specific about how your business provides them with a solution. You can use an online business plan template, or look to a local small business development center or other business resource for help putting together a plan.
Another important part of planning is thinking about how you’ll fund your business. Have you saved enough funds to fully launch your business? Or will you need to look for loans, grants, investors, or even crowdfunding? Royal’s business bankers recommend that you keep your full-time job during the critical start-up phase. Having another job as a fallback source of funding will support your cash flow and help you build a reserve account. Keep in mind that Royal Credit Union considers the personal credit history and personal credit scores of business owners when making business lending decisions. This means it’s important to keep your personal credit in good standing, or take steps early on to repair it.
Step 2: Choose A Business Structure
You’ll need to decide how to structure your business for tax purposes and liability. While Royal recommends you seek help from a business tax professional or accountant before making a final decision on your business structure, we’ve put together some basic information about common business structures here:
- Sole Proprietor – A single business owner with no separate business entity is a sole proprietor. Business assets and liabilities are not separate from personal assets and liabilities, so any business debts or obligations are also the owner’s. Sole proprietors may have a trade name or “doing business as” (DBA) name. Many small businesses begin as a sole proprietor and later change to a different business structure as the business grows.
- Limited Partnership – A limited partnership gives one general partner unlimited liability for the business entity. All other partners have limited liability, which may also mean they have limited control over the company. In an LP, profits are passed through to personal tax returns, plus the general partner must pay self-employment taxes.
- Limited Liability Partnership – All partners have limited liability, including protection from debts against the partnership. Partners in an LLP aren’t responsible for the actions of other partners. Profits are passed through to personal tax returns.
- Limited Liability Company – Personal and business assets are separate in most LLCs, meaning if the company faces bankruptcy or a lawsuit, the owner’s personal assets are protected from liability. Profits and losses from the LLC are passed through to personal income without corporate taxes, but self-employment tax is required.
- C Corporation (C Corp) – Corporations exist separately from the owners and can earn profits, be taxed, and be held legally liable as an entity. Corporations offer the strongest protections from personal liability to owners, but come with higher startup costs. They also have extensive requirements for record-keeping, operational processes, and reporting. The business pays corporate income tax; shareholders may also pay personal income tax on dividends. Corporations can raise funds through the sale of stock.
- S Corporation (S Corp) – S Corps are similar to a C Corp, except with a special tax status that avoids the potential to pay both corporate and personal taxes since profits and some losses can be passed through to personal income. S Corps have special IRS eligibility requirements, plus strict filing and operational processes.
Step 3: Create A Legal Business
Once you’ve decided on a structure and have a plan, it’s time to take the next step and move toward creating a legal business entity. You’ll need to choose a name for your business (or decide to use your own name or a trade name in the case of a sole proprietorship).
It’s very important to make sure that the name you want to use is available by completing the registration process with your state office. For example, the Wisconsin Department of Financial Institutions (WI DFI) or Minnesota Secretary of State (MN SoS) allow you to register your business online. The registration process includes making sure that your business name isn’t already being used by another business.
Once you have your business name registered, you’ll need to register with the Internal Revenue Service (IRS) for an Employer Identification Number (EIN). You’ll need to make sure that your EIN is associated with the correct name, so this step has to be done after completing the name registration. You’ll use your EIN for tax identification purposes and to help keep your personal and business finances separate. If you’re a sole proprietor, you may be able to use your Social Security Number (SSN) instead of an EIN, but it may make bookkeeping easier if you use an EIN. Consult with the same trusted tax professional or accountant that helped you decide on a business structure to make this decision.
You’ll also need to register your business with any other required licensing and permitting authorities. For example, if you want to open a salon or hairstyling business in the state of Wisconsin, you’ll likely need to apply for a Cosmetology Establishment license with the Wisconsin Department of Safety and Professional Services. There are many similar situations where various types of businesses will require specific licenses. Unless you are a sole proprietor, you will likely need official documentation of your business to get additional licenses and permits. Depending on your business structure, this documentation could be articles of organization, a partnership agreement, or articles of incorporation.
Once you have a legal business set up, now is also the time to get business insurance. Don’t overlook the need to protect your business assets with insurance – during the vital startup phase of your business, any uninsured losses could be very difficult to recover.
