If you’re ready to start a business, a sole proprietorship may be the best option for you. These businesses are easy to set up and require less paperwork than other business structures, such as an LLC or corporation.
However, they do come with some drawbacks. For example, the owner is personally liable for all business debts and liabilities.
1. Register Your Business Name
A sole proprietorship is the simplest business format in America. It’s easy to start and maintain, with no state requirements or ongoing costs.
Sole proprietorships are a great option for start-ups and small businesses, but you need to do a bit of work to make sure your business is established properly. This includes registering your business name with the proper authorities and getting everything else set up.
If you are a sole proprietor, you can operate your business under the founder’s surname or by filing for a DBA (Doing Business As). A DBA can be filed with different states and is sometimes required before banks will issue you a business bank account or business checks.
However, if you plan on growing your business, or bringing in additional investors, you may want to consider a limited liability company (LLC) or a limited partnership (LLP). An LLC eliminates personal liabilities and can allow you to share management, while a LLP limits your personal assets to what you have invested in the business.
2. Get a Business Bank Account
Business bank accounts help small-business owners manage company finances, streamline invoicing and simplify tax filing. They also serve as a safe and professional way to receive payments and pay employees.
Opening a business bank account is a straightforward process that can be completed online or at a local branch. Before you apply for a business account, make sure you know what documents you will need to provide the bank with.
You will need to bring your state-issued driver’s license or passport and your company’s business formation documents and business license. If you’re a sole proprietor or operating under a “doing business as” (DBA) name, you will also need to show additional identification.
Many banks offer introductory offers for new business accounts that can help you get the ball rolling. However, make sure you keep monthly fees in mind when deciding on the right bank for your business.
3. Get a Business License
A sole proprietorship is one of the easiest business formats to start and operate. It requires no registration or ongoing fees, and it allows you to receive all profits as the sole owner.
But there are a few things you should keep in mind. First, make sure you have the right business name.
You can use your own name or a DBA (doing business as). A DBA is a legal way to let banks and other organizations know you are a legitimate company.
Depending on your industry, you may also need to get a sales tax license or other permits to operate legally. Check with your local or state government for more information.
4. Get a Business Tax ID
If you’re planning on filing taxes, getting a business loan or opening a business bank account, you’ll need a business tax ID. This number, known as an EIN (Employer Identification Number) or FEIN (Federal Employer Identification Number), will make it easier to keep track of your business and file its tax returns.
You can apply for an EIN online through the IRS website, by fax or mail. You’ll need to provide basic business information, including your name and Social Security number.
5. Get a Business Insurance Policy
For many aspiring business owners, a sole proprietorship is a great way to start a new business. It’s easy to set up and requires few requirements.
However, a sole proprietorship can pose certain risks that you’ll need to take into consideration before deciding to launch your business. One of these is liability.
Sole proprietors are responsible for all debts and losses incurred by their business, which means that their personal assets, like their home or credit score, can be at risk if a lawsuit is filed against them.
A business insurance policy can help limit these risks by covering things like damage to your business’s property or liabilities incurred from a business lawsuit. Getting insurance isn’t cheap, but it will pay off in the long run if you ever find yourself in a position where you need to file for bankruptcy or defend against legal action.
6. Get a Business Credit Card
If you’re a sole proprietor, a small business credit card is a great way to manage startup costs and track expenses. Some cards offer welcome bonuses and rewards on business spending.
As a business owner, it’s important to build up your credit score and debt-to-income ratio before applying for a business credit card. This will help you secure a better interest rate on a business loan or line of credit later down the road.
To qualify for a business credit card, you will need to provide your Employer Identification Number (EIN). The EIN is a nine-digit number that the IRS uses to identify businesses in the same way they use Social Security numbers to identify individuals.
7. Get a Business Phone Line
A business phone line is a necessity in today’s competitive business climate. The good news is that you don’t have to pay top dollar to get a high quality, feature rich phone service. Depending on your budget, you might even be able to score a free one. You should also take into account your industry and your specific needs before making your purchase decision. For example, a restaurant or bar might only require two lines whereas a doctor’s office might need five or more. It’s also wise to take note of your competition, so you can get the best price. In addition, you should do a cost comparison to see which one offers the lowest monthly or annual fees. With a little planning and research, you can have your new enterprise on the road to success in no time!
8. Get a Business Website
A sole proprietorship is the easiest type of business to set up, and it gives you complete control over your company. As the owner, you make all decisions and take home the profits.
But it also comes with significant risks and limitations, so it’s important to choose wisely. If you run a low-risk business, a sole proprietorship could be an ideal option for you.
The downside of a sole proprietorship is that you bear the liability for your business. This means that if your business is sued, you have to pay the debts.
If you want to protect your personal assets, consider switching to a limited liability company (LLC) or corporation. While these legal entities do provide additional benefits, they can also be expensive to establish and maintain.
10. Get a Business Credit Card
If you’re a sole proprietor, it’s important to get a business credit card early on. These cards are a good way to separate your business expenses from your personal expenses and help you deduct these expenditures at tax time.
A business credit card is also a great way to build up your business credit score. This can make it easier to get financing, such as a loan for equipment purchases or real estate, at a lower interest rate.
To apply for a business credit card, you’ll need to provide your personal information and business info. This includes the business name, Federal Tax ID number (EIN), annual revenue and other information that may be required by the card issuer.
Final word
A sole proprietorship is the most popular form of business structure, as it’s a simple and cost-effective way to start a business. However, it has some disadvantages, including less financial and legal protection and the inability to add a partner.
There are a few ways to overcome these disadvantages, including seeking business mentors, alternative funding, tapping into tax breaks and saving for rainy days. Additionally, there are also strategies for building a strong business credit score so you can easily get funding for your company.
One of the best things about sole proprietorships is that they allow you to test your theories, pivot and even start over if needed. This can be a great way to see if you have a product or service that will sell and then grow your business accordingly.
If you’re a sole proprietorship and want to grow your business in 2023, it’s a good idea to create a short business plan. This will help you focus your efforts and ensure that everyone on your team has a clear picture of what’s happening in your business.