101 checklist starting a business, filing, legal, hiring etc
So you decided to actually start your own BizBaby.
In the previous chapter we discussed how to plan and budget for this new exciting venture. In this chapter we will go through the exact steps of doing it properly.
Steps:
- Forming a Business Entity.
- Applying for EIN and EFTPS
- Opening Bank Account
- Getting Business Insurance
- Renting a Business Space/Office
- Unemployment Insurance
- Workers Compensation
- Getting Sales Tax ID
- Business License
- Finding a bookkeeper and accountant
- Finding a payroll provider
- Separating personal and business
This is the least exciting part of opening a business, but each and every step above is extremely important and should be done with care. Please note that i’m not your attorney and can’t give you any legal advice on how to start a business. Before you do any of the steps listed here, I always suggest getting legal advice from a professional.
- Forming a Business Entity.
In chapter 3 we discussed different business structures, let’s assume that you already know what Business Formation you want to file.
Now you need to make a decision on which state you would like to file your company in. That’s right, you can open a company in Delaware (I recommend doing that) and do business in (ex. New York State), however you will also need to file a foreign company authorization application to be able to do business in that state. You may also want to use a registered agent in delaware and in your state. Registered agent will “represent” your company in that state on your behalf, be the handler of all your correspondence, sort of a middle man, while keeping your personal information private, hidden from public. That creates a legal barrier between you and the company.
When you are forming a company, you need to decide who will be the Owner as well as acting Director, Secretary and Treasurer. It’s usual for a small business owner to be all 4, you wear many hats and it’s usual occurrence for people assigned under those positions to change as company grows, if you use Registered Agent service, that information will be hidden from a public eye.
You will also need to decide how many shares your company will have. As a first business, having 2000 shares is, no-par value shares are preferred, it means shares have no dedicated minimum value, otherwise you will need to list a price per share, for example $0.01 per share.
When onboarding a business partner, it will be relatively easy to do by selling a specific amount of shares at a specific price. Or selling all the shares means selling all your business, so be careful when agreeing to sell shares of the company to anyone, remember how many shares you had issued when you formed your company first.
Selecting a company name is an extremely important task that requires some research and sometimes needs redoing.
You will need to make sure your company name is absolutely unique in your original filing state, all additional states and in IRS. There can be no company with the same or close wording name. It happened to me many times when Delaware rejected an application, after changing the name and getting incorporated in Delaware, we filed an application with IRS for EIN and that was rejected so Delaware company name had to be amended for something more unique and refiled with IRS and then rejected by a New York state because NY already had a similar company name. Good news that only Original State and IRS names have to match exactly. Each additional state application can have a different name to be represented in that state as.
So your company can be names as “Bobs Toys Inc” in Delaware and “Bobs Kids Entertainment Inc.” in Washington state and “Bobs Games and Toys Inc.” in New York, however you must use same EIN number when filing foreign state application for authority.
We recommend forming a business online with one of the companies such as incorporate.com, they will make the process easy and seamless. In 2-3 days after submitting your order, you will have a company formed in a first state.
Forming a company in Delaware would cost around $600-800 with a registered agent.
Certificate of Incorporation will arrive in mail within a week after forming a company online.
- Applying for EIN and EFTPS
Every company that was formed in US needs to have EIN, even if you are not planning to have employees. It’s done through form SS-4 and it takes about 3-5 business days once an application is submitted. You will receive a certificate/confirmation letter from IRS in the mail with 9 letter number. With EIN you should receive a separate letter with EFTPS pin code to process payments for payroll tax. You must keep those letters in the safe place, make copies just in case, because recovering that information will be extremely challenging.
- Opening Bank Account
Once you receive a Certificate of Incorporation and EIN letters, make sure the company name is spelled the same way on both documents. You can now open a bank account.
It’s important to open one now and not earlier, so you can start separating personal and business expenses.
Deposit a few thousand dollars and order checks, those will come handy. Make sure you can login into online banking, setup Zelle and get your debit card in mail.
- Getting Business Insurance
Though this step can be done much later, most retail spaces or office space buildings require renter to have business insurance that will cover you, your business, your customers and the landlord in case of damage or accident happening.
It’s good to obtain at least liability insurance, that will protect you against basic liabilities, they can cost as little as $300-500 a year, depending on the business use and level of coverage.
Comprehensive business insurance can protect you from business interruption or even loss of revenue.
Some clients will require business to provide proof of business insurance before hiring you. For example, a home cleaning company may be required to provide business insurance before building let’s them in to clean any of their tenants apartments.
