Starting Up in a Down Economy

Many people find that down economies are often the ideal time to start a new business. When economic conditions are bad, many people look for ways to save money and time doing the things that they would otherwise be doing but for the financial pinch. This spells opportunity for the entrepreneurial spirit. So, what steps do you need to take to seize this opportunity and hang the open sign quickly?

Business Formation

The first thing you will need to do is form your business. This is a function controlled by the states, not the Federal government. So, in order to form your business you will need to register the business with your state Secretary of State. You will need to register only if you plan on structuring your business as a corporation or an LLC. This is in contrast to operating as a partnership or a sole proprietorship.  What you choose will not only have tax implications but also operating and management implications. Registering with your state can be a little pricey but depends on the state. In most cases, you can register your business within minutes online.

Tax Identification Number

Once you have formed your business, obtain a Federal employer identification number, or EIN, from the IRS. This serves as the unique identifier for your business come tax time. Think of it as the social security number for your business. It does not matter if you plan on hiring employees now or never. Obtaining an EIN is a good idea and, best of all, it is absolutely free.

Business Licensing

Once you have registered your business with your state Secretary of State and obtained an EIN, you will need to obtain a business license for your business. In most cases, this can only be done once you have registered with your state Secretary of State and been issued the unique business identification number, or UBI, that goes with this registration. In order to obtain a business license, you will need to contact the appropriate municipal authority, such as a county or city department of licensing. In most cases, you will need to pay a fee to obtain a business license. Unlike the business registration process, which can be done online, obtaining a process is still paper-based in many jurisdictions. Be prepared to print out a form and fill it out by hand.

Naming

Throughout the registration and licensing processes you will want to have some idea of what you want to call your business. This will be the official name of your business and will need to include certain extensions, such as “Inc.” or “LLC” if your business will be a corporation or limited liability company, respectively. There are other forms of extension that you may want to consider but these will vary based on state law. You may feel inclined to spend a lot of time doing this since you may want to come up with a name that fits your business and will appeal to your potential customers. However, this may not be time well spent. Don’t confuse branding with naming. Also, keep in mind that a company’s name can be easily changed later by filing articles of amendment or a similar document with your state Secretary of State. This is done frequently and is the same process large corporations follow following mergers and consolidations.

Governance

Many people believe that once they have completed all the actions, they are done. This is partly true. In order to complete the formation process for your business, you will need to consider drawing up the appropriate documents that will govern how your business will operate and be managed.  Unlike the steps above, this can be a little more complicated and will depend on your individual circumstances and your business needs. Depending on the business structure you selected you will need to draft articles of incorporation and bylaws, a partnership agreement, or an operating agreement for your business. These documents will be your governance documents and will serve as the backbone of your business. For many entrepreneurs, this is an unfortunate afterthought since having these documents is not a requirement to operating a business.  However, there are at least two reasons to consider having these documents drafted now. First, if there is more than one founder involved in your business startup, it is smart to have these documents drafted in advance of doing business so that everyone is on the same page. This will avoid the chance that a minor disagreement will torpedo an otherwise great business before it even gets off the ground. Good business makes for good friends. Second, you want to have the underlying governance structure in place before your business grows to the point where other investors may get involved. It will show forethought and planning and that your business is legitimate and here to stay. Besides, these documents need not take long to complete and can be prepared very affordably.

Although executing these steps should be fairly straight forward, they can take a lot of time; this is especially true if you maintain a “day job” while you test the entrepreneurial waters. Consider enlisting the help of a small business lawyer to help you quickly get things done so you can move on to more important matters, like selling your products and/or services.  Good luck and see you on the Inc. 500!