For the past several years, a monthly blog of mine throughout the year has focused on a theme (developing leadership qualities in 2019; preparing for economic change in 2020; recovery strategies in 2021). The theme for 2022 is “Startup Ideas for Success.” The reason: startups are exploding. Intuit’s survey predicts 17 million new businesses will start up in 2022. The survey found that nearly three out of five people wanted to start a business and 20% will actually do so in 2022. Of course, there’s a lot of important information that new business owners need to know. The first idea for 2022 for startups is to organize properly right from the get-go.
Here are 5 things to do before you open for business.
Select your entity
Most people who start businesses jump right in, effectively operating as a sole proprietor. If they have a co-owner, maybe they start with some informal partnership. They don’t take any legal steps to formalize their business entity, which could be a limited liability company (LLC), an S corporation, or a C (regular) corporation. But maybe you should consider doing this.
Many factors go into the entity selection, including the nature of your business, concerns for personal liability protection, whether you have co-owners, and state law rules. It’s best to discuss this with an attorney, CPA, or other tax adviser to you can begin operations—whatever they may be—on a firm footing.
Get your ID
If you’ve always worked for someone else, your Social Security number has been your ID. In business, other IDs may be needed or wanted. Here’s a brief checklist of IDs to explore
- Employer Identification Number (EIN). This is an IRS-issued number that’s needed if you have employee or start a retirement plan. A bank may request one when you open a business bank account. And even if not required to have one, if you’re an independent contractor, you may want to use an EIN instead of your Social Security number as extra protection against identity theft. You can easily obtain an EIN online from the IRS.
- State sales tax number. If you are in a state that requires you to collect sales tax on your goods and services, you must obtain a number from your state’s revenue/finance/tax department.
- State unemployment number. If you are subject to state unemployment tax, you’ll receive a special number used to report your tax payments. You aren’t subject to unemployment if you’re a self-employed individual with no employees. Otherwise, expect to have this number.
- D-U-N-S number. This is a number issued by Dun & Bradstreet to identify your business. It’s used by other businesses to check your credit worthiness when deciding whether to do business with you. Obtaining this number isn’t mandatory, but it doesn’t cost a thing. And it’s proven helpful to have when applying for disaster relief from the Small Business Administration.
Set up separate financial accounts
One of the biggest mistakes that new business owners make is comingling their personal and business finances. Doing so can cause serious problems, such as missing out on tax deductions for your business and failing to establish a good credit rating for your business. Be sure to have separate:
- Bank accounts
- Credit cards
- PayPal and other online accounts
Get insurance
No matter how careful you are, things can—and usually do—happen. Setting your business up as an LLC or corporation provides personal liability protection (only your business can be sued for business-related claims; your home and other personal assets are protected). But insurance is also important.
You want liability coverage, which covers claims from “slip and falls” on your premises and other similar occurrences. You’ll also want coverage for your business property, especially if you have inventory. You may obtain both liability and property coverage with a Business Owner’s Policy (BOP). Check with The Hartford, Progressive, other insurance companies, or an insurance agent.
Final thought
Having a great idea for a business and a willingness to work hard doesn’t guarantee success. You need to learn how to run a business. Much of the information is in my book Home Business Magazine’s Home-Based Business Start-Up Guide. Other important ideas will be covered in upcoming blogs this year, so stay tuned!
