Millions of people around the world register new businesses each year. Some are serial entrepreneurs who have opened dozens in their lifetimes. Others are starting their first business, and are going to have to navigate a learning curve that’s entirely new to them. Compliance can be a tricky thing if you are unfamiliar with everything that goes into owning and operating a business. If you find yourself embarking on your first entrepreneurial adventure, there are some things on your checklist that you should focus on in order to remain compliant.
Defining your business
The catalyst that inspires any new business is a great idea. Some products or services that you can provide and make money on. Once you throw in an unforgettable name, the vision begins to come together. The steps you take next will dictate how difficult compliance will be for you.
When providing a service, things are usually pretty easy to define. Pick a name, register your business, and start building. If you plan on selling a product, the process looks different. There are differences between selling an existing product and selling a new invention. If your new business revolves around a revolutionary new product, you’ll need to do a little more legwork on the front end to avoid pitfalls in the future.
Becoming a retailer of existing products can require more than just finding out how much competition is out there and whether or not you can sell enough units to make money at your price point. If the product comes with any special regulations, things get trickier. Heavily regulated products generally require thorough documentation and tracking to remain compliant. Make sure you have any necessary licenses or certifications and are ready to perform under high levels of scrutiny.
But what if you want to sell new products and inventions? They are a great way to corner a market and make a lot of money. They can also be a real headache if you slip up. To ensure compliance, you’ll want to first make sure no one else has patented your product or something extremely similar.
- Search for prior art – Prior art is the term for any evidence that proves your product has already been devised. If your search turns up empty, you will likely want to file a patent application for your invention to protect it down the line. If you find a patented product that is similar, it may not be the end of the line. If your product makes a novel, non-obvious, and useful improvement, you may still be able to patent your improved version of the product.
- File a patent application – A patent application can take years to get approved, so the sooner you get started, the better. It’s a complicated process, so your chance of success can be greatly improved by connecting with a competent patent attorney. Applications routinely get denied and appealed multiple times before final approval, and an attorney can help you make the right revisions.
Naming a business can be trickier than some of us think. You need to pick something cool, catchy, something that describes your business well and isn’t already taken. Sometimes it takes a few stabs. Once you’ve come up with a name or two you like, you’ve got to secure it.
- Do a trademark search – First, you’ll want to search registered trademarks on the USPTO website to make sure no one has registered the name before you. There are ways to use your name if someone registered it in another space, but you’ll want to consult with a professional if you run into this issue.
- Check with your Secretary of State – Next, you’ll need to check with your state’s Secretary of State website to make sure there isn’t another business operating in your state under the same name.
- Secure your domain – Lastly, you’ll want to secure a domain name that isn’t too complicated for people to remember or correctly type into a browser.
Registering your business with the state
Once you settle on a business idea and name, the first step will be to register your business with the state. There are several business entity types. Each has its own advantages and disadvantages. The type of business entity you choose will affect your tax obligations, the specific forms you must fill out, and your personal liability protection. There are a few different entity types that are most common when starting a new business.
- Sole Proprietorship – This is a common entity for independent contractors and small businesses owned and operated by an individual. It is the simplest entity under which a business can operate, and refers to a single person who owns, operates, and is financially responsible for the business and its debts.
- Limited Liability Company (LLC) – Whether entrepreneurs are venturing off on their own or they have partners, Limited Liability Companies are a very popular option when starting a business. They are very simple and inexpensive to create and protect the owners and their personal property from liabilities and debts incurred by the company.
- Corporation – Some people decide to file as either a C Corporation or an S Corporation. Both entities are similar in the way they create an entity separate from the shareholders and provide liability protection, but there are differences in the way each entity is taxed, as well as restrictions on who and what can qualify as shareholders.
Most states’ Secretary of State websites are great sources of information and materials. When you visit the site to register your business, take a moment to familiarize yourself with the forms you’ll need and the requirements for staying compliant. In most states, you can download many of the forms you need right on the website. It’s also a good idea to start a compliance checklist at this point. You’ll add to it as things move along, but knowing what you’re up against will help you move in the right direction.
Keeping your ducks in a row
As you begin to collect forms and legal documents and all the things your business needs to operate and remain compliant, it’s a great idea to come up with an organizational plan. Organizing, tracking, and encrypting all your files can be tedious, but necessary when it comes to compliance
- Organizing your files – Files should be easily accessible to those who need to access them, and locked to those who don’t. Keeping a well-organized filing system allows you to easily audit your files whenever necessary.
- Tracking your files – Tracking a document is important in staying compliant. Having the ability to view a document at every stage of its life cycle is invaluable. The ability to track who made changes, and for what purpose, can ensure you are protected.
- Encrypting your files – As data breaches become more common and more sophisticated, it’s important to protect your data from outsiders. Encrypted data is translated into code, so only people with a decryption key or password can read it.
If you’re not a computer person, this can all seem somewhat daunting. A data management software like M-Files can greatly simplify the process, as it streamlines all the different aspects of keeping your files compliant.
Request an Employer Identification Number (EIN)
Once you have registered with the state, and your name has been accepted, it’s time to request your Employer Identification Number from the IRS. It’s like a social security number for your business. It’s your identifier for all things tax-related. Once you have it, you will be able to open a bank account, apply for business licenses, and file tax returns. You may not need it if you filed as a sole proprietorship or single-member LLC, but it protects your social security number and creates an additional liability barrier.
Open a business banking account
Keeping separation between your personal finances and the business finances are an important part of keeping compliant. Now that you have an EIN, you should open an account for the business.
Get whatever business licenses and registrations you need
If you’re operating a business, you’re going to need licenses. Depending on what your business looks like, there could be a wide variety of licenses and registrations you will need to get taken care of before getting to work. Making sure you have everything you need to operate will not only keep you in compliance but could also help you avoid potentially expensive lawsuits.
Set an appointment with your tax advisor
Unless you know a lot about tax law, it’s a good idea to seek the advice of a professional. Working with a tax advisor can help keep you compliant throughout the year. The last thing you want is to get caught with big fines or penalties because you forgot to file something. If you don’t have a tax advisor, it’s time to start looking for one.
The fact that all this is daunting isn’t lost on anyone. Many budding entrepreneurs have been here before, and many will come afterward. Luckily, there’s an entire industry built on helping you succeed through this hectic time in your life. There are wonderful resources and software programs to help you through it. You’ve just got to find the ones that work for you and your business.