How Do I Start a Business? Here’s What You Need to Know

A common question I hear is, “How do I start a business?” Many people assume there’s a special legal step—almost like a ceremony—where a lawyer “blesses” their business to make it official. In reality, starting a business is simpler than you might think.

The straightforward answer to starting a business is just to start doing business! However, there are a few key things to consider first to ensure you’re set up for success.

Step 1: Do I Need Any Licensing?

The first question you should ask yourself is whether you need any specific licensing to operate legally. Licensing is required in industries where the government wants to ensure that people have a certain level of knowledge or skill to protect consumers.

Example: Real estate. If you want to start selling real estate, licensing is mandatory. Since a home is one of the largest purchases a person will make, the government wants to ensure that those facilitating these transactions are qualified.

The easiest way to check licensing requirements is to use Google. Simply search, “Do I need licensing to [your business type] in [your state]?” In many cases, the answer is just a click away.

Step 2: Can I Just Start Operating My Business?

If you don’t need any specific licensing, then the next step is to start. Technically, you can just run your business without any special setup or permissions. No business bank account or legal paperwork is required to start operating—but there are benefits to taking a few additional steps.

Why Form an LLC or Corporation?

When clients come to my office to form a business, they typically have two main reasons:

1. Tax Planning: Forming a legal entity, like an LLC, can provide tax advantages and help you manage business finances separately from your personal finances. Keeping a separate business bank account helps with tax compliance and makes it easier to manage expenses.
   

2. Liability Protection: Liability protection is about safeguarding your personal assets from business-related lawsuits. If your business were to face legal issues, creating a legal entity, like an LLC or corporation, provides a layer of protection for your personal assets.

   
   

Forming a business entity legally separates you from your business. Under the law, a business is considered its own "person." When your business is structured as a separate entity, if something goes wrong, you as an individual are less likely to be held liable. This “new person” (your business) takes on its own liabilities and can help you avoid personal risk.

Why Separate Business and Personal Finances?

One of the primary reasons to form a business and maintain separate finances is tax planning. The government takes taxes seriously, and one of the biggest risks to any business is tax compliance. Failing to pay taxes correctly can lead to serious problems, including business closure. Keeping your finances separate makes tax filing easier and helps prevent misunderstandings with the IRS.

In Summary: Start, Structure, and Protect

If you’re wondering how to start a business, the key steps are simple:

1. Check Licensing Requirements: Make sure there are no specific licenses needed for your business.
   

2. Start Operating: If no licensing is needed, begin operating, but consider forming an LLC or corporation for tax and liability benefits.
   

3. Separate Finances: Set up a business bank account to keep finances distinct from personal funds for easier tax management and liability protection.
   

Forming a business is like creating a new person legally, providing a layer of protection for your assets. In another post, I’ll go into more detail about the types of business structures and which one might be best for your needs.