Entrepreneurship
How To Launch A Business In 7 Steps
I spend most of my time with new entrepreneurs answering the simple question, “Where do I start?” Here's what I tell them.
Business founders have an avalanche of information at their disposal. Volumes of books, pages upon pages of business blogs, podcasts, and philthy bullet lists like this one. This doesn’t even take into account the academic world. How many business schools are there in the world? According to ChatGPT, roughly 10,000. Yet, the question I get the most, and the topic I spend the most of my time talking about with nascent founders, is: “How do I start?”
This question must be asked even before: “What is my business plan?”, “What’s my demographic?”, “What are my KPIs?”, “Do I need an accountant, an attorney, logos, trademarks, licenses?” Wow, so many questions, so little time. They seem endless, and in fact they are, for as long as you are an entrepreneur, you will be asking, fielding, answering and pondering questions. Lots and lots of questions.
So, this is for you* — the newbie standing on Square One of the greatest, most challenging and rewarding journey you’ll ever take, wondering: “What’s the first step?” To you, I say, God’s speed and may fortune shine upon you … or at least may it help you be part of the 30% who make it past the first 5 years.
*This is for founding a business in America but lessons apply internationally.
STEP 1: Apply for an EIN with the IRS
Why do you need an LLC?
Operating a business without a limited liability company (LLC) in a country as litigious as America is dangerous. An LLC puts a firewall between your personal assets and your business, so when that person who fell and bumped their head in your office sues you, they can’t go after your home and kids college fund.
What is an EIN?
An EIN is like getting a Social Security Number (SSN) for your business.
Should I be an LLC, Corporation or Partnership?
There are many entity types, typically people who are starting a small business register for a single member LLC. You can do that online here.
How hard is it?
Getting an EIN online is relatively straightforward and you can do it in one day online.
Do you need a lawyer?
If you are questioning which entity type is best for you, then, yes, by all means consult a lawyer, or you save yourself a lot of money and spend a few hours reading about different entity types online, and then register for it yourself.
Does my LLC have to be my business name?
Not necessarily. My LLC, ArtJamz LLC, was also the retail business name, but you can operate as DBA (Doing Business As). Meaning if you name your entity BIG PANCAKES LLC and then wind up getting into the business of selling cardboard totem poles, you can run your business as the DBA, CARDBOARD TOTEMS under the BIG PANCAKES LLC.
STEP 2: Register Your Business With A State Entity
Why should I register my business with a state if I have an LLC?
Think of it this way — personally, you have a SSN from the federal leve but have to use your SSN to get a driver’s license at the state level. Registering your LLC at the state level is like getting a driver’s license for your business. Handing a cop your SSN when they ask “License and registration, please” will not cut it in a traffic stop just like doing business in a state without first registering your LLC there.
Is this easy?
Not really but it’s not rocket science either. You can typically register your business online or head to your state corporate division in person. Online is always a better option, but like with car ownership, starting and running a business typically involves trips to an office just like your regular joy-filled sojourns to a local DMV. They also both demand the same amount of patience and paperwork. So, make sure your documents and IDs are in order.
Many jurisdictions require clean hands certificates to register your business — which contrary to popular belief has nothing to do with COVID safety protocols. This is a document that states that you do not owe the state any taxes, fees, liens or unpaid parking tickets. Some states require police background checks. Whatever the hoop, rest assured your state has plenty of them for you to jump through.
Can I get help to do this?
Of course, there is an entire industry built on monetizing (milking) new founders! There are hundreds of services that handle steps 1 and 2 for a fee, typically somewhere between $250 to $500. I used INC File (now Bizee) to register my first LLC, Genki Media LLC in Delaware because I was living in Washington DC at the time, so I needed a registered agent.
What is a registered agent?
Thanks for asking. A registered agent is a person or company designated to receive service of process and official mail on behalf of your business in the state or municipality you wish to register. Going back to the driver’s license comparison — you can only get a Maryland Driver’s license if you live in Maryland. But in business, you don’t have to live in Maryland to do business in Maryland, you can pay a registered agent in Maryland to file your paperwork for you even if you live in Nevada.
