How to Start and Operate A Business

Write a Business Plan

• Even if you don't need investors, it's smart to write a business plan,
the foundational document that will lay out how the company will
operate and grow. If you do need investors, though, the plan isn't
optional – those who are going to pony up cash will want to know
exactly how you plan to run the company and, more importantly, how
you expect to make money.
• The process of writing a business plan also allows you time to take
stock of why you're opening a business and how you plan to run it.
• "There will never be enough money, enough experience or the
perfect alignment of what you think is necessary to go out on your
own," Tunstall said. "Those are all mental roadblocks to what's really
important – taking it from a dream to a reality of which you have
ownership."
 Acquire Funding

• A lucky few will have cash on hand to start a business. Others

will have to either raise or borrow the capital, using that
business plan to convince investors that their company is worth
the money. The amount of money you need to start depends
on the type of businesses and expenses required, which might
include office space, utilities, licenses or permits, insurance,
inventory, advertising and marketing.
• Options for investors include individual investors, known as
"angel investors," or venture capital firms. Whichever you
choose, they'll look closely at your business plan, complete a
due diligence review and, if it's favorable, work out the terms
for an investment.
 Select a Legal Structure and Register

• The legal structure that you set up for your business impacts personal liability, business registration and taxes
before you register the business. While you can change the structure in the future, those changes could be
restricted and result in a number of hassles, even unintended dissolution. Common business structures
include:
• Sole Proprietorship: If you don't register as any other type of business, the company is automatically
considered to be a sole proprietorship. This gives you complete control of the business, but it means that your
business assets and liabilities are not separate from your personal assets and liabilities.

• Partnership: This allows two or more people to own a business together. Limited partnerships (LPs) have one
general partner with unlimited liability, and others with limited liability and limited company control. Limited
liability partnerships (LLPs) give limited liability to every owner and protects partners against the actions of
another partner.

• C Corporation: This creates a corporation that's a legal entity, separate from its owners. It provides the most
protection to owners but requires corporations to pay income taxes on profit.

• S Corporation: This structure avoids the taxation drawbacks of C corps but requires specific criteria.

• Limited Liability Corporation (LLC): This protects you from personal liability, saving your personal assets if the
company faces bankruptcy or lawsuits. However, you must still pay self-employment tax contributions.
 Obtain Business Insurance

• With just one accident, disaster or lawsuit, your business could be a goner, even if you're
structured as an LLC or corporation – their protections only go so far. Insurance, however,
helps keep that from happening. In some cases, you might be legally required to purchase
business insurance, particularly if you have employees. Types of business insurance
include:
• General liability insurance: Covers financial loss as a result of injury, property damage,
medical expenses, libel, defending lawsuits and settlement bonds or judgments.
• Product liability insurance: Protects against financial loss because of a defective product
that causes injury. 
• Professional liability insurance: Covers financial loss as a result of malpractice, negligence
or errors for businesses that provide a service.
• Commercial property insurance: Protects a business with a significant amount of
property and physical assets against adverse events such as fire, wind or vandalism.
• Home-based Business Insurance: Adds a rider to the homeowner's insurance that
protects business equipment and liability for third-party injuries.
• Business Owner's Policy: Bundles all typical coverage to save money.
 Hire Employees

• Many small businesses, particularly sole proprietorships, won't need to hire any
employees. If you do, though, you'll need an Employer Identification Number.
Once acquired, determine if you want to hire independent contractors or
employees, and then read up on the laws that pertain to each.
• "Startup businesses often use independent contractors instead of employees in
the early going," Schein said. "This can cause exposure if it is later determined
that these contractors are really employees. Tax withholding and unemployment
taxes may then be assessed, plus penalties if the classification is changed."
• You'll also need to choose a service for payroll, whether it's done in-house or
externally, as well as report employee/payroll taxes both quarterly and annually.
Remember, federal labor laws require certain benefits for employees. These
include payment of Social Security taxes, workers' compensation, disability
insurance, Family and Medical Leave Act benefits and unemployment insurance.
 Pay Business Taxes

• Making regular estimated tax payments on income is necessary

for all business owners, who must file an annual tax return. The
payments include self-employment taxes, which are your
contribution to Social Security and Medicare.
• Additionally, business owners who have employees will need to
pay employment taxes, which include Social Security and
Medicare taxes, federal income tax withholding and federal
unemployment tax.
• Businesses that manufacture or sell certain products, operate
certain type of businesses, use various kinds of equipment,
facilities or products or receive payment for certain services, such
as wagering pools or lotteries, must also pay excise taxes.
 Keep Coherent Records

• Good record-keeping is vital for a business owner. It

not only helps you keep track of how the business is
doing, but it also aids in preparing financial
statements, monitoring deductible business
expenses and filing your tax returns. While you can
choose any sort of record-keeping system that
clearly shows both income and expenses, the type
of business you own impacts the records that you're
legally obligated to keep for tax purposes.