How To Start a Business - Step by Step Guide for Beginners

Introduction watch from 0:00

I'm gonna teach you how to start a business in eight easy steps. As a certified public accountant and as a business owner, I'm happy to share my knowledge and this information with you, because when I started my business many, many years ago, I wish that I had somebody to help me along the way, or at least just give me some guidance, and that's what I'm here to do. I'm here to help. So this sounds corny, but I hope that this information helps you as a business owner and as an entrepreneur. So just FYI, if you're gonna, if you're gonna have this conversation, this very conversation, with a professional, an attorney or a certified public accountant, they're gonna charge you five hundred dollars to one thousand dollars.

But I feel like it shouldn't be that way, because especially now, when you're trying to start a business, that money, it could better, it could be much better utilized, you know, on your business. So I'm just here to help, and I'm going to give you a free consultation as if you're a client just walking into my office. There's not going to be fancy graphics or editing. I'm just going to talk to you just as I would to a client. So here's

Naming your business watch from 1:06

what you need to do and here's what you need to know. The first thing, so step number one, is to choose your company's name. So this is gonna be for the legal formation of your company. So your business name, it's also gonna be very important from the marketing aspect or from an advertising aspect. However, the, what I want to tell you is that if you don't get so hung up on it, because if you can't think of a good name for your company, just think of the best name possible and just go with it. Because in the future, you're talking next day, a year from now, five years from now, you can always change your company's name.

So you can, you can adopt an assumed name, you could do a DBA, a doing business as, or you can legally change the name of your business for very cheap and very quickly. So that's not going to be an issue. So my recommendation: think of the best name and just go with it.

Choosing a business structure watch from 2:01

After you come up with your company name, the next step, so step number two, is going to be to choose your business structure. So I just want to say, just stick with me here. Don't let this step go over your head. Don't let this step intimidate you. So you're going to have a couple of options here. I'm going to go over the most popular ones, and then after I explain those to you, I'm going to give you my recommendations. The first option is going to be to operate as a sole proprietor. In this situation, you're not going to have a separate business entity, so you're basically going to be an individual doing business.

So you're not going to be a business doing business, you're going to be an individual doing business. There's going to be pros and cons to each one of these structures, and as a sole proprietor, the pro is that, the pros, the benefits, they're going to be that you're going to have less administrative work and you can save some money on some filing fees. But you're, so the cons, so the drawbacks, they're going to be that you're not going to have the legal liability protection, you're going to miss out on some of the tax savings, and some businesses, they might not do business with you if you're operating under a sole proprietorship structure.

Another option is going to be a single member LLC. So an LLC is a limited liability company. A single member LLC, it just means that one person owns the LLC, which is going to be you. So with the single member LLC, you're going to have an actual business entity, so it's going to be totally separate from you. So that business, it's going to be an entity that is totally separate from you. So what does that mean? It means that that entity, that business entity, that single member LLC, it's going to have its own employer identification number. That's like the social security number of the business.

It's because it's separate from you. It's also going to give you legal liability protection, and it's going to protect your personal assets. And then you're going to have an S corporation. So an S corporation, with this business structure, it's gonna save you the most amount of money on taxes. However, there's gonna, the downside, the downside with an S corporation is that you're gonna have so much more administrative burdens. So what I mean by that: with an S corporation, you're gonna have to run a formal payroll. So you're gonna have to pay yourself, you're gonna have to do the tax withholdings, social security taxes, Medicare taxes, state taxes if applicable, federal income tax.

You're gonna have to do all the tax withholdings, send them into your, the right agencies, IRS, state unemployment, all that. And then you're also gonna have to do a separate business tax return, 1120s. So if you, I mean, if you don't know how to do all these things, you're going to end up paying for it, you know, by buying software, or you're going to see a professional, like you're going to see an accountant. So with these additional administrative burdens, it's going to cost you extra time and extra money. But again, the advantage, the benefit, is that you're gonna get tax savings, you're gonna get better tax savings.

