How To Start a Business - Step by Step Guide for Beginners

I'm going to teach you how to start a business in eight easy steps. As a certified public accountant and as a business owner, I'm happy to share my knowledge and this information with you because when I started my business many, many years ago, I wish that I had somebody to help me along the way or at least just give me some guidance. And that's what I'm here to do. I'm here to help. So this sounds corny, but I hope that this information helps you as a business owner and as an entrepreneur. So just FYI, if you're going to have this conversation, this very conversation with a professional, an attorney or a certified public accountant, they're going to charge you $500 to $1,000. But I feel like it shouldn't be that way because especially now when you're trying to start a business, that money, it could be much better utilized on your business. So I'm just here to help and I'm going to give you a free consultation as if you were a client just walking into my office. There's not going to be fancy graphics or editing. I'm just going to talk to you just as I would to a client. So here's what you need to do and here's what you need to know. The first thing, so step number one is to choose your company's name. So this is going to be for the legal formation of your company. So your business name, it's also going to be very important for market from the marketing aspect or from an advertising aspect. However, what I want to tell you is that if you don't get so hung up on it, because if you can't think of a good name for your company, just think of the best name possible and just go with it. Because in the future, you're talking next day, a year from now, five years from now, you can always change your company's name. So you can adopt and assume name, you could do a DBA, a doing business as, or you can legally change the name of your business for very cheap and very quickly. So that's not going to be an issue. So my recommendation, think of the best name and just go with it. After you come up with your company name, the next step. So step number two is going to be to choose your business structure. So I just want to say, just stick with me here. Don't let this step go over your head. Don't let this step intimidate you. So you're going to have a couple of options here. I'm going to go over the most popular ones. And then after I explain those to you, I'm going to give you my recommendations. The first option is going to be to operate as a sole proprietor. In this situation, you're not going to have a separate business entity. So you're basically going to be an individual doing business. So you're not going to be a business doing business. You're going to be an individual doing business. There's going to be pros and cons to each one of these structures. And as a sole proprietor, the pro is that the pros, the benefits, they're going to be that you're going to have less administrative work and you can save some money on some filing fees. So the cons, so the drawbacks, they're going to be that you're not going to have the legal liability protection. You're going to miss out on some of the tax savings. And some businesses, they might not do business with you if you're operating under a sole proprietorship structure. Another option is going to be a single member LLC. So an LLC is a limited liability company. A single member LLC, it just means that one person owns the LLC, which is going to be you. So with a single member LLC, you're going to have an actual business entity. So it's going to be totally separate from you. So that business, it's going to be an entity that is totally separate from you. So what does that mean? It means that that entity, that business entity, that single member LLC, it's going to have its own employer identification number. That's like the social security number of the business. Because it's separate from you, it's also going to give you legal liability protection and it's going to protect your personal assets. And then you're going to have an S corporation. So an S corporation with this business structure, it's going to save you the most amount of money on taxes. However, there's going to be the downside. The downside with an S corporation is that you're going to have so much more administrative burdens. So what do I mean by that? With an S corporation, you're going to have to run a formal payroll. So you're going to have to pay yourself. You're going to have to do the tax withholdings, social security taxes, Medicare taxes, state taxes, if applicable, federal income tax. You're going to have to do all the tax withholdings, send them into the right agencies, IRS, state, unemployment, all that. And then you're also going to have to do a separate business tax return, 1120S. So if you, I mean, if you don't know how to do all these things, you're going to end up paying for it by buying software or you're going to see a professional, like you're going to see an accountant. So with these additional administrative burdens, it's going to cost you extra time and extra money. But again, the advantage, the benefit is that you're going to get tax savings. You're going to get better tax savings. But here's the thing. This doesn't necessarily mean that you should just jump straight into being an S corporation, because let's say, let's say that you're going to be losing money the first year, or you're going to be breaking even, or you're going to be making very little money for the first few years, for year two, year three, year five, who knows? In that situation, what's the benefits? The benefit of the S corporation is that you're going to pay less taxes on your profits. However, if you're not making money, if you're losing money, or if you're not making much money, then the whole benefit of the S corporation, the tax savings, it's a moot point. It's pointless. Because what good is it if you're losing money, you're not going to pay taxes anyways. So the benefit of the S corporation tax savings, it's pointless. So then you're just going to be stuck with the additional administrative burdens. You got to run payroll. You need a separate business tax return. You got to do all the administrative filings with the secretary of state and all that. That's extra cost, extra time, and you're getting no benefits. So you got to make sure that this S corporation is right for you. And I just want to say that if you go with like a sole proprietorship to start or an