Ready to Start Your Small Business? Here’s What You Should Know.
You have a big idea for a new business, but what comes next? Taking the leap to start a new business can be daunting, and there are several important steps to take and decisions to make that can impact your business’s future. Before you complete your new business filings, you will need to begin formulating your business plan, choosing your team, and selecting your business entity.
Step 1: Making Your Business Plan
Formulating a business plan is a crucial first step that should be taken before you dive into entity selection. A business plan is a document that sets out your company’s goals and how you aim to achieve them. A basic plan will include financial details, as well as marketing and operational strategies. When drafting a business plan, imagine what information you would want to know when considering whether to invest in a company. You will also want to give special thought to how you will fund your business, and note that there are several avenues to obtaining funding, the availability of which depend on the nature of your business.
Frequently used and often required by investors and lenders, business plans are key to the success of both new companies and established companies alike because they help keep companies on track. Remember that your business plan evolves with your business, so do not try to create a document that will define your company’s entire future in one go. There are several local resources available to help you draft your business plan. Ready, Start, Grow is powered by the Arkansas Small Business and Technology Development Center (ASBTDC) and is designed to walk you through formulating your business plan from start to finish. The ASBTDC’s advisory approach is helpful because as you write your business plan, you can pick up skills and discover tools that will give you a deeper understanding of how to operate your business.
Step 2: Choosing Your Support Team
The Law Group advises new business owners to seek out three professionals they trust when starting a new business: an accountant, an insurance agent, and an attorney.
An accountant will make sure your business is set up in the most beneficial way for the owners or members and will keep the business apprised of tax changes that may affect it. As the owner of a small business, you will be responsible for running payroll for your employees, administering employee benefits, and paying and filing taxes for your business. Hiring an accountant to manage these tasks will allow you to focus your energy on what matters – growing your business.
An insurance agent will help you understand what insurance you need, how different types of insurance work and will ensure your business has the proper coverage. Making sure a business is adequately insured is another way to help protect corporate formalities, which in turn protects the owners or members.
Forming a relationship with an attorney early in the process of setting up your business is important because an attorney can ensure you have the right formation documents to meet your new business’ needs. An attorney is also a key member of your support team. Throughout the life of your business, it is likely you will face contract reviews and negotiations, employment matters, and various other legal issues. A longstanding relationship with an attorney you trust is a helpful ally when business issues arise in the future.
Step 3: Choosing Your Business Entity
The Arkansas Secretary of State also encourages individuals who are interested in forming a business to speak with an attorney before settling on a business entity. Your business entity refers to how your business is organized, and thus regulated, under the law by the State of Arkansas. When you meet with an attorney, reviewing your business plan is one of the ways they will help you settle on an entity. There are twelve types of business entities to choose from in Arkansas, each with unique characteristics. Some distinctions between the entities involve the level of personal liability an owner might incur, tax structures, and the division of profits and losses. However, the most common entity type selected by Arkansas’ small business owners is the Limited Liability Company (LLC).
In an LLC, members (the owners) are not personally liable for the debts or liabilities of the organization. This means that as long as owners of an LLC follow the rules, their personal assets are safe in the event the company is sued. An LLC is a hybrid between a general partnership and a corporation. This blended structure offers a unique degree of flexibility, including within the tax structure. Owners of an LLC can elect to pay taxes for the organization on their personal tax returns as opposed to a traditional corporate tax structure, so speaking with a tax lawyer or accountant can help you make an informed decision about the tax considerations that apply to your entity selection.
An LLC is also relatively easy to form – setting up an LLC can often happen within just a few days from the time of filing. Dissolving a Limited Liability Company can be simple as well because members can specify what events will trigger the dissolution of the company in the Articles of Organization. Although LLCs are popular among groups founding companies, people who choose to go it alone enjoy the same benefits with a single member LLC structure. Nonetheless, if an LLC is not the best entity for your vision, other common choices are the Sole Proprietorship, Partnership, Limited Liability Partnership, Limited Partnership, and Corporation. A qualified lawyer can help you decide on and set up any of these entity forms. For a deeper dive into the practical distinctions between these types of businesses, visit our previous blog post here.
Step 4: Making Your Business Official
Once you have your plan, team, and entity hammered out, the actual process of registering your new business with the State of Arkansas is pretty straightforward. You file an application with the Arkansas Secretary of State to form a new business, and then, after you receive an approval, you apply for an EIN with the IRS. Depending on the nature of your business, you may need to obtain federal, city, or county permits and licenses as well. For example, you will need a specific permit from the Arkansas Alcoholic Beverage Control (ABC) or Tobacco Control Board (TCB) if you wish to sell alcohol, tobacco, marijuana, or other types of regulated substances. Familiarizing yourself with basic local, state, and federal requirements for Arkansas small businesses is a great place to begin.
Whatever your business, it is important to comply with any applicable requirements from the beginning to avoid trouble down the line. Having a lawyer to ensure correct filing compliance can alleviate a great deal of stress. Wherever you are in the process of forming your business, the Law Group of Northwest Arkansas LLP’s experienced attorneys can help make your dream a reality. Call us at 479-343-2965 or contact our office for more information about starting up your small business.