The process of registering your business as a sole proprietorship doesn't have to be complicated. In fact, everything from choosing a business name to registering your DBA with the state to applying for an EIN number and necessary licenses can be completed in just seven easy steps.
Here's how to start your own business in 7 steps.
Step 1. Decide on a business name
Coming up with a business name can be a lot of fun. It represents you and the product or service you offer. People will associate this name with you, so it's important that it represents your business well.
When starting a sole proprietorship, the legal entity name becomes the business name by default, simplifying the process. On the other hand, you also have the option to create a different business name. Otherwise, you are referred to as Doing Business as a (DBA).
Step 2. Register your business DBA name
If you choose to use your full name for your business, no further action is required. You can operate your business without registering and using your Social Security number for tax purposes.
However, many sole proprietors use business names for marketing purposes or to separate their personal identity from their business. If you want to use a name other than your personal name, register your DBA name. For example, Jane Smith runs a business as a “wedding seamstress.” You are still operating as a sole proprietor, but you have chosen to operate your business under your own trade name. Do a search within your jurisdiction to make sure no other companies have your name listed.
Requirements for filing a DBA vary by state and may need to be filed at either the state or local level. Contact your local Secretary of State or County Clerk's office.
Step 3. Purchase and register your domain name
A great way to market your business is to create a website, which can be considered your online home base. This is your largest digital asset and what your customers can learn about your products and services.
Now that you've got the perfect name for your business, made sure no other business has the same name, and filed it with your DBA, you're ready to purchase your domain name.
A domain name is a unique URL address used to direct traffic to a specific website. In this case, the domain name will be specific to your business name or tagline. Depending on which domain registrar you use, you may need to perform a name search to confirm that the domain is available. It's best to keep your domain name as close to your business name as possible.
Step 4. Apply for an EIN
After you apply for a DBA, you can also apply for an Employer Identification Number (EIN) on the IRS website. An EIN identifies your business for tax purposes. If he applies for an EIN online, he will receive the EIN immediately after completing the application.
The IRS does not require sole proprietors to have an EIN unless they hire employees or pay sales tax. You can use your social security number instead. However, if he hires an employee, he will need her EIN, and he may be asked to provide it to open a business bank account.
Step 5. Obtain business licenses and permits
Each state has different licensing requirements for specific industries and professions. Some industries require federal licenses or permits. Depending on the type of business, you may need to register for a business license or business permit. Depending on the type of business, it's common to need multiple licenses or permits to operate.
Additionally, some states require all businesses to be licensed, regardless of size or industry. Some cities and counties also require a general business license. You can find out about licensing requirements on your state government's website or by contacting your city and county administrative office.
Finally, if you sell goods that are subject to sales tax, you will likely need permission from the seller. This permit is issued by the state and allows you to collect and remit sales tax to the state.
Step 6. Get business insurance
Although there are advantages to becoming a sole proprietorship, there are also some disadvantages. Unfortunately, for sole traders, business responsibilities are also personal responsibilities. It may be wise to purchase small business insurance.
If you do not have insurance, you will have to pay out of pocket. General liability helps cover property damage, personal injury, and litigation costs. This reduces financial liability for unexpected incidents and accidents.
Step 7. Open a business bank account
If you are a sole proprietor, opening a business bank account is not required, but it can be very beneficial. Having a business bank account can help you organize your business' finances. Separating your business accounts from your personal accounts makes it much easier to identify business expenses and report taxes.
Business accounts also allow you to accept credit card payments and establish business credit. Additionally, you may eventually want to grow your business. Having a business bank account can be an important factor when it comes to taking out a loan or opening a line of credit.
