5 Important Steps Every Young Entrepreneur Must Take When Starting a Business
In September 2020, The Wall Street Journal reported that over 3.2 million applications for employer identification numbers had been filed that year. Business formations in 2021 continue to ride the filing momentum wave. Data from the U.S. Census Bureau has revealed that there were 440,165 U.S. business application filings in March 2021—up 3.4% from the previous month.
What explains this increase in business formations? The Peterson Institute for International Economics says changing customer preferences emerging from Covid-19 that create opportunity for entrepreneurs is one reason for the growth of new businesses. Another is being located geographic areas where it is easy to file formation paperwork can make it easier to start new businesses.
A third hypothesis is entrepreneurship out of necessity. This applies to individuals on unemployment who are working to make their next career move. Interestingly enough, it also applies to young entrepreneurs who have used their time in lockdown to explore their interests. Social media platforms like TikTok and YouTube allow young individuals to reach a wide audience; advancements in technology, like apps and e-commerce sites, help bring their creations to life.
Young entrepreneurs, however, cannot rely on everything they see or hear on TikTok to start successful businesses, but many may not be aware of the essential steps every young entrepreneur must take when first starting out. New entrepreneurs need to ensure they are covering the following bases when starting a small business.
5 steps every young entrepreneur must take to start a business
1. Draft a business plan
It may sound like an old-fashioned document but having a written business plan is a major asset for entrepreneurs starting businesses. Business plans act as the foundation for a startup. They allow you to set goals, and determine timelines and steps which will allow your company to achieve these goals. A business plan keeps you organized and on track, acting as a helpful point of reference.
Business plans come in two different types: traditional and lean. A traditional business plan is typically 30 to 40 pages long and acts as a detailed road map for the company. Lean startup plans, however, tend to be no more than a page long. Entrepreneurs may share on that page their startup’s value proposition and how the company is able to solve problems for its target audience. A lean startup plan may also offer insights into partners currently working with the business, as well as strategies on how to create a satisfactory customer service experience for the company's customer base.
2. Incorporate or form an LLC
The more time you dedicate to your startup and its growth, the more it will become vital to incorporate the business.
What does it mean to incorporate a business? Incorporation is the process of creating a corporate business structure. This structure allows the business to act as a separate entity from its owner and creates limited liability protection. Having limited liability protection creates a separation between personal and professional assets. This ensures that in the event of an unforeseen circumstance, the owner’s personal belongings would not be impacted or used as collateral.
Choosing the appropriate entity formation will depend on the needs of your business and its offerings. You may incorporate as a limited liability company (LLC), corporation, S Corporation, or nonprofit corporation. These are just a few examples of business formations. It may be wise to consult a tax or legal professional to learn more about appropriate entities for your business and to ask any other questions you may have about the incorporation process.
3. File for trademark protection
One of the biggest mistakes a young entrepreneur can make when starting a business concerns the company’s trademarks, and protecting these assets is one of the most important steps every young entrepreneur must take from the start. Unique names and logos associated with the business allow the business to differentiate its brand. The best way to protect these marks is to file for trademark registration.
However, prior to filing for this registration, it’s a good idea to conduct a name search. This can be conducted through a trademark database, like the USPTO’s Trademark Electronic Search System (TESS). Your search can find out if the trademark is already registered or pending registration. If you learn that the trademark is available, you may start filing for trademark registration. This will give you exclusive rights to the use of the mark and ensures competing businesses do not plagiarize your trademark.
More articles from AllBusiness.com:
- Are You Too Young to Buy a Franchise?
- 7 Legal Tips for Starting a Business
- Sole Proprietorship Taxation: A Basic Guide on Solo Taxes
- 15 Key Questions Venture Capitalists Will Ask Before Investing in Your Startup
- 3 Reasons Why the New Year Is the Best Time to Start a Business
4. Obtain tax IDs and business licenses
What can having a tax ID do for your startup? Filing for an employer identification number (EIN) allows the IRS to uniquely identify . You may also hire employees, open a business bank account, and establish pension, profit sharing and/or retirement plans.
Business licenses, on the other hand, tend to vary depending on your industry and location. If you are uncertain about the licenses or permits your business needs in order to operate, get in touch with your local Secretary of State for a complete list of required business licenses.
5. Keep your business in compliance
Business compliance is defined as meeting internal and external business compliance requirements. These requirements are determined by the startup’s state of incorporation. Here’s how the two types of requirements break down:
- Internal requirements. According to the SBA, incorporated businesses need to maintain forms of recordkeeping. The types of documents you create and update will depend on your entity formation. For example, an LLC would draft an operating agreement while a corporation updates its corporate bylaws and minutes.
- External requirements. This is compliance at the state and federal filing level. Small businesses may need to file, pay, or renew a number of documents ranging from annual reports to franchise taxes to articles of amendment.
Small businesses that are in compliance with the Secretary of State are considered to be in good standing. This means that they are up to date with their annual filings and have paid the necessary fees. Failure to do this could cause a business to fall into bad standing, or even be involuntarily dissolved with the state.
Need extra assistance to stay on top of these deadlines? Designate a third-party registered agent for your business. A registered agent acts as the point of contact between your business and the state, organizes your documents from the state, and confidentially delivers them to you. This allows business owners to meet all due dates and provide peace of mind in knowing that the newly opened business is already in good standing.