LLC, a single member LLC, and then you become very profitable in year two, year three, you can always switch to becoming an S corporation and getting the tax benefits. And at that point, at that certain tipping point, it would be worth it where the tax savings would justify you going through all the extra administrative work, the payroll, the business tax returns, and all the additional filing fees. So that's a high level overview of the S corporation in a nutshell. And then you're going to have the C corporation. So the C corporation, the biggest disadvantage is that you're going to be paying higher taxes. So this is a comparison. So this is in relation to an S corporation or a sole proprietorship. So I don't want to get into all the details about double taxation and all the workarounds around it, but generally speaking, in comparison to an S corporation, a C corporation, you're going to be paying more taxes. One of the primary reasons why I would recommend the C corporation is if you're going to build a business and your plan is to sell it in the future five years or later, because in that specific situation, there's something called the section 1202 small business stock. So I highly recommend that you look into that. So what happens there is that if you sell your business five years or later, then 100% of the business proceeds, the capital gains, they're going to be tax free, 100%. So this is going to, this is going to depend on your industry as well. That's why I'm saying, take a look at the details because certain industries, they're going to be excluded from experiencing the benefits of the 1202. So one example, it's going to be professional services. So if you're going to start a tax practice, an accounting business, you're going to be excluded. This is not going to qualify. You're not going to qualify for this. If you're going to be an attorney and you're going to have a law firm, you're going to be excluded. This is not going to apply to you. If you're a doctor and you're going to have a medical practice, you're going to be excluded because these are all professional services. So please take a look at the details. But I mean, if you're going to have a big payday by selling the business in five years, it might be in your best interest to not have the best tax savings for years one, two, three, four, five, because it'll be totally worth it. If you're going to have a huge payday by selling the business in year six, seven, eight, nine, or whatever it may be, it's going to be totally worth it. So again, please explore this option as a C corporation. And then another op, another option is going to be the partnership. So this is going to be, if you have partners, so other people, so partners owning the business alongside with you. So if you have partners, you can go with the C corporation, you can go with an S corporation, you can go with an LLC, or you can go with a partnership. So partnership, it's going to be similar to an LLC or an LLP. So here's my suggestion. So here are my recommendations. If you're going to start a business and you're not going to take it seriously, you know, it's going to be like a hobby. You know, it's going to be just like, eh, like, let's see what happens. If that's the case, I mean, there's nothing wrong with that. But if that's the case, I would recommend that you go with a sole proprietorship because in this case, with the sole proprietorship structure, you're not going to have all the extra administrative burdens. You're not going to need to run a separate payroll system. You're not going to need a separate business tax return. You can avoid a lot of the filing fees with the Secretary of State. So, you know, that's the benefit. You know, you get to avoid all that stuff. You get to save the time and energy. If you want legal liability protection, so the sole proprietorship, it's not going to give you legal liability protection. So if that's a concern to you, I just want you to be aware that you can get insurance for very cheap. It's probably much cheaper than you realize. So you can get professional liability insurance, general liability insurance. I mean, you can get insurance. I would just say just call your broker at a reputable company at State Farm or Geico or Allstate or whoever it may be. So again, I mean, you're going to be surprised at how cheaply you can get insurance for. So if you're starting your business and you're serious about it, so you're very serious about it, then I would recommend that you go with an LLC. So you're in the situation where you go with an LLC. You're not going to need a separate business tax return. You're not going to need a separate payroll system, and you will get legal liability protection. So you're going to have to pay the annual fee. It's going to depend on your state with the secretary of state, but it should only cost about $50 to $200. So again, depending on your state, if your business. So with an LLC, you're not going to get the best tax treatments. If your business, if it becomes very profitable in the future, then you can always convert to an S corporation. So that option will always be available to you in the future. If your business is already profitable or it's going to be running very profitably very soon, then I would recommend that you go with an S corporation. So a lot of people are going to say, you know, you're starting a new business. How are you going to be profitable from day one? Or how are you going to be profitable in the very near future? So from my experience dealing with my clients, it's actually very common. I see this a lot of times. So I'll give you an example. So this is just one example out of many scenarios. So let's say that you work at a company and you're an employee, but the company says, you know what, we're closing down this department. We're closing down your wing, but we still want your services. So you're going to be laid off next week, but right after. So immediately after we want to hire you, hire you back as a contractor. So in that situation, you're going to be profitable from day one, just immediately. And as a contractor, you're going to be self-employed, which means that, you know, you have the opportunity to be a business owner. So you're going to be a business owner. So in that situation, you're going to be profitable from day one. You're going to have the contracts lined up already. So in that situation, I would recommend that you go with an S corporation to save the most amount of