There is no short supply of things to do when you’re starting a small business. There’s setting up the books, managing the finances, sourcing product and promoting services… and that’s just the start. And when you’re first starting out, there’s the constant need to keep expenses as low as possible, until you start hitting sales projections and making a consistent profit. So when do you need to register your small business?
What does registering my business actually do?
But registering you’re business isn’t merely a fancy piece of paper that cost you a hefty amount of pocket change. It’s not even something that just legally qualifies you to sell/work in the city and state where you reside.
No. Registering your business not only provides you the legal right to operate your business, but it also provides you with a “corporate shield” that will protect your personal assets and that’s something that you should want right from the start.
When is the best time to register?
It may seem like a stack of paperwork that requires both your time and hard-earned cash could be put on the back burner. However, the process is much easier to complete at the start. Small businesses are usually simple in the beginning and it’s easier to answer the tough questions before allow a lot of business to take place – especially if you’re going into business with a partner.
If you’re a solopreneur, or one-man shop, it might be easy to write off this process under the guise that this is all something you do for fun. As accountants, this is something we discuss quite frequently with bloggers (and other small business/hobby-like operations). You can read more about is my blog a hobby or a business here – and many of the same questions apply to those that sell frequently on ebay, refinish/sale furniture, among other things.
The short and best answer is this. Don’t put off registering you’re business, instead do it first. Here are just a few benefits as to why:
- If you’re entering a partnership, the beginning is always the best place to define ownership, and outline partner investing, etc. Letting a bunch of decisions go by without setting things up in a legal way is only opening up the chance for a I said / they said conversation later.
- Putting it off doesn’t save you any money and it definitely doesn’t keep the IRS from taxing your income. We’ve found that if you haven’t taken the time to register, you’re probably running you business from your personal account and not managing expenses and such – that means that you’re probably going to have messy books and a harder time filing taxes and it also means that it might throw a flag with the IRS come tax time.
- Defining it as either a hobby or a business and then acting accordingly will actually encourage you to grow the business or just sit back and enjoy the hobby. We’ve seen many budding entrepreneurs spend months spinning their wheels because they’re not sure if the idea they have is worth moving forward – if you’re willing to do the paperwork and pay the fees, chances are you’re invested enough to get to it and make it work.
How do I go about registering my business?
Although you’ve no doubt heard about the ins and outs between s-corps, LLC’s and sole-proprietorships (and which one is best for your business), it’s not really as complex as it seems and it can usually all be done online.
First, you’ll want to check out your local state government pages to find the requirements for a business license and other requirements.
Usually, you’ll find that there are links to the forms you’ll need to complete and take with you to register. Now is a good time to find out about other items you may need – DBAs, EINs and figuring out the percentage to charge for sales tax in addition to when to pay quarterly estimated taxes are all things that you should be able to find on your local state government pages.