But here's the thing: this doesn't necessarily mean that you should just jump straight into being an S corporation. Because let's say, let's say that you're going to be losing money the first year, or you're going to be breaking even, or you're going to be making very little money for the first few years, for your two years, three year, five, who knows. In that situation, what's the benefits? The benefit of the S corporation is that you're gonna pay less taxes on your profits. However, if you're not making money, if you're losing money, or if you're not making much money, then the whole benefit of the S corporation, the tax savings, it's a moot point.

It's pointless, because what good is it if you're losing money? You're not going to pay taxes anyways. So the benefit of that corporation, tax savings, it's pointless. So then you're just going to be stuck with the additional administrative burdens. You got to run payroll, you need a separate business tax return, you got to do all the administrative filings, the secretary of state, all that. You know, that's extra cost, extra time, and you're getting no benefits. So you got to make sure that this S corporation is right for you. And I just want to say that if you go with, like, a sole proprietorship to start, or an LLC, a single member LLC, and then you become very profitable in year two, year three, you can always switch to becoming an S corporation and getting the tax benefits.

And at that point, at that certain tipping point, it would be worth it, where the tax savings would justify, you know, you going through all the extra administrative work, the payroll, the business tax returns and all the additional filing fees. So that's my, that's a high level overview of the S corporation in a nutshell. And then you're going to have the C corporation. So the C corporation, the biggest disadvantage is that you're going to be paying higher taxes. So this is a comparison, so this is in relation to an S corporation or sole proprietorship. So I don't want to get into all the details about double taxation and all the workarounds around it, but generally speaking, in comparison to an S corporation, a C corporation, you're going to be paying more taxes.

One of the primary reasons why I would recommend the C corporation is if you're going to build a business and your plan is to sell it in the future, five years or later. Because in that specific situation, there's something called the Section 1202 small business stock, so I highly recommend that you look into that. So what happens there is that if you sell your business five years or later, then 100 of the business proceeds, the capital gains, they're going to be tax free, 100. So this is gonna, this is gonna depend on your industry as well. That's why I'm saying take a look at the details, because certain industries, they're going to be excluded from experiencing the benefits of the 1202.

So the one example is going to be professional services. So if you're going to start a tax practice, an accounting business, you're going to be excluded. This is not going to qualify, you're not going to qualify for this. If you're going to be an attorney and you're going to have a law firm, you're going to be excluded. You can't, this is not going to apply to you. If you're going to, if you're a doctor and you're gonna have a medical practice, you're gonna be excluded, because these are all professional services. So please take a look at the details. But I mean, if you're gonna have a big payday by selling the business in five years, it might be in your best interest to not have the best tax savings for years one, two, three, four, five, because it'll be totally worth it if you're gonna have a huge payday by selling the business in year six, seven, eight, nine or whatever it may be. It's going to be totally worth it. So again, please explore this option as a C corporation.

Structuring recommendations watch from 8:44

And then another op, another option is going to be the partnership. So this is going to be if you have partners, so other people, so partners owning the business alongside with you. So if you have partners, you can go with the C corporation, you can go with an S corporation, you can go with an LLC, or you can go with the partnership. So partnership is going to be similar to an LLC or an LLP. So here's my suggestion, so here are my recommendations. If you're going to start a business and you're not going to take it seriously, you know, it's going to be like a hobby, you know, it's going to be just like, eh, like, let's see what happens.

If that's the case, I mean, there's nothing wrong with that, but if that's the case, I would recommend that you go with a sole proprietorship. Because in this case, with the sole proprietorship structure, you're not going to have all the extra administrative burdens. You're not going to need to run a separate payroll system, you're not going to need a separate business tax return, you can avoid a lot of the filing fees with the secretary of state. So, you know, that's the benefit. You know, you get to avoid all that stuff, you get to save the time and energy. If you want legal liability protection, so the sole proprietorship, it's not going to give you legal liability protection.

