Starting a small business is a tough proposition – just look at the success rate: a meager 37% chance of survival if you employ fewer than 20 people.
The statistics aren’t too desirable if you look at them like that.
There is good news though – The difference between being in the failing 64% and the successful 37% is knowing what you’re in for and planning accordingly.
There are several steps you need to take to give your company the best possible chance of success beyond the four year mark – below are some tips you can use to foster the growth of your start-up.
Develop a Sound Business Plan
Planning is integral. Without a clear plan, good business decisions are nearly impossible. Before you take any action, sit down and create a written plan for your business that includes the company’s purpose, its marketing strategies and overarching management details. You should also make a list of your competitors, and include ideas for securing funding. If you already have supplies and equipment, create a ledger of these items for future reference.
Business plans should include plenty of supporting documentation for all aspects of the plan. If you intend to secure funding by enlisting backers, the plan should include copies of all partners’ financial statements and tax returns for the last three years. If your business is a franchise, include the franchise contract as well. Finally, your business plan should include copies of all lease contracts, licenses or other legal documents associated with the company.
Few business owners are able to fund their start-ups without any outside assistance. Financing for your new company may come in the form of grants and loans, venture capital, or investments from partners in the business.
Some of the best grants are those supplied by federal government. In order to apply for grants from the government, you must first obtain a DUNS number, a nine-digit number the government will use to identify your company.
If you’re looking for business loans on the other hand, you can apply for them with most banks and credit unions. These same institutions are often the ones offering business credit cards as well. Small business start-ups, however, often have difficulty qualifying for traditional loans or credit.
If you aren’t able to qualify for a standard business loan, or if you’re unhappy with the terms of the loans you’re offered, you can also apply for an SBA Loan. Loans are guaranteed by the U.S. Small Business Administration, so they are easier to obtain. In many cases, SBA loans also feature lower interest rates.
Choose a Structure
When you start a new business, you can choose one of several structures including limited liability corporations (LLC), partnerships, corporations, S corporations or sole proprietorships. Each type of organization comes with different tax filing requirements and implications. For example, if you own a sole proprietorship, all of your business income will be included on your personal tax return.
If you structure your business as a partnership, however, your business must file Form 1065 each year to report its income to the IRS. Likewise, corporations and S corporations must file Form 1120, the corporate tax return. Finally, LLCs are responsible for reporting their income as a sole proprietorship, corporation or partnership, depending on their internal structure.
Register for Local and State Taxes
After you have registered your new business with the federal government, you must still submit the appropriate paperwork to your local and state governments for tax, workers’ compensation, disability insurance and unemployment purposes. Most states require businesses to register with the state tax agency before collecting any sales tax from customers. In most cases, your business must also register to pay state income tax and employment taxes. Certain states, including Rhode Island, New York, New Jersey, Hawaii and California, require businesses with employees to pay for temporary disability insurance coverage as well.
Apply for Licensure
Before you can legally begin operating your business, you must apply for any licenses and permits you need. All businesses must apply for a basic operating license. If you are involved in any federally-regulated activity, you must obtain a permit or license for that specific activity. Looking into getting liability insurance in case of accident is a good idea as well.
Federally-regulated activities include:
- Radio and television broadcasting
- Working with nuclear energy
- Mining and drilling
- Maritime transportation
- Commercial fishing
- Service and sale of alcoholic beverages
- Manufacturing, importing or selling firearms, ammunition or explosives
- Dealing in wildlife.
In some cases, your business may also require state and local permits in order to operate. Consult the community regulators in your location to learn more.
Learn about Your Responsibilities as an Employer
If you intend to hire employees to help your business succeed, you must first learn proper hiring, reporting and management procedures.
The first step in the hiring process involves obtaining an employer identification number, or EIN, from the IRS. You will need this number for tax purposes, as well as for reporting information about employees to your state. As an employer, you must withhold income taxes from your employees’ wages based on the information they provide on Form W-4. You are also required to submit Form W-2 to the IRS on an annual basis to report each employee’s income and withholding for the year. Depending on your state, you may also need to withhold state income taxes.
Each employee you hire must complete Form I-9 within three days of hiring to confirm their eligibility to work in the U.S. As an employer, you must keep these forms on file. You must also carry Workers’ Compensation Insurance coverage to protect yourself against employee injury claims.
One of the most important responsibilities employers have is to uphold the rights of their workers. Federal and state laws require employers to display posters in the workplace that inform employees of their rights under current labor laws, as well as employers’ responsibilities. Employers are also required to comply with these laws in all of their dealings with employees.
For example, some states mandate that employees must receive a meal break after working a certain number of hours. In addition, all states require employers to pay employees at least 1.5 times their usual hourly rate for every hour worked in excess of 40 hours in one week. Failure to comply with these laws may result in fines, penalties and legal action.
When you own a business, you will deal with a lot of paperwork. You will also have a large number of responsibilities and obligations. To ensure that you always comply with federal and state laws, develop a system for organizing your important documents as soon as the company is formed. In addition, you should keep records of all of your obligations throughout the year, such as tax filing dates and license renewal.
Best of luck in the new business adventure. Those businesses that make up the 37% are those that were smart about their decision making, and knew what they needed to succeed.