- Renting a Business Space/Office
For many businesses this will be the most important step on the business journey. Having a perfectly tailored location or well set office could be a life or death kind of decision.
Craigslist is still one of the main platforms to advertise commercial rental spaces, however other websites such as loopnet have some very good offerings.
To get into the details of getting your own space, read the next chapter 6.
- Unemployment Insurance
If you are going to employ even one person, you need to obtain unemployment insurance. It covers unemployment benefits for if or when they are let go. Usually it’s done through an online state portal and process takes a few weeks to get approval.
Math usually works as following. For every $1 you pay as a salary to your worker, you will be required to pay ~$0.05 to the state (this was a starting rate for NY state in 2019 and it’s different in each state). There are some very heavy fees for not paying UI. UI goes up with each employee fired or let go. We will discuss Unemployment Claims in the chapter 24.
- Workers Compensation
Most states require businesses to obtain Workers Compensation Insurance. It will cover your company in case of a workers medical injury. You can choose a different company to service you with Workers Comp, you will need to provide an approximate annual payroll and number of workers you employ, as well as to describe their work duties. For example, the office receptionist will be much cheaper to insure compared to the Construction Worker, due to the environment hazards and danger of the trade.
You will be required once in a while to go through an audit, to make sure you have the accurate coverage.
On top of the Workers Compensation Insurance you might be required to get Disability insurance.
- Getting Sales Tax ID
If you are selling a product or providing a service, you may be required to pay State Sales Tax. Sales Tax ID is usually obtained through a state government website. This is different from EIN. EIN is an Employer Identification Number, it’s a federal registration number to pay taxes, Tax ID is a state Identification for your business to report a sales portion of the tax.
- Business License
Most US cities require some form of business license for most businesses. In New York it’s called DCA License (department of consumer affairs) and it's mandatory for the majority of consumer facing businesses.
As a foreign company that was registered in Delaware, you may not be aware of these requirements, i suggest looking into your state of business business license requirements.
- Finding a bookkeeper and an accountant
Separating personal and business expenses is extremely important for tax reporting. It also allows you to avoid extremely costly audits from the IRS. You should always use your business debit card for business purchases, avoid using merchant account to make purchases at all cost, since those expenses don’t end up showing up in your Business Checking Account and can be hard to prove later.
When all banking is done properly, hiring an accountant and filing taxes can be a breeze. Usually an accountant works in the team with a bookkeeper and take care of all of your financial reporting and taxes. Bookkeeper get’s a viewing permissions in your online banking to see all transactions and send you monthly reports, those reports can be used to file taxes accurately and timely, he can warn you when you are overspending or missing reporting state, city or federal deadlines.
- Finding a payroll provider
Finding a proper and convenient way of doing payroll could make your life much easier when it comes to all nitty-gritty payroll and taxation part. There are a few ways to do it.
You can either pay payroll directly from your company, for example Intuit Payroll allows you to calculate and issue a virtual check, that you then can print on a regular printer and simply hand over to your employee right there and then. However you are responsible for timely filing taxes and making sure you save enough for taxes part each month or quarter.
ADP allows you to process payrolls through indirectly. ADP charges you weekly fee and issue checks from their company to your employees. They also collect all taxes and do all the reporting for you automatically, you don’t have to do a thing, however that can be expensive.
I recommend Intuit for smaller companies and ADP for companies with more complex employee structure and over 10 employees.
- Separating personal and business
I wanted to list this as a separate step. I can’t stress enough how important it is to separate your personal income and expenses from your business.
As a new business, you will be required to give your business constant financial help. That doesn’t mean you will just use your personal money from your personal bank account. Absolutely not!
Each time you need to cover some expenses with your own money, you need to deposit that into your business checking account first and write a business check or use a business credit card.
Try opening a business credit card after 6 months of having a business checking account. Once you obtain it, try only using a credit card for payments that require swiping or entering the card number to pay. Never use or expose your debit card in any situation. Debit cards have much lower protection against fraud or theft and it has no limit to spend on it.
Try to never withdraw any cash from your account. If you must pay someone, write them a check. It will allow you to avoid further tax confusion for accounting purposes. Cash is extremely hard to deduct as an expense on your tax return.
At the end of each quarter, you must create a report of how much you have deposited from your personal account and create a loan agreement. Later on, you will want to take that money back and you do not want it to be taxed on the business or personal level. That will also allow you to keep clear books for tax reporting.
Congratulations, Now you have learned the exact steps on starting your BizBaby 101!