So if that's a concern to you, I just want you to be aware that you can get insurance for very cheap. It's probably much cheaper than you realize. So you can get professional liability insurance, general liability insurance. I mean, you can get [just], I would just say just call your broker at a reputable company, at State Farm or Geico or Allstate or whoever it may be. So again, I mean, you're gonna be surprised at how cheaply you can get insurance for. So if you're starting your business and you're serious about it, so you're very serious about it, then I would recommend that you go with an LLC.

So you're in the situation where you go with an LLC, you're not going to need a separate business tax return, you're not going to need a separate payroll system, and you will get legal liability protection. So you're going to have to pay the annual fee. It's going to depend on your state, with the secretary of state, but it should only cost about 50 to 200. So again, depending on your states. If your business, so with an LLC, you're not going to get the best tax treatments. If your business, if it becomes very profitable in the future, then you can always convert to an S corporation, so that option will always be available to you in the future.

If your business is already profitable, or it's going to be running very profitably very soon, then I would recommend that you go with an S corporation. So a lot of people are going to say, you know, you're starting a new business, how are you going to be profitable from day one, or how are you going to be profitable in the very near future? So from my experience dealing with my clients, it's actually very common. I see this a lot of times. So I'll give you an example. So this is just one example out of many scenarios. So let's say that you work at a company and you're an employee, but the company says, you know what, we're closing down this department, we're closing down your wing, but we still want your services.

So you're going to be laid off next week, but right after, so immediately after, we want to hire, hire you back as a contractor. So in that situation, you're going to be profitable from day one, just immediately. And as a contractor, you're going to be self-employed, which means that, you know, you have the opportunity, you have the opportunity to be a business owner. So you're going to be a business owner. So in that situation, you're going to be profitable from day one. You're going to have the contracts lined up already. So in that situation, I would recommend that you go with an S corporation to save the most amount of money as possible.

And again, if you're going to be building a company with the intention to sell it for a big payday in the future, I would recommend that you go with the C corporation. But again, please look at the details, see who qualifies for the Section 1202, you know, because some people, some industries, are going to be disqualified. If you're finding this information helpful, I'd like to kindly request that you give this video a like or a thumbs up. And if you know anybody else that might benefit from this information. Again, this is professional grade information that I'm giving away for free, and it could save a lot of people a lot of money and time and headaches.

So if you know anybody that could benefit from this information, if you could share this video, that would be great. I'm sure they would appreciate it too. And again, thank you so much for all your support.

State registration watch from 13:08

Moving on. You've now decided on your business name and you've now decided on your business structure. So the next step, so step number three, is going to be the actual formation of the business entity, and this is going to be done at the state level. So this is going to be done with the secretary of state, with your state. So a lot of states, so the majority of states, they made this very easy. You're simply just going to log on to the secretary of state, so your state's secretary of state's website, and then you're going to go to the section where it says form a business, form a business entity, you know, form an LLC, form a partnership, or whatever it may be.

So when you go to that section, you're gonna, you're gonna choose your entity. You're gonna choose form a corporation, form an LLC, form a partnership, and then you're gonna go through the application process. It's gonna be very straightforward. You know, they're gonna ask you what's your company's name, you know, what's your structure. They're going to ask you your basic information, your address, etc. And then you're going to pay the filing fee. So after that happens, how long is it going to take you to actually be formed? So in a lot of states, it's going to be as quick as one day, literally one day. So in Illinois, you can do an expedited fee, you can have your business up and running in one day.

Usually, with the majority of states, there's going to be a waiting time of about three days to about two weeks, but that's how quickly you can expect your business to be formed. So after you, after you filled out the application, after you paid your fee, after you waited, you're gonna get the articles of incorporation or the articles of organization, and then you're gonna be a legitimate business recognized by your state, and you're gonna be good to go.

