Everything You Need To Know To Start A Small Business: Part 3

Hello, readers! Welcome back to the Hoods Tax & Accounting blog! If this is your first time here, welcome! We’re delighted to be able to share up-to-date information about taxes, bookkeeping, and accounting. Our blog is also dedicated to educating you about tax-advantaged savings accounts, tax provisions, programs, and more! We aim to provide you with the tools needed to meet your short and long-term goals. Our seasoned professionals are experts on the tax code, eligible deductions, and QuickBooks—all necessary fundamentals for saving you money! The Hoods Family has been around since 1988 and our comprehensive accounting and tax planning services are among the best in the Lowcountry. If you are in need of tax preparation, accounting, QuickBooks training, or business consulting services, do not hesitate to schedule an initial consultation! We are officially in tax season, and Tax Day is fast approaching. We recommend preparing early to maximize your savings and refund. We do offer contactless services using a combination of over-the-phone consultations and digital drop-offs, for safety and convenience. You can read more about our hours and submit a request for a meeting using our website!

Although tax season is over, we are still available to help with any questions or concerns you may have. Before we get into today’s topic, we would like to make you aware that we are offering tax planning appointments to assist with questions about withholding, small business tax, retirement and investment accounts, sale or purchase of rental properties, or other estates, and more! Reach out to us to set up an appointment with one of our knowledgeable tax professionals. 

In our last blog, we continued our discussion about everything you need to know to start a small business. We discussed choosing a business location and business structure, as well as choosing a name for your business. If you are interested in learning more about these areas of starting a business, we encourage you to check out our last blog. In a previous blog, we discussed some of the very first steps, including conducting market research, creating a business plan, and more. So, be sure to check out both part one and two! 

Today, we’ll be finishing up our discussion with some of the final steps that need to be taken in order to successfully start a small business. Once you’ve completed all previous steps, such as choosing a business structure and name, there are just a few steps left before it’s time to open your business! In this blog, we’ll be taking a look at steps such as registering your business, opening a business bank account, and more. If you want to start a small business and are interested in learning more about these next steps, you’re in the right place! Let’s get started.

Register Your Business

After you’ve chosen a name for your business and made sure it is not already being used, it is time to register your business. How and where you do this will depend on your business structure and business location. In some cases, you will not need to register at all. For example, if you are conducting business as yourself using your legal name, you do not need to register anywhere. However, keep in mind that not registering your business can result in missing out on personal liability protection as well as legal and tax benefits. Some small businesses register with the federal government for trademark protection or tax-exempt status.

Most businesses do not need to register with federal agencies to become a legal entity– They typically just need a federal tax ID number. Sometimes known as an Employer Identification Number (EIN), these IDs act like a personal security number, but for your business. An EIN is your federal tax ID and is needed to pay federal taxes, hire employees, open a bank account, and apply for business licenses and permits. But, how do you know if your business needs a federal tax ID number? We’ve compiled a short list of questions to ask yourself:

• Does your business pay employees?
  
• Does your business operate as a corporation or partnership?
  
• Does your business file tax returns for employment, excise, or alcohol, tobacco, and firearms?
  
• Does your business withhold taxes on income, other than wages, paid to a non-resident alien?
  
• Does your business use a tax-deferred pension plan, known as a Keogh Plan?
  
• Does your business work with certain types of organizations, such as trusts, estates, or non-profit organizations? 
  

If you answered “yes” to any of the questions above, then your business needs a federal tax ID number. You can find out more information about this from the IRS, and you can apply for an EIN on their website. The need for a state tax ID number will be determined by whether or not your business must pay state taxes.

If your business is a corporation, partnership, limited liability company (LLC), or non-profit corporation, you will most likely need to register with the state in which you conduct business activities. Business activities typically include having a physical presence in the state, getting a significant portion of revenue from the state, or having any of your employees work in the state. In South Carolina, the law requires that all business opportunities be registered before placing advertisements or making representations to prospective purchasers. 

Apply For Licenses And Permits

Now that your business is registered, you’ll need to look into whether or not you will need special licenses or permits to operate legally. Most small businesses need a combination of licenses and permits, but the requirements can vary based on your business activities, location, and government rules. In most cases, you will need a federal license or permit if your business activities are regulated by a federal agency. This includes activities such as agriculture, alcoholic beverages, fish and wildlife, radio and television broadcasting, and more. When it comes to state licenses and permits, this will depend on both your business activities and business location. In South Carolina, each city, town, and county administers its own business licenses. You should contact your local government to determine if a business license is required. 

Get Business Insurance

Just like you get home and car insurance, your business needs protection, too. While registering your business or choosing your business structure grants you some protection, it is typically not enough. Business insurance protects you from unexpected costs, such as those from accidents, natural disasters, or lawsuits. It can help protect both your personal assets and business assets. In some cases, you may be legally required to purchase certain types of business insurance. Once you’ve purchased this insurance, you should shop around for other insurances to cover any other risks. Assess your risks by thinking about what kind of accidents could damage your business, and find a reputable agent that can help you determine what kind of coverage is best for you. A general rule of thumb is that you should get insurance for any kind of damage you wouldn’t be able to pay for yourself.

Open Up A Business Bank Account

Once you’ve completed all of the previous steps and are ready to start earning or spending money, it’s time to open up a business bank account! A business bank account is essential for helping your business grow, keeping it protected, and helping you keep track of expenses. It is extremely important to keep your personal expenses and business expenses separate. Not only do business bank accounts offer an extra layer of security and professionalism, but they also have other perks:

• Business banking offers limited personal liability protection because it keeps your business and personal funds separate. Common business accounts include a merchant services account, which offers purchase protection for customers and ensures that their personal information is secure.
  
• Having a business bank account allows customers to pay with credit cards and make checks out to your business name, instead of your personal name. This not only looks more professional but can help boost customers’ trust.
  
• Common business accounts also tend to include an option for a line of credit. This can help your business if you’re in need of new equipment, or in the event of an emergency. This credit can also help with startup costs.
  

When choosing a bank for your business account, keep in mind that rates, fees, and options vary from bank to bank. Because of this, it’s wise to shop around and take a look at what different banks have to offer. Take a look at things like transaction fees, interest rates for checking and savings, introductory offers, and early termination fees. You may also want to keep location in mind– Choosing a bank with branches near your business can be convenient in the event that you need to withdraw or deposit funds. Once you’ve chosen a bank you like, make sure you gather the documents needed to open an account. These documents generally include an EIN, ownership agreements, your business’s formation documents, and business licenses. 

Once you’ve prepared for and completed all of the steps in parts one, two, and three of our blogs, you’re officially open for business! We wish you the best of luck on your business journey. We hope you found this article helpful, and if you feel ready to begin the journey of starting a small business, we encourage you to reach out to us for business consulting! Here at Hoods Tax & Accounting, our tax professionals are always eager to give our clients as much help as possible when it comes to their finances. If you have any questions regarding your taxes, or if you need help with tax planning, contact us! Hoods Tax & Accounting offers a variety of services including small business consulting, QuickBooks training, tax preparation, accounting, payroll, and more! Visit our website for more information, as well as helpful links to resources you may find useful. Thank you for reading and we hope to see you back next time to keep learning about various tax and accounting topics!