money as possible. And again, if you're going to be building a company with the intention to sell it for a big payday in the future, I would recommend that you go with the C corporation. But again, please look at the details, see who qualifies for the section 1202, you know, because some people, some industries are going to be disqualified. If you're finding this information helpful, I'd like to kindly request that you give this video a like or a thumbs up. And if you know anybody else that might benefit from this information, again, this is professional grade information that I'm giving away for free, and it could save a lot of people, a lot of money and time and headaches. So if you know anybody that could benefit from this information, if you could share this video, that would be great. I'm sure they would appreciate it too. And again, thank you so much for all your support. Moving on. You've now decided on your business name and you've now decided on your business structure. So the next step, so step number three is going to be the actual formation of the business entity. And this is going to be done at the state level. So this is going to be done with the secretary of state with your state. So a lot of states, so the majority of states, they made this very easy. You're simply just going to log on to the secretary of state, to your state's secretary of state's website. And then you're going to go to the section where it says, form a business, form a business entity, form an LLC, form a partnership or whatever it may be. So when you go to that section, you're going to choose your entity. You're going to choose, form a corporation, form an LLC, form a partnership. And then you're going to go through the application process. It's going to be very straightforward. They're going to ask you, what's your company's name? What's your structure? They're going to ask you your basic information, your address, et cetera. And then you're going to pay the filing fee. So after that happens, how long is it going to take you to actually be formed? So in a lot of states, it's going to be as quick as one day, literally one day. So in Illinois, you can do an expedited fee. You can have your business up and running in one day. Usually with the majority of states, there's going to be a waiting time of about three days to about two weeks, but that's how quickly you can expect your business to be formed. So after you, after you filled out the application, after you paid your fee, after you waited, you're going to get the articles of incorporation or the articles of organization, and then you're going to be a legitimate business recognized by your state and you're going to be good to go. So the next step after that, so after you're formed, after your business is officially formed with your state, the next step is going to be getting your employer identification number. So if you remember your EIN or your employer identification number, that's like the social security number of your business. Because again, if you're going to have a C corporation, if you're going to have an S corporation or a partnership, that's going to be a totally separate entity from you. So that entity, your business entity, it needs an identifying number, and that's going to be the employer identification number. So when you're filling out all these forms for, you know, contracts or this or that, or whatever it might be, if you're doing it with your business, you're going to give your employer identification number because the business is doing business. You're not going to give your social security number. So the employer identification number, there's going to be so many third-party vendors. They're going to be trying to sell you like, oh, this is such a complicated process. You know, pay us $100 or $200. We'll take care of it for you. So it's just really stupid. They're just trying to make a dollar. I mean, I don't blame them, but basically you can get your own employer identification number, your EIN. You just go to the IRS website. It's free. It's instant. It's so straightforward. If you use a third party, like a LegalZoom, they're literally going to ask you the same questions as the IRS website. So they're literally going to be using the same template, like LegalZoom, and then they're going to charge you like $100, $200 for that. So instead, you can just go to the IRS website. There's a section that says apply for your EIN, and again, it's straightforward. It's instant. You get it immediately. It's completely free. You go to irs.gov, just Google. I mean, you could Google apply for EIN, IRS, and then that should be the first search result. Make sure it's irs.gov. You don't want to be going to a different site. And then you can just accomplish that, getting your EIN on the IRS website. The next step. So step number five is going to be opening up a bank account. So after you get your formation done with the state, again, you're going to get an article of organization or article of formation. So take that and your EIN that you've got from the IRS. So take those two items to your bank account, and then you can open up a bank account. So you want to do this because you do not want to mix your personal and business expenses. And also your income, your incoming, your sales, your revenue as well. So you want to keep totally separate, you know, your personal things and your business things. So you're going to want to open up a business bank account as soon as you have your EIN and your articles of organization or formation. So you should also get a company debit card or credit card, you know, just to help keep things separate. So the next step after you get your business bank accounts, you're going to want to get your proper licenses, your certifications, and insurance. So when it comes to your licenses and certifications, you know, those items, they can really be easily identified with a simple Google search query. You know, that's going to be depending on your industry. That's going to be depending on your location, you know, your city or your state. So please take a look at what you need in terms of licensing and certifications. You know, I'm just throwing this section in here as a reminder that you should do this. So in terms of insurance, again, I would highly recommend that you just talk with a reputable company, you know, talk with their agent. Usually, I mean, I've never had a bad experience. They're very helpful. They want to help you, obviously, because