Obtaining an EIN watch from 14:47

So the next step after that, so after you're formed, after your business is officially formed with your state, the next step is gonna be getting your employer identification number. So if you remember, your EIN, or your employer identification number, that's like the social security number of your business. Because again, you know, if you're gonna have a C corporation, if you're gonna have an S corporation or a partnership, that's going to be a totally separate entity from you. So that entity, your business entity, it needs an identifying number, and that's going to be the employer identification number. So when you're filling out all these forms, for, you know, contracts or this or that or whatever it might be, if you're doing it with your business, you're going to give your employer identification number, because the business is doing business.

You're not going to give your social security number. So the employer identification number, there's going to be so many third-party vendors, they're gonna be trying to sell you, like, oh, this is such a complicated process, you know, pay us a hundred dollars or 200, would take care of it for you. So it's just really stupid. They're just, they're just trying to make a dollar. I mean, I don't blame them. But basically, you can get your own employer identification number, your EIN. You just go to the IRS website. It's free, it's instant, it's so straightforward. If you use a third party, like a LegalZoom, they're literally going to ask you the same questions as the IRS website.

So they're literally going to be using the same template, like LegalZoom, and then they're going to charge you like 100 bucks, 200 bucks for that. So instead, you can just go to the IRS website. There's a section that says apply for your EIN, and again, it's straightforward, it's instant, you get it immediately, it's completely free. You go irs.gov, just Google, I mean, you could Google "apply for EIN IRS," and then that should be the first search, you know, results. And make sure it's irs.gov. You don't want to be going to, you know, a different site. And then you can just accomplish that, getting your EIN, on the IRS website.

Setting up bank accounts watch from 16:49

The next step, so step number five, is going to be opening up a bank account. So after you get your formation done with the state, again, you're going to get an article of organization or article of formation. So take that and your EIN that you got from the IRS, so take those two items to your bank account, and then you can open up a bank accounts. So you want to do this because you do not want to mix your personal and business expenses, and also your income, your incoming, your sales, your revenue as well. So you want to keep totally separate, you know, your personal things and your business things.

So you're going to want to open up a business bank account as soon as you have your EIN and your articles of organization or formation. So you should also get a company debit card or credit card, you know, just to help keep things separate.

Licenses and insurance watch from 17:39

So the next step, after you get your business bank accounts, you're going to want to get your proper licenses, your certifications and insurance. So when it comes to your licenses and certifications, you know, those items, they can, they can really be easily identified with the simple Google search query. You know, that's going to be depending on your industry, that's going to be depending on your location, you know, your city or your state. So please take a look at what you need in terms of licensing and certifications. You know, I'm just throwing this section in here as a reminder that you should do this, you should look into this.

So in terms of insurance, again, I would highly recommend that you just talk with a reputable company, you know, talk with their agent. Usually, I mean, I've never had a bad experience. They're very helpful. They want to help you, obviously, because they want to sell you the right products. So just see what insurance you need: professional liability, general liability. You know, sometimes, if you want to rent an office space, they're going to request that you have a certain type of insurance. So just see what you need. Talk with your agent. It's going to be like a free consultation. So after that, so step number seven is

Bookkeeping and tax planning watch from 18:45

going to be keeping track of your company's sales and expenses. So keeping track of your company sales and expenses, that's called bookkeeping, and it is so important to just keep organized, stay organized. So you can choose, you can choose to utilize, like, a bookkeeping software like QuickBooks or FreshBooks, or you can do it on a spreadsheet like Google Docs, Google spreadsheet or Excel. So I mean, I get asked the question, you know, should I do the QuickBooks, should I do the FreshBooks, should I do it on a spreadsheet? I'll say two things. The first thing is, don't do it by hand. Like, don't be writing your expense, keeping your track of your expenses in a notebook.

