How to Start a Business

Congratulations! You’ve decided to become a business owner.

Now that you have made the decision to launch a business and the excitement butterflies start to wear off (a little), you’re probably asking yourself: What is my first step?

According to our Rockland Trust experts, the first step any business owner should take is to develop a business plan. A business plan acts as your road map and gets you thinking like a business owner. You can be the best plumber or salesperson in the world, but if you don’t know how to run a business, it doesn’t matter. Your business plan should be a living, breathing document that is updated regularly to reflect your current goals and the state of the market.

To help you execute against your business plan you should assemble a trusted team of advisors to not only help you navigate the process of setting up your business, but to offer the ongoing counsel you need to keep the lights on. Below are some tasks you will face when setting up your business and the professionals that can help guide you through them:

Set up your business entity: Limited liability company (LLC) or corporation?

In very general terms, an LLC is made up of members who share a percentage of ownership in the company. An LLC is less flexible for future ownership changes, whereas corporations issue shares of stock that are easily transferable.

In terms of taxation, LLCs are pass-through tax entities, where business income and losses are reported on your tax return and you are responsible for paying taxes. Depending on the type of corporation, your business may be taxed separately from you as an individual. Like an LLC, S Corporations (S Corps) are a pass-through tax entity, whereas C Corporations (C Corps) are taxed separately. With an LLC, you may be subject to self-employment tax, but you can avoid this tax with a C Corp or S Corp. 

To help determine which type of legal entity is right for your business, you will want to meet with your certified public accountant (CPA) and lawyer. CPAs and lawyers have different perspectives and will walk you through the advantages and disadvantages of each type of entity from tax and legal liability standpoints.

In the end, you will have to make a decision between legal entities based on what is most important to you as the business owner.

Insurance: You’ll need it

Not all insurance policies are created equally. Because insurance is more of an art than a science, we recommend exploring insurance options for your business. You may have a great agent who insures your home and car, but your business needs an agent with commercial experience in your specific industry. For instance, the insurance needs for the construction industry differ greatly from the insurance needs for the retail or restaurant industries. A well-versed agent can help guide you to the right type and amount of coverage to fit your business needs.

For example, you may benefit from business continuation insurance, which provides income if your business is unable to operate. If there is a blizzard and your roof collapses, this type of insurance helps you stay afloat. If your business will handle sensitive information, such as credit card or Social Security numbers, you may want financial protection against data breaches and financial fraud. 

It’s best to speak with two or more agents to learn more about different offerings and to select the right coverage for your business.

Employment law: Understand and follow the rules

Massachusetts and Rhode Island employment laws are complex and the consequences of noncompliance can be devastating for any business. From Occupational Safety and Health Administration (OSHA) and 1099 laws to payroll and workers’ compensation, you want to stay compliant. Talking to a human resources professional or employment lawyer with experience in your specific industry will help ensure you’re following every letter of the law.

 

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Cash flow: Managing your business’s finances

Managing and tracking your business’s finances is vital for growth and success. While there are many tools to help you determine the financial health of your business, it all starts with understanding your cash flow, or the income you have coming in versus outgoing expenses.

From operational and payroll accounts to loans for equipment and real estate, it’s important to involve your banker or lender early in your business planning to ensure you’re on the right track. This is especially critical if your business is dependent on financing because you want enough time to find alternate funding sources, if necessary, before committing to a lease for equipment, for instance.

If you have partners and need financing, you’ll also want to make sure everyone’s financial ducks are in a row. Someone’s bad credit can harm your chances of receiving business loans, requiring you to go back to square one. Talking with a banker will help ensure you have the proper resources to smoothly start your business.

Long-term Strategy: What happens after you launch your business?

You must think about your business strategy and finances beyond simply opening the doors.

Take a look at the bigger picture. Do you have enough money to keep operating until you’re profitable? Do you have a long-term growth strategy as well as an exit strategy?

It may seem wiser to use your own personal capital to finance your business instead of paying interest, but that may not be the best approach if you’ll run out of money before your business becomes profitable. Properly structured debt can make a business survive, thrive and grow. In business, think of financing as a tool as opposed to a cost.

Starting a business can be an exciting, uncertain time. Our commercial bankers are always happy to discuss your financial options and help you ensure your business is on the right track.