Forming a business may seem too complicated, and it’s true that there are multiple moving parts to consider. The entity type, how it’s taxed, and its organizing documents will all affect how the business runs, pays taxes, and maintains compliance. If you’re wondering how to start a business, here are five simple steps to jumpstart your planning.

 

If you’ve ever considered starting a business, you may have some doubts about how difficult or time-consuming it really is. I can already hear the objections: It’s too complicated to start a business. There are too many formalities. It’s too expensive. Too much paperwork.

Does this sound familiar?

If it does, then you’re in the right place. I heard all the same objections when I first considered starting my own business. And I’m here to tell you that it’s not as difficult as you may think. In fact, you can learn how to start a business in only five simple steps.

Step #1: Name Your Business

In my opinion, this is the most difficult part. If you already have a business idea, the next important component is the name. You can’t file any documents or run your business without a name.

If your business will involve real estate, the name is a relevant consideration for working with lenders. Be mindful of the impression the business’s name evokes.

When working with an LLC specifically for holding or flipping property, I often default to using the property address as the name of the LLC.

Step #2: Select the Right Entity

The entity type you select is crucial to the way your entity works with your overall business structure. In real estate, short-term deals are best run through a corporation to avoid being tagged as a dealer with the IRS. If your real estate business involves holding property long-term, an LLC or limited partnership may be best.

Step #3: Choose Your Taxation

For corporations, there are two taxation options: C corp or S corp. LLCs, which I consider the hippies of the business entity world, get to choose how they’re taxed. So, if you want the taxes to flow through to your personal tax return, LLCs can be disregarded to your personal tax return, like a sole proprietorship. You can also select partnership status for your LLC. LLCs can even be taxed as corporations (C or S). Selecting how your entity will be taxed is a critical piece to building wealth.

Step #4: Hire Employees

It may seem obvious, but hiring the right people for your business is essential to its long-term success. If you’re working as a sole proprietor, obviously you’ve already hired yourself as the business’s main employee. If you’ve selected a corporation or an LLC, you’ll need to hire different positions depending on your LLC’s tax election.

Step #5: Draft & File the Documents

The last step is to draft & file the appropriate documents. For an LLC, this involves articles of organization; for a corporation, these documents are called articles of incorporation. You’ll also need bylaws for corporations or operating agreements for LLCs. The specifics regarding what documents you’ll need vary by state.

Whatever entity type and taxation election you choose, make sure to have a qualified professional draft your organizing documents. This is not an area for the do-it-yourself (DIY) approach. There are too many risks and too much at stake if the documents are not drafted correctly. Don’t let your hard work and sacrifice be lost due to a poorly-written document.

The words matter. When you’re ready to discuss your options, schedule a complimentary consultation with the experts at Anderson Business Advisors online or by calling 1-800-706-4741. We’re honored to be a part of these significant business decisions and can help make sure your business is structured appropriately, with accurate and comprehensive documents.

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