Like, I mean, this is the 21st century. That's just such a bad idea. It's so sloppy, so disorganized. It's gonna cut, you know, that's gonna really bite you in the butt in the future. But in terms of whether you should do it with a spreadsheet or whether you should do with a more professional software, it's really going to depend on your situation. I'll just say, if you're going to have very few transactions, so very few transactions, that I would recommend just going with the, with a spreadsheet, like an Excel, because it's not going to take much time. All you're literally going to have to do is, you know, bust out the spreadsheet, and you're going to have columns that are going to say, you know, date, category, amounts and the details.

So it's going to be like: September 20th, transportation expenses, 20 bucks, and the details is going to say Uber. So you write that in. It's going to be very straightforward. Again, if you don't have many expense transactions, if you don't have many sales transactions, then a spreadsheet, it might save you the time and the money. It might be right for you until you need to switch to a more, you know, robust system, like a, like a FreshBooks or QuickBooks. So if you're gonna go straight into, like, a QuickBooks, just know that there's gonna be a learning curve. You're gonna have to learn the software. You know, that's gonna, you're gonna have to pay for the subscription, like a monthly subscription.

You're gonna have to invest time into learning that. So it's, it just really depends on your situation. That might be worth it if you're gonna have, like, hundreds or thousands of transactions in a month, but if not, you might be better off just going with the spreadsheet. It's going to be more straightforward, and it's going to cost you less. So another thing, so another thing you're going to have to do is, I mean, this is a reminder: if you're going to be at a profit, especially if you're going to be at a big profit, set aside money, you know, for your taxes. And if need be, you're gonna have to send an estimated tax payments. So you're gonna have to send in money, you know, throughout the course of the year, in installment payments. Failure to do so is gonna subject you to penalty.

Filing business taxes watch from 21:30

And the last step, so step number eight, is filing your business tax return. So this is gonna be dependent upon your business entity, so your structure. So if you're a sole proprietorship, or if you're a single member LLC, your business sales and expenses, so all the information, that's going to be, that's going to be reported on your personal income tax return. So your business sales and expenses, that's going to be reported on a separate schedule on your 1040, your personal income tax return. So if you're going to be a corporation, a C corporation, an S corporation, a partnership, you're going to need a separate business tax return.

So you're going to have your business tax return, and then you're going to have your personal tax return. So all that, all this business information, the corporations, C-corp, S corporation, partnership, that's gonna go on the business tax return. So you're gonna have two options here. You can either buy the software for yourself and just go at it, you know, try to do it yourself, or you can work with a professional, like an accountant. So I mean, I get asked this all the time: should I work with an accountant, should I do it myself? If you want to do it yourself, Intuit, the makers of TurboTax, you know, they have the TurboTax, you know, the personal income tax returns, the software, but they also have the business software programs, like the C-corp, the S-corp, the partnerships, all that.

So that's probably gonna cost you a few hundred dollars. But still, I mean, if you don't know what you're doing, you might butcher the return, you might lose money, you might lose tax savings, you might trigger an audit, you might cause a whole bunch of problems. So you might be better off working with an accountant. But of course you're gonna pay more money, but it might be better off in the long run. Maybe you want to work with the accountants, and then once you know what you're doing, you have nothing much changes, you can go save money by doing yourself. So that's your option. But again, if you're going to work with an accountant, because you, you feel more comfortable working with a professional, you know, please vet them out.

Please do some, at least do, like, a quick Google search, or, you know, quick check out their reviews. Make sure that they're legit. Make sure, like, go on Yelp, make sure that they don't have, like, one star rating, two star ratings, "oh, this guy doesn't know what he's doing." So just make sure that, you know, you check out who you're working with. That's my recommendation, and that's it. This is it. I mean, you can do all this for free. Another option is work with accountants, working with an attorney, do it on LegalZoom, but again, if you do that, you know, you're going to end up paying a lot of money, you might end up waiting even longer.

So that's, I mean, this is how you, this is how you start a business for absolutely free, cutting out all the middlemen in between. If you have any comments or questions, I'm going to try to answer them below. I thank you so much for all your support, and if you enjoyed this video or found this helpful, please give it a thumbs up, and I appreciate your support so much.