Last month in our blog, we explored how to start your own business in 10 easy steps. According to a U.S. Bank study, 82% of businesses fail because of cash flow problems.
At Imperial Advance, we are committed to helping every business find the capital they need to grow with a variety of small business financing offers where you can receive your funds directly in your business bank account in as little as 24 hours.
In this week’s blog, we highlight the next five critical steps for small business success.
Select a business structure – Your company’s business structure can highly impact nearly all areas of your business including everyday operations, taxes, and even your personal assets exposure to risk. The most common forms of business are the sole proprietorship, partnership, corporation, and S corporation. A sole proprietor is someone who owns an unincorporated business by himself or herself. A partnership is the relationship existing between two or more persons who join to carry on a trade or business. Each person contributes money, property, labor or skill, and expects to share in the profits and losses of the business. In forming a corporation, prospective shareholders exchange money, property, or both, for the corporation’s capital stock. A corporation generally takes the same deductions as a sole proprietorship to figure its taxable income. A corporation can also take special deductions. For federal income tax purposes, a C corporation is recognized as a separate taxpaying entity. A corporation conducts business, realizes net income or loss, pays taxes and distributes profits to shareholders. S corporations are corporations that elect to pass corporate income, losses, deductions, and credits through to their shareholders for federal tax purposes. Shareholders of S corporations report the flow-through of income and losses on their personal tax returns and are assessed tax at their individual income tax rates. This allows S corporations to avoid double taxation on the corporate income.
A partnership must file an annual information return to report the income, deductions, gains, losses, etc., from its operations, but it does not pay income tax. Instead, it “passes through” any profits or losses to its partners. Each partner includes his or her share of the partnership’s income or loss on his or her tax return. A Limited Liability Company (LLC) is a business structure allowed by state statute.
It is important to choose a business structure that provides you with the proper legal protections and benefits; thus, we advise consulting with business counselors, attorneys, and accountants prior to finalizing your business structure.
Register your business – It is recommended to register your business in order to make it a legal entity. Specifics like how and where to register can be determined according to your business structure and business location. With that said, many businesses don’t need to register with the federal government to become a legal entity, aside from filing to get a federal tax ID.
Get federal and state tax IDs – Your state tax ID and federal tax ID numbers (also known as an Employer Identification Number) work like a personal social security number, but for businesses. This is because they enable your small business to pay state and federal taxes.
Apply for licenses and permits – Nearly all small businesses necessitate an amalgamation of licenses and permits from both federal and state organizations. The licenses and permits required from the state, county, or city will differ according to your business activities and business location. Not to mention that your business license fees will vary as well.
Open a business bank account –It is advised to open a business bank account once you start accepting payments in order to help you stay legally compliant. With that said, you may want to consider the following costs when opening a business bank account: introductory offers, interest rates for savings and checking, interest rates for lines of credit, transaction fees, early termination fees, and minimum account balance fees.