they want to sell you the right products. So just see what insurance you need, professional liability, general liability. You know, sometimes if you want to rent an office space, they're going to request that you have a certain type of insurance. So just see what you need, talk with your agent. It's going to be like a free consultation. So after that, so step number seven is going to be keeping track of your company's sales and expenses. So keeping track of your company's sales and expenses, that's called bookkeeping. And it is so important to just keep organized, stay organized. So you can choose. You can choose to utilize like a bookkeeping software, like QuickBooks or FreshBooks, or you can do it on a spreadsheet like Google Docs, Google Spreadsheet or Excel. So I mean, I get asked the question, you know, should I do the QuickBooks? Should I do the FreshBooks? Should I do it on a spreadsheet? I'll say two things. The first thing is don't do it by hand. Like, don't be writing your expense, keeping track of your expenses in a notebook. Like, I mean, this is the 21st century. That's just such a bad idea. It's so sloppy, so disorganized. That's going to cut, you know, that's going to really bite you in the butt in the future. But in terms of whether you should do it with a spreadsheet or whether you should do with a more professional software, it's really going to depend on your situation. I'll just say if you're going to have very few transactions, so very few transactions that I would recommend just going with a with a spreadsheet like an Excel, because it's not going to take much time. All you're literally going to have to do is, you know, bust out the spreadsheet and you're going have columns that are going to say, you know, date, category, amounts, and the details. So it's going to be like September 20th, transportation expenses, 20 bucks, and the details is going to say Uber. So you write that in, it's going to be very straightforward. Again, if you don't have many expense transactions, if you don't have many sales transactions, then a spreadsheet, it might save you the time and the money. It might be right for you until you need to switch to a more, you know, robust system like a FreshBooks or a QuickBooks. So if you're going to go straight into like a QuickBooks, just know that there's going to be a learning curve. You're going to have to learn the software. You know, that's going to, you're going to have to pay for the subscription, like a monthly subscription. You're going to have to invest time into learning that. So it's, it just really depends on your situation. That might be worth it if you're going to have like hundreds or thousands of transactions in a month. But if not, you might be better off just going with the spreadsheet. It's going to be more straightforward and it's going to cost you less. So another thing, so another thing you're going to have to do is, I mean, this is a reminder. If you're going to be at a profit, especially if you're going to be at a big profit, set aside money, you know, for your taxes. And if need be, you're going to have to send an estimated tax payments. So you're going to have to send in money, you know, throughout the course of the year in installment payments. Failure to do so is going to subject you to penalty. And the last step, so step number eight is filing your business tax return. So this is going to be dependent upon your business entity, so your structure. So if you're a sole proprietorship or if you're a single member LLC, your business sales and expenses, so all the information, that's going to be reported on your personal income tax return. So your business sales and expenses, that's going to be reported on a separate schedule on your 1040, your personal income tax return. So if you're going to be a corporation, a C corporation, an S corporation, a partnership, you're going to need a separate business tax return. So you're going to have your business tax return, and then you're going to have your personal tax return. So all that, all this business information, the corporations, C corporate, S corporate partnership, that's going to go on the business tax return. So you're going to have two options here. You can either buy the software for yourself and just go at it, you know, try to do it yourself, or you can work with a professional, like an accountant. So, I mean, I get asked this all the time. Should I work with an accountant? Should I do it myself? If you want to do it yourself, Intuit, the makers of TurboTax, you know, they have the TurboTax, you know, the personal income tax returns, the software, but they also have the business software programs, like the C corp, the S corp, the partnerships, all that. So that's probably going to cost you a few hundred dollars, but still, I mean, if you don't know what you're doing, you might butcher the return, you might lose money, you might lose tax savings, you might cause, you might trigger an audit, you might cause a whole bunch of problems. So you might be better off working with an accountant, but of course you're going to pay more money, but it might be better off in the long run. Maybe you want to work with accountants, and then once you know what you're doing, you have nothing much changes, you can go save money by doing it yourself. So that's your option, but again, if you work with an accountant, if you're more comfortable working with a professional, you know, please vet them out. Please do some, at least do like a quick Google search or, you know, quick check out their reviews. Make sure that they're legit. Make sure, like, go on Yelp. Make sure that they don't have, like, one star rating, two star ratings, and, oh, this guy doesn't know what he's doing. So just make sure that, you know, you check out who you're working with. That's my recommendation. And that's it. This is it. I mean, you can do all this for free. Another option is working with an accountant, working with an attorney, do it on LegalZoom, but again, if you do that, you know, you're going to end up paying a lot of money. You might end up waiting even longer. So that's, I mean, this is how you, this is how you start a business for absolutely free, cutting out all the middlemen in between. If you have any comments or questions, I'm going to try to answer them below. I thank you so much for all your support, and if you enjoyed this video or found this helpful, please give it a thumbs up, and I appreciate your support so much.