Starting your own business requires more than just an idea or a particular set of skills. There are many important steps you have to follow to take that perfect business idea and transform it into a profitable enterprise. Though it will take time, patience, consistency and organization, you can be successful in starting your own business.
Step 1: Research the Potential Market
Before you get too far into the process of starting your own business, you will need to first do some basic market research. This can help you define what your business will do, the demographic you will be targeting, and other crucial information. Additionally, it will help you determine whether or not your idea has a chance of succeeding in the current market. This research can also reveal to you the market conditions, as well as your biggest competitors.
Step 2: Creating your Business Structure
Once you have a strong idea of the potential for your business it is time to decide upon the business structure, which will in part determine how your business will be taxed. There are a few different structures: sole proprietorship, partnership, limited partnership, corporation, S-corporation, and limited liability corporation (LLC). A sole proprietorship is not separate from the owner, so the owner is liable for all debts and there is not a separate tax return filed. A partnership is owned by two more people, and it is not separate from the owners. The partners file a tax return for the business, and any owner is liable for the debts.
A limited partnership will have one or more general partners along with limited partners, whose liability is only limited to investment. A corporation is a separate legal entity, and the owners are shareholders. The corporation pays the taxes on profits. An S-corporation is a corporation, but it does not pay income taxes. The taxes come from the profits and losses divided among the shareholders, who report it on their personal taxes (known as pass-through income reporting). An LLC provides limited liability and pass-through income reporting, but is less restrictive than S-corporations.
Step 3: Business Plan
Once you have your idea and business structure detailed, it is time to create a business plan. This is one of the most crucial stages in the foundation of your business. It will help you to solidify your goals and the mission of your new business. It also plays a crucial role in helping you apply for financing or finding investment. The plan will also help you to create a winning pitch to investors and others.
Step 4: File the Paperwork
The last stage in legally creating your business is to file the appropriate paperwork. You will first need to pick a name and register it with your state government. Then, you need to apply for your tax identification number with the IRS, and check with your local and state about their tax requirements. Lastly, you will need to get all the local, state and federal permits and licenses for your business.
What Expenses can I Write Off?
When you own your own business, you can write off certain expenses, whether they are made during the start-up process or are ongoing expenses. You can only deduct expenses you pay out of your pocket that are not covered by the business. What you can write off depends on the business structure. In the case of a sole-proprietorship, you will have more unreimbursed expenses. Corporations and partnership have stricter regulations in what can be deducted.
A business expense must be ordinary and necessary, which means it is a commonly accepted expense and necessary for your business. If you work out of your home, you can deduct some of your home expenses. The same can be done for your car if you use it for your business. Other expenses that can be deducted include entertainment costs when entertaining clients, education, advertising, banking fees, rent and utilities, meetings, business travel, insurance, medical expenses, supplies, and wages.
Keeping all of these factors in mind, you can begin the process of starting your own business. Of course, a lot more research will always be needed to get everything. Remember that even the smallest details could play a major part in determining whether or not you will ultimately be successful in your venture.