This seems complicated.
It’s daunting at first but you’ll get it. After a few years, once I set up my 2nd business, ArtJamz LLC, I registered both of my businesses myself with Washington DC where I lived and became the registered agent for using my DC office addresses (one was home office). I moved my registration from Delaware to DC and saved myself the annual registered agent fee. Later, when I moved out of DC, I hired a registered agent in DC so I could maintain my registration there.
If you do become the registered agent for your company, be aware that you will be responsible for things like bi-annual corporations filing, which registered agent services will do for you. But most of these annual filings can be done online and take 30 minutes or so once you get the hang of it. Or you could just pay someone to do it. Time is money.
Can you use a Delaware registered LLC in a state other than Delaware, say, like Florida?
Yes! You simply register as a foreign entity. Which sounds really foreign but it just means that you are an out of state business doing business in a different state.
Do all states have the same LLC rules?
No, different states have different LLC laws and there is a whole school of thought that some states are better to register LLC in than others — which is why you see a lot of Delaware registered LLCs. There are differences, however, in order to attract businesses most states have copied Delaware’s business-friendly laws. Overall, the differences are minor compared to a decade ago. Still, it’s worth the time to compare your state’s LLC laws to others before you pull the trigger.
STEP 3: Get A Business Bank Account
Congratulations young Padowan you are on your way — you have a legally registered entity. With this you can now open a business bank account.
Aside from not operating a business with an LLC or registering with your state, the biggest mistake I see first time founders make is commingling their personal and business funds. In short, don’t do it. Every penny you spend on your business should be from your business.
If you happen to use a personal credit card or money for your business — which will invariably happen since you will need to pay for Steps 1 and 2 — then make sure you keep receipts, document the payments in spreadsheet, and then submit an expense report from yourself to your company to get paid back once you start earning income.
Note: The money you invest into your company becomes owner equity, but this blog is not about accounting principles, so hold that thought.
Why is it important to have separate personal and business accounts?
Remember that fire wall I mentioned when discussing how an LLC places a firewall between your personal assets and business? Well, if you are commingling then you are breaking the firewall. If someone can prove that you are using personal funds for your business or that you are using business funds for personal expenses then your personal assets are now in play should someone sue. Oh, and the IRS doesn’t look favorably on commingling either — enjoy that audit!
Speaking of taxes, it’s also much better to have all of your business expenses run through your company as they offset profits, which lowers your tax liability. Of course, the goal is to be profitable and make money. But, if you use your phone for business, pay for it from the business account. But, again, this is not the article that dives into the weeds of tax strategies.
With a bank account you can also get a credit card but be careful — amassing debt is probably the top reason small businesses fail thanks to crippling interest rates. Of course, a corporate card is a new way to score up to 150,000 points on AMEX or Chase. But let’s see how far that debit card can take you before you cross the credit rubicon.
STEP 4: Lock Up Your IP, Domains, Social Accounts and Website
Armed with the above, it’s time to place your flag in the brand wars. Get the Facebook page, Instagram, TikTok, and whatever social media is out there — claim it all! Also, buy your domains. See if bigpancakes.com and cardboardtotems.com are available. Also buy other domains that are related: ilovebigpancakes.com, etc. I also recommend getting Google Workspace and attaching your domain to your email so you have a company email address: bigceo@bigpancakes.com. With this you can also create a business page and establish a presence on Google.
Build a website using your domain. There are so many easy solutions to getting a website built today. This doesn’t need to be “the end all be all website” — you just need to claim your space and establish a business presence. I used GoDaddy to host and build numerous websites and purchase domains. It’s pretty simple. They also have a creative studio you can use to make logos. The days of hiring someone to build your website are over. Now with AI, making websites, drafting copy and making logos is much easier.
All of the above should be connected to, and paid for, using your new fancy business bank account or credit card.
