As an entrepreneur, starting a home company is a perfect way to start a new business formation. Around 50 percent of US firms are home-based. There are many ways of using your home as a company office, whether you want to sell handmade crafts or products, start an eCommerce business, or launch a professional services business like a consulting firm.
But, as with any non-home-based, it also takes a lot of work to start a new business formation. Just because you’re operating your business from home doesn’t mean that the legal procedure of making the company official can be overlooked or avoided.
To start your new business formation, here are the first six basic steps you should take:
1. Choose a Business Name
Even before creating an LLC or incorporating your company, one of the first steps you should consider is to find out what you want to use for your business name. If another company already uses your favored name, this may trigger problems or delays in starting your business. You don’t want to get into a position that you might be susceptible to a lawsuit for using another company’s name or violating a trademark.
2. Form an LLC or Other Business Entity
Just because your business is a home-based business doesn’t mean that you don’t have to have the liability protections and tax advantages of making your business official in the view of the law. You need to form an LLC or otherwise incorporate your business with a legal business entity.
Forming a Limited Liability Company (LLC) is a common and easy step to take to establish an official identity separate from your finances for your corporation. It can also help shield your assets from some of the worst-case scenarios of a lawsuit against your company (home, retirement accounts, life savings).
3. Consider Setting up a DBA
Another choice to use for naming and running your new business formation is a “Doing Business As” name (DBA), also known as a “fictitious business name.” Some company owners may want their LLC to have a particular name and then conduct business under a different name. They may want to run several business lines or services while having only one LLC set up for tax and banking purposes.
In addition to their LLC, most LLC owners do not need to set up a DBA. But if you have any clear objectives or strategic needs for running your company, it is an option.
As your company grows, you can also retain your current LLC and set up a DBA in the future. On day one of starting a home company, you don’t need to decide any of these things.
4. Get a Registered Agent
Any incorporated company is required to have a Registered Agent. You are entitled to act as your Licensed Agent, as a business owner.
Appointing another Registered Agent, however, will give your home company a physical presence and a separate mailing address where official government records and notices are sent, such as legal proceedings and tax correspondence.
5. Get an Employer ID Number (EIN)
One of the principal legal measures in making your company official is applying for your company’s Employer Identification Number. For companies, an EIN is a tax ID.
An EIN gives the company its legal identification for tax purposes in the same way that people have Social Security Numbers (SSNs) that they are allowed to use on their tax returns. Getting an EIN is also a prerequisite for applying to a business bank for an account.
6. Set Up a Business Bank Account
You can go to your preferred bank and set up a business bank account once you have a business name, an LLC or another legal business entity, and an official employer ID number. A necessary move in making your company official in the financial system’s view is to set up a business checking account.
Main advantages of getting a bank account for business include:
- Separating your personal finances and business finances
- Receiving payments from buyers in the name of your company
- Writing checks and paying business costs in the name of your company
- Starting to establish business credit to apply for small business loans automatically
- Maximizing the company costs that are tax-deductible and saving money at tax time
Even if you’re only starting a home business in the early days, your business dreams don’t have to remain “small.” Right now, you can do several things to make your home business “legal” and legitimate so that you can start making serious money. With a legitimate business entity, a business bank account, and all the other necessities, safeguard your home business.
We continuously strive to understand your critical financial issues and implement practical solutions to better manage your money and business. Call us today at 404-900-1040 or request a free consultation to work with professional accounting and tax professionals to create a strong base for your company’s future.