7 Successful Steps for Startups
A General Overview of Starting a Business
Helpful BizLink Orange Links & Resources
- Upcoming classes, webinars, and events across the region and covering topics from business plan writing to networking, financing and more.
- Locate local organizations that offer FREE individual business coaching appointments to discuss the specifics of your business! Two state-wide organizations that offer business consulting appointments to the public at no charge.
- Florida Small Business Development Center (SBDC)
- Locate local organizations that focus on the topic, demographic, distance, and more.
- Guidance on what steps to take next.
Research Your Idea
Now is the time to research your idea to ensure it is viable.
- Do you know who will buy your product or service?
- What will people pay for your product or service?
- Have you determined your total costs?
- Who are your competitors?
While preparing your startup endeavor, be sure to research and understand the market that you will be entering.
Plan Your Business
Write a business plan
For any business, the first step is to turn your basic idea into a written, viable plan of action. A well-thought out business plan is necessary for obtaining loans and is a model for your success.
Good business planning keeps you focused and can be the difference between failure and success.
A plan in your head is good. A plan on paper is even better!
Decide Legal Business Structure
No matter what kind of business you will be developing, you will want to make sure your business is established legally. The first step is to decide what kind of business entity (legal structure) is best for you.
Careful consideration must be given to the management, structural and tax implications of your decision. While not a replacement for sound legal or tax advice, see Selecting a Business Structure.
There are several items to consider if you decide to incorporate your business. Additionally, there may be a variety of items that determine how your business can operate legally in the State of Florida and your local municipality.
Always check with your local city and county to verify what licenses or permits you might require for your business.
Forms of a Business Organization
One of the first decisions that you will have to make as a business owner is how the business should be structured. All businesses must adopt some legal configuration that defines the rights and liabilities of participants in the business’s ownership, control, personal liability, life span, and financial structure. This decision will have long-term implications, so you may want to consult with an accountant and attorney to help you select the form of ownership that is right for you.
In making a choice, you will want to consider the following:
- Your vision regarding the size and nature of your business.
- The level of control you wish to have.
- The level of “structure” you are willing to deal with.
- The business’s vulnerability to lawsuits.
- Tax implications of the different organizational structures.
- Expected profit (or loss) of the business.
- Whether or not you need to re-invest earnings into the business.
- Your need for taking cash out of the business for yourself.
The vast majority of small businesses start out as sole proprietorships. These firms are owned by one person, usually the individual who has day-to-day responsibility for running the business. Sole proprietorships own all the assets of the business and the profits generated by it. They also assume complete responsibility for any of its liabilities or debts. In the eyes of the law and the public, you are one in the same with the business.
Advantages of a Sole Proprietorship
- Easiest and least expensive form of ownership to organize.
- Sole proprietors are in complete control, & within the parameters of the law, may make decisions as they see fit.
- Profits from the business flow-through directly to the owner’s personal tax return.
- The business is easy to dissolve, if desired.
Disadvantages of a Sole Proprietorship
- Sole proprietors have unlimited liability and are legally responsible for all debts against the business. Their business and personal assets are at risk.
- May be at a disadvantage in raising funds and are often limited to using funds from personal savings or consumer loans.
- May have a hard time attracting high-caliber employees, or those that are motivated by the opportunity to own a part of the business.
- Some employee benefits such as owner’s medical insurance premiums are not directly deductible from business income (only partially as an adjustment to income).
In a Partnership, two or more people share ownership of a single business. Like proprietorships, the law does not distinguish between the business and its owners. The Partners should have a legal agreement that sets forth how decisions will be made, profits will be shared, disputes will be resolved, how future partners will be admitted to the partnership, how partners can be bought out, or what steps will be taken to dissolve the partnership when needed; Yes, it’s hard to think about a “break-up” when the business is just getting started, but many partnerships split up at crisis times and unless there is a defined process, there will be even greater problems. They also must decide up front how much time and capital each will contribute, etc.
Advantages of a Partnership
- Partnerships are relatively easy to establish; however, time should be invested in developing the partnership agreement.
- With more than one owner, the ability to raise funds may be increased.
- The profits from the business flow directly through to the partners’ personal tax return.
- Prospective employees may be attracted to the business if given the incentive to become a partner.
- The business usually will benefit from partners who have complementary skills.
Disadvantages of a Partnership
- Partners are jointly and individually liable for the actions of the other partners.
- Profits must be shared with others.
- Since decisions are shared, disagreements can occur.
- Some employee benefits are not deductible from business income on tax returns.
- The partnership may have a limited life; it may end upon the withdrawal or death of a partner.