STEP 5: Register Trademarks
It’s a dog eat dog world and as soon as Cardboard Totems or Big Pancakes start selling like hotcakes on Amazon someone out there is going to steal your idea or brand. If you haven’t registered your trademark they can. Well, they can still steal it even if you have registered your trademark but if you have the unfortunate luck to deal with that (like I did many times through the years with the trademarks for ArtJamz and Unleash Your Inner Artist!) then having a registered trademark will help your cause.
Do I need a layer to do this?
Technically no, but it definitely helps. You can do it online here through the United States Patent and Trademark Office (USPTO). The process can be long and detailed but not beyond the realm of doing it yourself. To register a trademark, you need to have established a use in commerce. So, you’ll be sending along screenshots of your website and social media presence along with any links to your actual product (if you have one yet.)
After using a lawyer to register my trademark, I took control of my trademarks using the USPTO website and managed them for 10 years, including the updates to maintain the trademark every 3 to 5 years.
We did receive a trademark opposition to the name ArtJamz when we filed our trademark request from a company in Hawaii that made jams shorts. And here I thought surfers were chill? Turns out their lawyer lived in Washington DC and saw my company and thought, “Hey, I can book some hours on this one!” After about a year and nearly $5,000, we won since our trademark use was in a different class then the shorts company, i.e., we were in the art events business, not apparel. The lawyer was crucial in that process. So, choose your business category and classification carefully and don’t be surprised if the lawyers for Fluffy Pancakes or IHOP file a trademark oppositions. It’s all part of the journey!
Note: You will need to include your logo as part of your trademark application. Your tagline is considered a separate filing. “Big Pancakes” and “The Bigger The Hunger, The Better We Taste,” would need two separate filings.
STEP 6: Register with State & Local Tax & Revenue and Employment Departments
Now that BIG PANCAKES LLC is set up and you are incorporated and registered properly to conduct business in your state, district, or municipality, make sure you register with the appropriate Tax & Revenue department. Most states require monthly filings for Sales and Use Tax, some type of bi-annual filing, and of course, annual taxes. Sales and Use Tax is collected with every transaction and then paid monthly to your local authority.
Tip: Make sure you are adding the correct sales tax in your POS and tracking it properly. See POS section below!
The Department of Employment Services will also want to know who you are so they can begin ensuring you are running payroll and handling withholding properly and contributing to the greater good, particularly unemployment.
STEP 7: Get Business Insurance
You can do this after getting your EIN and incorporating. In reality, founding a business is not linear, and you will most likely be working on Steps 3,4,5 from my previous article, along with all the steps here, at the same time — welcome to asymmetric start-up life!
Why do I need business insurance?
Aside from the fact most states require it, it’s all about liability and having the peace of mind that if the sh*t hits the fan, you are protected. In my case, it really did — at one of our retail locations, the building plumbing pipes clogged and flooded the ground level of our studio with sewage, causing us to shut down half of our operations for three weeks during peak season.
Because I had insurance, the damage we incurred was covered — we had to hire a Hazmat team and had to remove and replace all the drywall. We also received compensation for lost business. Yes, it took a few months of headaches and filing claims and submitting documentation, but we were compensated and it helped minimize the financial pain. The lingering smell? Well, that was a different founder problem altogether…
What type of business insurance should I get?
The US federal government requires every business with employees to have workers’ compensation, unemployment, and disability insurance. You will also need general liability.
Depending on your business, you will have a combination of these 6 types of coverages: general liability insurance, product liability insurance, professional liability insurance, commercial property insurance, home-based business insurance, and business owner’s policy.
Congratulations, you’ve taken your first steps to laying the foundation of your business upon which all will be built. No picking out the curtains just yet though—there are still a number of important building blocks. Stay tuned for Steps 6 to 10 coming soon! Now, fly and be free and sell those Big Pancakes (or Cardboard Totems)!
Michael M Clements is the Exited Founder of ArtJamz, Founder/CEO of media consultancy Genki Media LLC, Co-Founder / President Director of PT Creative Leisure Group, Founder / Editor-in-Chief of The Creatively Inclined Wanderer, and a multi-hyphenate artist, author, performer and editor.
