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How To Start A Business

Getting A Spark

starting a business
Recently, I had a friend die (may he rest in peace), and while it was a tragedy it did open my eyes and make me realize I was lucky to be alive. After the funeral I started thinking about life and how we don’t have much time on earth. If you wait until tomorrow to accomplish your goals you could be gone. This motivated me to finally take the plunge and start a business. After years of procrastination it finally hit me that I would never truly be 100% ready to start a business, and new excuses/doubts would pop up each time I was on the verge of being really interested in starting one finally. This is not the first start-up I have been a part of, but it is the first time I am the owner.

After being involved in many start-ups and now my own business I will say that there is nothing harder then being on your own. At the same time there is nothing more rewarding then the successes and milestones you reach. It takes a special breed to be an entrepreneur. In fact, some might call it borderline crazy. There are going to be many naysayers in your journey. People will say just about anything on how your going to fail along the way. As an entrepreneur you need to push forward even when it seems the future may be say dark. I used all the negativity as fuel for more motivation. After all, if you really listen to why people think you’re going to fail you will realize they have no idea what they are talking about. If you have a desire to start a business I highly recommend pursuing your goals before it becomes to late.

Decisions To Make

start a business
If you are interested and starting your business I’m sure you already have an idea and a field you want to be in. That is not really a decision you need to make when you start to make your own business. However, there are some big decisions and most of them will have serious long-term consequences if you do not chose right now.

Business Structure

Sole Proprietor or Partnership?

The first few things you need to decide on are if you are going to be a self proprietor or if you are going to have partners. There are many advantages and disadvantages to both. If you are a sole proprietor then you are in total control of your business. You don’t have to answer to anyone. You make all the decisions and you get all the distributions. The downsides are you also make all the contributions to the company, you are entirely on your own, without a second opinion, and a partner or two can help you have more experience in different area’s within your field.

Type of Organization

business organization
You will probably want to talk with an accountant before you decide how you are going to organize your business. This is a really important step and just reading a few blogs online is advisable when choosing how to form your business. There are several distinctions you can make including sole proprietor, partnership, LLC, c-corp, s-corp, trust, and non-profit. There are different tax implications for each depending on your state and while one may advantageous in one state it might not be the same for a different state. To make things even more confusing you can set yourself up as an LLC, but still be taxed as a partnership. When applying for your federal EIN number you will be put into a default category depending on membership and number of partners. To change this you and your accountant will have to file a form 8842.

The reason why I recommend seeking outside council is because of the tax implications and ramifications of choosing the incorrect entity. At the very least you might consider reconnecting with that old high school buddy who went on to become a tax accountant. For instance, did you know that you are liable for $150 per member in taxes when you file for an s-corp with more then 3 members even if you didn’t earn a penny in the year you set up your business?

Getting An Operating Agreement

The next step you need to accomplish as soon as possible is getting an operating agreement in place. As a start-up money is tight and lawyers do not come cheap. However, the operating agreement is possibly one of the most important documents for your business. When I started I was in a pinch for money and could not afford thousands to get my operating agreement in place. Instead of going to the first business lawyer I saw on Google I asked anyone I knew if they knew a lawyer that could get me an agreement for a reasonable price. After searching around I was able to get my hands on an operating agreement for under $150.

Do not overlook this step, because an operating agreement covers every matter in your business when a dispute could arise between you and your partners. With out an agreement in place you will spend thousands more trying to settle decisions that you cannot agree upon. This could also ruin friendships or sour relationships with your partners.

Start A Business

Assuming you have talked with an accountant and you have your operating agreement in place its now time to register your business. This step is relatively simple all’s you have to do is go to your states website and look for the business registration section. I’m not sure about every state, but in New Jersey it costs $125 to register your business.

After registering you need to file for your Federal EIN number. This can be done for free. It took me a few tries to find the right one, but I was filling out the forms for my federal EIN number and kept seeing a bill for $125 to get it. This is not the case. If you are being charged for a federal EIN it is a scam. Simply make sure you are filing with the to get this number and avoid and charges for some companies trying to scam you. This is a very easy step, and in fact you are forced to do it in under 15 minutes. You do not need any special guidance or help from a lawyer or accounting service to get this number.

Setting up a bank account

start a bank account
After you have registered with the state, gotten your federal EIN number, and have an operating agreement you can open your business bank account. If you do not yet have an office or retail space you can set your home as the official business address for the time being. Opening a bank account is relatively easy. I chose Sun National Bank because they had no minimum balance requirements and it was close to where I was located. Other banks like Bank of America or TD Bank may have small charges if you do not maintain a balance of $2,500 in your business account. There is usually some trade off. Such as a free checking account, but you can only have up to 100 transactions per month before you pay a fee for each additional transaction.

Starting On The Right Foot

Another important step is to create a budget. You want to make sure you can afford to stay in business, especially in the beginning when money is going to be very tight. Create a budget and make sure you track all your expenses and revenue in a software such as quick books to make sure you are staying in line with your desired budget. When you have a budget you will reduce the likeliness of you failing because you cannot afford piling bills. Of course, eventually you are going to need to generate revenue. With a strict budget (allotting some budget for unexpected costs) you will buy yourself some much needed time until you need to start collecting revenue or take out additional loans or investments.

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