A last consideration for the legal aspects of starting a business is to safeguard any unique elements of your business with the correct intellectual property tools. File for copyrights, trademarks, or patents with the correct authority to maintain your business’s competitive edge.
Step 4: Set Up Your Business Finances
Now that you have a legal business entity, you can get your business finances in order. You’ll want to establish your business accounts at a trusted financial institution. Naturally, we suggest choosing Royal Credit Union, as Royal has a strong community presence and many account and loan options to grow with your business as your needs change. It can also help to choose a financial institution with knowledge of your industry and experience working with similar businesses.
When you choose Royal for your business accounts, you can work one-on-one with a Business Banker to set up your accounts and get your questions answered. If it makes sense for your business, this is also a great time to learn about cash management solutions like ACH processing and Bill Pay that can streamline your day-to-day operations to save you time and money.
Whichever financial institution you choose, you’ll need to ensure that the way you set up your business books meets all requirements for record-keeping and tax reporting purposes. A business accountant or bookkeeper can help make sure you check all the boxes before tax time. You’ll also need the legal business identity information you obtained earlier, like your EIN and proof of your business registration, to get your business bank accounts set up.
Once you have your business finances established, you’ll be able to apply for any loans or grants you’re pursuing to cover your startup costs. It’s important to set up the books first, since you’ll likely have to share your business financial statements in order to get a loan or other funding.
This is also a great time to think about starting a lending relationship with the business financial you’ve chosen. Because businesses don’t have credit scores, a bank or credit union’s willingness to lend your business money can be based heavily on their first-hand experiences with your business. If you start small with a business credit card or overdraft protection line of credit, you’ll have a source of working capital if you need it and have a way to demonstrate your business’s responsible use of credit if you need to ask for a larger loan in the future.
Step 5: Market Your Business
You might have already thought about marketing in your business plan, but now it’s time to create your business brand and roll out your marketing efforts. You’ll want to brand your business with a unique identity to help your customers recognize and engage with you. Depending on your business type, this could mean designing a logo, choosing your business colors, or creating other specialized brand elements like vehicle wraps or signs. You’ll likely need to work with a creative agency or designer to meet your branding needs.
Once you have your business logo, colors, and brand identity finalized, it’s time to think about your business’s digital presence. At a minimum, you should consider creating a basic business website to establish your online business listing and share information about your business, along with your contact information.
Marketing also includes networking with other people to help spread the word about your business. Besides business chambers and organizations, look for opportunities to connect directly with your customers or the people who work with them. Prepare your “elevator pitch” – a quick explanation of who your business is and what problem it solves – to share when you’re networking and talking to customers.
Step 6: Prepare For The Future
Whew! If your business made it this far, you’re probably past the startup phase! However, it’s important to remember to look beyond the everyday work of filling orders, serving customers, or making products to focus on the future from time to time. Set medium- or long-term business goals and create a plan to reach them. You may want to develop a three-year or five-year business plan, and have space in your plan to make changes and adjustments along the way. You should also review your business financials at least once each quarter to keep things on track with your business plans and budget.
Remember that you can rely on your financial institution to be there for you as you grow. Royal Credit Union offers a variety of business accounts and loans to meet many needs. Royal also offers cash management tools like business ACH services, desktop deposit capture, business Bill Pay, and business online and mobile banking to help your business save time.
While many businesses start from the owner’s home or garage, looking to the future often means thinking about a separate physical space for your business. You may want to find a physical business location, move locations as your business grows, or even construct a new business space to meet your needs.
As part of your future planning, you might also need to respond to changes in your target market. You may need to adapt your business to a changing economy, local or national competition, or other challenges. It’s also a good idea to keep looking for ways to diversify your business income. Keep your options open and explore new earning opportunities as you discover them.
The Royal Credit Union business team is here to help answer your questions! If you’d like to learn more about the process of starting a business or if you have specific business financial questions, we’re ready to assist. You can reach out to a specific business banker or business lender on our Business Team page. We also have a quick guide to Royal business accounts and a list of links to other resources that may be helpful on our Business Startup Tools page. Or, to hear more about starting a business, check out our podcast episode about this topic: Getting Down To (Starting A) Business.