Starting a sole proprietorship is an excellent starting point for launching a new business venture. It’s by far the most common business entity in the U.S. As of 2021, there were an estimated 23 million people involved in sole proprietorships nationwide.
The advantage of the sole proprietorship is that they are easy to form, affordable, and allow you to get started fast.
Here’s what you need to know about launching a sole proprietorship to maximize your chances of success.
What is a Sole Proprietorship?
The sole proprietorship is the simplest type of business entity you can form. These are one-man owner-operator businesses. In other words, you have complete control over your destiny.
Sole proprietors have the lowest barrier to entry because there are no legal requirements to register them. Therefore, unless you choose a registered business entity, the IRS will automatically view you as a sole proprietorship.
Freelancers and contractors often choose the sole proprietorship when they initially get started with their businesses.
6 Steps to Start Your Sole Proprietorship
Do you have a side hustle you want to turn into a full-time business? Are you ready to launch a startup from nothing? Then the sole proprietorship could be the ideal choice of business for you.
Follow these six simple steps to get your sole proprietorship off the ground.
Step One – Select and Register Your Business Name
The first step is to come up with a business name. Next, choose something that represents your business and describes it to the average bystander. You have just seven seconds to make a first impression, and if you get it wrong, it’s hard to win them back.
Brainstorm some name ideas and visit the United States Patent and Trademark Office (USPTO) to see if that name is available. You don’t want to risk getting a great name only to receive a cease and desist order.
Most people opt to use their name as a sole proprietor since this is the default option. However, if you want to brand your organization (and you should), you will need to register your “Doing Business As” (DBA) name.
Few states require you to register a DBA name, but you should do it anyway. Registering a DBA name makes it simpler to open a business bank account and apply for credit.
Every state, county, and even municipality has its own registration requirements for DBA names, so check your local government’s website for more information on this process.
Step Two – Purchase Your Website Domain Name
Technically, you should check to see if your business name’s domain is available as a dot com before registering a name. However, your website will be the hub of your primary sales, so you must ensure that you have an online presence before opening your doors.
In the worst-case scenario, come up with a simple variation of your DBA name. It should not differ radically from your actual business name. You don’t necessarily have to begin building your website yet, but you should reserve your domain name in any case.
Step Three – Obtain a Business License
Not everyone needs to worry about applying for a business license or industry-specific permits. It depends on where you live and what your sole proprietorship does. Without the necessary licensing and permits, you could be fined heavily by your state.
Check with your local government offices to determine your necessary licenses and permits. Some industries require more than others. For example, if you’re opening a restaurant, you’ll need to worry about food hygiene certifications and liquor licenses.
Step Four – Get Your Employer Identification Number (EIN)
An EIN is only necessary if you intend on hiring employees or setting up a retirement account. Your EIN is used by the IRS when you file your taxes. Visit the website of the U.S. Small Business Administration to obtain your EIN for free.
If you choose not to obtain an EIN, your Social Security Number will work just fine as your tax ID.
Step Five – Open Your Business Bank Account
You should always maintain a business bank account, regardless of the type of business entity you choose to run. It’s vital that you keep your personal and business expenses separate.
Holding a business account also enables you to accept checks and credit card payments. Plus, you can use it to build up your business’s credit score. As a result, you’ll find it far simpler to obtain credit when your organization expands.
Shop around with different banks to find the best available offers. It’s worth talking to a few banks to ensure you get the best deal.
Step Six – Get Business Insurance
Insurance coverage is essential to protect yourself against legal action or if your business needs to declare bankruptcy. Would you rather pay legal and medical costs from your own pocket or have an insurer do it for you?
Some say you don’t need insurance if you are a sole proprietor, but this is false. Additional insurance coverage limits risks.
Search for a sole proprietorship insurance package that covers liability insurance, health insurance, disability insurance, and more. It may seem like a considerable expense during the early stages of your business, but you’ll be thankful for it if you ever need it.
Shop around and compare different insurance providers to lower your costs. Reducing your spending is vital during the earliest stages of your business.
Once you have an insurance policy in place, you’re finally ready to open your doors and begin doing business.
Conclusion
Starting a sole proprietorship is exciting because you’re putting yourself on the map. However, while there are no registration requirements for this kind of business, you still need steps to set yourself up for success.
Registering a DBA name, ensuring you have the necessary licenses and permits, and taking out insurance are all part of the process of protecting your burgeoning operation.
Are you ready to open the doors of your business?
