Ten Things You Should Know About Starting A Business

Ten Things You Should Know About Starting A Business Legal and Start up Considerations Telaekah Brooks, JD Dean, School of Professional Studies Trinity Washington University

The 10 Things to Legalize Your Home Based Business • Define your idea thru business planning • Describe your business, what you sell, who buys it and how it will be managed • Obtain an EIN • Find a Location and get Certificate of Occupancy Permit • Decide upon a legal structure • Get Incorporated!! • Get Licensed (if needed) • Register with your local tax office • Open Bank Accounts • Get insured • Get Started!!

The Importance of Business Planning • Creating a Roadmap • What is your business? • Where will it be located? • What will it sell or produce? • Who will buy it? • Telling Your Story • Why are you starting this business? • Getting Funded • How much money do you need? • Where will you get the money to get started?

Describe Your Business Mission Statement Legal Structure Products & services Location Management & personnel Insurance Taxes Security Recordkeeping

What Are you Selling or Producing? • Most businesses are built around products and/or services already available. A fish market for example has a simply described product line (seafood); the service element involves how they process the product and satisfy their customers. • If your products or services are unique, state-of-the-art, or otherwise noteworthy, take advantage of it. Such differentiation is valuable, tends to be fleeting, and attracts imitators.

Obtain an EIN • EIN stands for Employer Identification Number. This is a unique number given to you (at no charge) by the IRS. • This is the one number that you will need to open bank accounts, get incorporated, file taxes, etc. • Your state will use your EIN as the basis for the ID number that they will give your business. • You can file for EIN by completing the form SS-4 or by calling (800) 829-4933.

Where Should Your Business be Located? • Factors to consider: • Type of building • Organization of space • Parking • Transportation accessibility • Traffic • Community residents • Target Market • Incentives

What Kind of Space Do You Need? • Plan your space • How much space should you set aside for offices? How much storage do you need? • How will you utilize your storefront? What about signage? • How much display space do you need? • Let’s talk basic consumer economics

Obtain an eHOP or Certificate of Occupancy Permit • In the District, you can obtain an eHOP or expedited home occupancy permit by agreeing not to do certain things. With an eHOP, you can operate a home office- even if its in rental property. • For commercial properties, you will need a certificate of occupancy permit. Most properties will already have one, so make sure to ask for it when you sign a lease.

Management & Personnel • About your principals: • Business Background • Management Experience • Educational Background • About your staff: • Types of staff you will need • Duties and responsibilities • Policies and procedures (employee handbook)

Personnel Con’t • Timesheets • Work Schedules • Classes of employees • Pay rates/tables • Full- time vs. part- time vs. independent contractor • Benefits

Decide Upon a Legal Structure • Sole Proprietorship • Partnerships • General Partnerships • Limited Partnerships • Limited Liability Company • Corporations • S Type Corporations • C Type Corporations

Sole Proprietorship • In a sole proprietorship, you have all of the control and all of the liability. It is the easiest to start, and usually does not require significant licensure. You run the show and keep the money. • Major Downside: You are completely, 100% personally liable if something goes wrong.

Partnerships • General Partnerships • These are relatively easy to start by requiring only 2 or more people. This type of business requires little licensure and is easy to run. • All partners share in the management of the business, the profits, and the personal liability. • Major Downside: You can be liable for the actions of your partner, and it is sometimes difficult to manage disputes.

More on Partnerships • Limited Partnerships • Limited Partnerships are a little more complicated to start and do require some incorporation in most states. • Though you can start an LP with just 2 people, there is a catch: • At least one partner is limited and one is general. The limited partner is like a silent partner- they get to avoid most liability, but have to give up management control to get it. • The general partner has management control- and is fully liable if something goes wrong. • Major Downside: It is hard for limited partners to resist the urge to manage.

Limited Liability Companies (LLC) • LLCs were designed to provide you with the best of two worlds: • The flexibility and ease of ownership found in a sole proprietorship • And, the restricted personal liability of a corporation. • These can be started with just one owner/member and little investment. They do require incorporation in most states. • Major Downside: More complicated than a sole proprietorship- but the restricted liability can be worth it.

Corporations • S Type Corporations • These require formal incorporation in every state. • You are required to have a Board of Directors, which sets policy and controls the President of the corporation. • It can be a complicated process, Board members and Officers have little personal liability, and shareholders are taxed on dividends. • Major Downside: Most small business owners try to run corporations like sole proprietorship- forgetting to keep good corporate records and “buy” ownership in their business.

More on Corporations • C Type Corporations • This type of structure also requires formal incorporation in all states. • This is the most complex business structure, which is subject to stricter regulations by the gov’t. • Though the personal liability of owners is shielded, there is not total protection against lawsuits. • Shareholders, Board members, and officers run the business • Major Downside: Complicated management structure, “double taxation” on earnings.

Get Incorporated • Getting incorporated is the process for registering your business with your local government. Being a corporation indicates a specific business legal structure- there’s a big difference!

Get Licensed • Find out if your local jurisdiction or state requires your business to licensed. • You can find this out at www.dc.gov, maryland.gov, or virginia.gov.

Register for Local Business Taxes • Corporate franchise tax • In most states, your business will have to pay corporate income taxes on income made in that state. Rates will vary based upon location • Sales and Use Taxes • The general rule here is that you must pay sales tax for all retail products that you sell. You can usually elect to pay monthly or quarterly. • Personal Property Tax • Many states require you to pay taxes on the aggregate value of your business possessions. • Employer Taxes • Some can be deducted from the gross salaries of your employees- withholding taxes • Some come out of your pocket

Open Bank Accounts • Research local banks to find out which ones have the services that your business will need. • You will need your EIN and a certificate of incorporation to open your accounts. • Realize that most banks have specific requirements that will impact your business- many don’t loan to restaurants or hotels.

Business Insurance • General Business Liability Insurance • Workmen’s Compensation • Bonding • Performance bonds • Tender bonds

General Liability • A Commercial General Liability (CGL) insurance policy is the first line of defense against many common claims. General Liability insurance covers claims of bodily injury or other physical injury or property damage. It is frequently offered in a package with Property insurance to protect your business against incidents which may occur on your premises or at other covered locations where you normally conduct business. Commercial General Liability enables your business to continue operations while it faces real or fraudulent claims of certain types of negligence or wrongdoing.

Workmen’s Compensation • This insurance protects you, the business owner, from financial devastation in the event that an employee is injured on the job. It also helps the employee return to work with little or no loss of income. It provides: • Legal protection for the business owner • Income, medical and rehab benefits for employee work-related injuries • Payment to surviving family members if your employee is fatally injured on the job • Employer’s liability insurance (including damages due to a third party) for care and loss of services for consequential body injury to a family member

Bonds • Performance Bonds • Most capital works projects require this type of bond. • This bond is an indicator that your company has the necessary skills and capabilities to carry out the required work and comply with the terms of the contract. • Tender Bonds • Bid or Tender bonds provide a financial fallback for the contracting agency in the event that you are unable to finish the contract.

Get Started!! • Develop marketing materials • Advertise • Explore Certification options- LSDBE, SDB, etc. • Network • Good Luck!!

Resources • For stats: www.census.gov, www.dcmarketingcenter.com • For transportation information: www.ddot.dc.gov, www.dot.gov, www.maryland.gov, www.wmata.org • For insurance info: www.statefarm.com, www.geico.com, etc all have insurance types. Get the info and then pick the company you want based upon the size and qualities of service that they can give you. • For tax info: www.dc.gov, www.maryland.gov, www.virginia.gov • For your Dunn and Bradstreet number: www.dnb.com

Ten Things You Should Know About Starting A Business