Types of Partnerships that should be considered:
- General Partnership
Partners divide responsibility for management and liability, as well as the shares of profit or loss according to their internal agreement. Equal shares are assumed unless there is a written agreement that states differently.
- Limited Partnership and Partnership with limited liability
“Limited” means that most of the partners have limited liability (to the extent of their investment) as well as limited input regarding management decision, which generally encourages investors for short term projects, or for investing in capital assets. This form of ownership is not often used for operating retail or service businesses. Forming a limited partnership is more complex and formal than that of a general partnership.
- Join Venture
Acts like a general partnership, but is clearly for a limited period of time or a single project. If the partners in a joint venture repeat the activity, they will be recognized as an ongoing partnership and will have to file as such, and distribute accumulated partnership assets upon dissolution of the entity.
A Corporation, chartered by the state in which it is headquartered, is considered by law to be a unique entity, separate and apart from those who own it. A Corporation can be taxed; it can be sued; it can enter into contractual agreements. The owners of a corporation are its shareholders. The shareholders elect a board of directors to oversee the major policies and decisions. The corporation has a life of its own and does not dissolve when ownership changes.
Advantages of a Corporation
- Shareholders have limited liability for the corporation’s debts or judgments against the corporation.
- Generally, shareholders can only be held accountable for their investment in stock of the company. (Note however, that officers can be held personally liable for their actions, such as the failure to withhold and pay employment taxes.)
- Corporations can raise additional funds through the sale of stock.
- A Corporation may deduct the cost of benefits it provides to officers and employees.
- Can elect S Corporation status if certain requirements are met. This election enables company to be taxed similar to a partnership.
Disadvantages of a Corporation
- The process of incorporation requires more time and money than other forms of organization.
- Corporations are monitored by federal, state and some local agencies, and as a result may have more paperwork to comply with regulations.
- Incorporating may result in higher overall taxes. Dividends paid to shareholders are not deductible from business income; thus this income can be taxed twice.
Subchapter S Corporation (S-CORP)
A tax election only; this election enables the shareholder to treat the earnings and profits as distributions, and have them pass through directly to their personal tax return. The catch here is that the shareholder, if working for the company, and if there is a profit, must pay his/herself wages, and it must meet standards of “reasonable compensation”. This can vary by geographical region as well as occupation, but the basic rule is to pay yourself what you would have to pay someone to do your job, as long as there is enough profit. If you do not do this, the IRS can reclassify all of the earnings and profit as wages, and you will be liable for all of the payroll taxes on the total amount.
Limited Liability Company (LLC)
The LLC is a relatively new type of hybrid business structure that is now permissible in most states. It is designed to provide limited liability features of a corporation and the tax efficiencies and operational flexibility of a partnership. Formation is more complex and formal than that of a general partnership.
The owners are members, and the duration of the LLC is usually determined when the organization papers are filed. The time limit can be continued if desired by a vote of the members at the time of expiration. LLC’s must not have more than two of the four characteristics that define corporations: Limited liability to the extent of assets; continuity of life; centralization of management; and free transferability of ownership interests.
Federal Tax Forms for LLC
Taxed as a partnership in most cases; corporation forms must be used if there are more than two of the four corporate characteristics, as described above.
Deciding the form of ownership that best suits your business venture should be given careful consideration. Use your key advisors to assist you in the process.
Source: Kenner & Speck, LC
Register Your Business
The State may require additional license or business registration paperwork to be completed. It is also important to check with city/town & county governments where you intend to do business to determine licensing requirements.
The BizLink Orange Licensing Guide has direct links to state, county, and municipalities for Business Tax Receipts and more.
Obtain Necessary Tax Information
Taxation for small businesses may be simple or complex, depending on the size and business structure. The tax liability for each business will be different and you should consult your attorney and accountant regarding comprehensive tax planning.
Employer reporting requirements and responsibilities
As an employer, you will be responsible for additional employment insurance and worker’s compensation insurance. This includes applying for federal and state withholding numbers.
- For Federal Identification Numbers (EINs) contact the Internal Revenue Service or call (800) 829-4933
- For State Sales Tax and State Withholding Tax contact the State Department of Revenue.
Brush Up Your Business Skills
Continue to take all the classes and attend networking events. View calendar of events
Bonus Material & help
Prepare for Success
Ideas are everywhere. Successful entrepreneurs know that not every idea is a good business opportunity, so before you bet the ranch on your idea, take the time to research your idea, develop a strategy, and craft a winning business plan. Get input on your plan along the way and connect with the local resources that are available and ready to assist you along the way!