If you are feeling an inner pull to start your own business, then you are in the right place. Learn how to start a Sole Proprietorship in as few as seven steps. Follow our simple guide to register your business and get started easily and quickly.
If you wish for to start your own business but don’t necessarily want to form a limited liability company (LLC) or partnership, starting a sole proprietorship may be best for you. Maybe you have a business idea and want to start small to see if it can work. A Sole Proprietorship is the easiest and fastest way to start.
Maybe you still have a full-time job and want to do freelance work, provide a service, or sell a product. As long as you are a sole proprietor, you do not need to take formal action to form a sole proprietorship. However, as is the case with all businesses, it is crucial to get any necessary licenses and permits needed to operate.
If you are on the fence about the two types of business formation, see Sole Proprietorship vs LLC Comparison.
7 Steps to Start a Sole Proprietorship
The process of registering a business as a sole proprietorship does not require to be complicated. In fact, it can be done in just seven simple key steps, from choosing a business name and registering your DBA with your state to applying for an EIN number and any necessary licenses.
Here’s how to start a Sole Proprietorship in just seven steps:
1st Step. Decide on a Business Name
Coming up with a business name can be thrilling– it’s a representation of you and the product and service you’re offering. People will associate you with this name, so it’s crucial that it represents your business well.
When you start a sole proprietorship, your legal name is your business name by default, so it simplifies the process. Meanwhile, you have the choice to create a separate business name, otherwise referred to as doing business (DBA).
2nd Step. Register Your Business DBA Name
If you choose to use your full legal name for your business, no further action is needed. You can work without registering and use your Social Security number for tax purposes.
However, most sole proprietors use a trading name for marketing purposes or to keep their personal identity separate from their business. If you plan to use a name other than your personal name, you’ll register a DBA name.
For instance, Jane Smith does business as “The Wedding Seamstress.” You’re still operating as a sole proprietor but selecting to run your business under your business name. Ensure that no other business has your name by doing a search within your jurisdiction.
The requirements to file a DBA vary from state to state, and you may require to file at the state or local level. Check with the secretary of state’s office or county clerk’s office where your business is located.
3rd Step. Buy and Register a Domain Name
The best way to market your business is to create a website, which is supposed to be your online home base. It’s your largest digital asset—the one where customers can learn about your products and services.
Now that you have the correct name for your business, checked to ensure no other business has a similar name and filed with your DBA, you are ready to purchase your domain name.
A domain name is a specific URL address that is used to direct traffic to a specific website. In this case, the domain name would be specific to your business name or catchphrase. Depending on which domain registrar you go with, you’ll need to do a name search to ensure it’s available. It’s great to keep the domain name as close to your business name as possible.
4th Step. Apply For An EIN
After you file for a DBA, you can also file for an EIA or Employer Identification Number on the IRS website. The EIN identifies your business for tax purposes. If you file an Employer Identification Number online, you’ll receive an EIN immediately after the application is complete.
The IRS does not need sole proprietors to have an EIN unless they have employees or pay excise taxes. You can use your Social Security number instead. However, you’ll require an EIN if you employ employees and you may be asked to endow an EIN to open a business bank account.
5th Step. Get Business License and Permits
Each state has different licensing requirements for specific industries and businesses. Some industries require federal licenses or permits. Depending on the type of business you have, you may require to register for an operational license or permit to operate. According to the type of business, it needs a number of licenses and permits to operate.
In addition, some states need a license for all businesses, regardless of size or industry. Some cities and counties also need a general business license. You can research licensing requirements on your state government’s site and by contacting your city and county administrative offices.
Lastly, if you sell goods that are subject to sales tax, you will probably require a seller’s permit. This permit is issued by the state and permits you to collect sales tax, which you will remit to the state.
6th Step. Obtain Business Insurance
While being a sole proprietor has its advantages, there are a few disadvantages as well. Unfortunately, as a sole proprietor, business liabilities are also personal liabilities. It may be wise to take out small business insurance.
Without coverage, you are responsible for any out-of-pocket expenses. General liability can help cover costs for bodily injury, property damage, and lawsuits. This can help in reducing the financial responsibility for any unplanned incident or mishap.
7th Step. Open a Business Bank Account
It is not necessary to open a business banking account if you are a sole proprietor, but it can be really beneficial. Having a business bank account helps keep your business finances in order. It will be much easier to identify business expenses and file taxes if you keep your business accounts separate from your personal accounts.
A business account as well allows you to accept credit card payments and establish business credit. Moreover, you may ultimately want to grow your business – having a business bank account can be a crucial factor if you want to take out a loan or establish a credit line.