A sole proprietorship is the simplest form of a business model and is not subjected to much of federal or state regulation. It has many advantages as the business is owned by just one person. He controls almost all business activities and has an unlimited liability. He pays some amount of tax and retains all the profit to himself.
One should think of starting a sole proprietorship business if an individual is looking at having a small business and wants to have the entire control of the business. The start-up costs would be less, and the owner can retain all the profit but he has to bear the losses too. A sole proprietor's business and personal assets are liable to the creditors in case if he defaults. A sole proprietorship will cease to exist when the owner retires or dies.
Starting a sole proprietorship is most suitable for a simple business structure, where the market for the goods or services offered by the sole proprietor is local and small. Risk involved in this business is not very high and some manual skill would be required. For Ex: Jewelry making, hair-cutting, tailoring and repair shops. They are creative and personalized jobs where a customer's needs are paid close attention. Look at different business legal structures like a limited liability company and partnerships to determine which business legal structure suits you the best.
You can choose to start your sole proprietorship by either buying an existing business or taking up a franchise or starting a new business. Let's see how.
Decide which business do you want to run, once you have decided what you are going to be best at, research on your future competitors, market growth, marketing strategies and insurance you would need.
• Get Training
If you think you need some amount of training before you start off your business, then there are many small business counseling, mentoring and training programs throughout the country. Get a short training or seek counseling to gain clarity about your business.
• Make a business plan
After you have decided what business you want to set up, your first step is to make a business plan. This is going to act as a checklist for you. Start with describing your business type, future scope of business, loans applied to or needed, capital equipment required, etc.
• Business Location
Find a good location for your business place. For ex: If you want to start up a food joint, take a location where more number people hang out and where there will be more demand for your services. Also analyze the parking space and delivery access in your business location.
• Finance - Loans, Grants and Funding
The Federal, State and the Local Government's offer various finance programs with low rate of interest and scientific and economic development grants to help the small business start and grow. You can study the Micro-loan program, 7(a) Loan Program, and the CDC/504 Loan Program and choose any of these programs to finance your business.
• Register Your Business Name
When you are registering your business name for a sole proprietorship, your full name will be the legal name of your business. The legal name of your business will be required while filling all the official documents.
• Get Your Identification Numbers
You will need to apply for an EIN i.e. Employer Identification Number. This is used to identify your entity and it is a Federal identification number. Similarly, you will also need to obtain permits required by the State. For e.g.: You will need to obtain a Sales Tax Permit if you are going to be involved in selling products.
• Register your State and Local Taxes
You will need to file in taxes depending on what you are liable for. Income Tax, Self-employment Tax, Estimated Tax, Social Security and Medicare Taxes, Income Tax Withholding and, Federal Unemployment (FUTA) tax, are taxes that you could be liable to. You will also have to register for the following taxes.
- Business Tax Registration
- General Tax Information and Forms
- Workers' Compensation Insurance
- Unemployment Insurance Tax
• Get Business License and Permits
You need to obtain business licenses and permits depending upon your business type. For e.g.: You will need the following licenses and permits if you are located in California.
- Tax Registration
- Business Licenses
- Local Permits
- Incorporation Filing
- Doing Business As
- Employer Requirements
- Withholding Taxes
- I-9 Form
- New Hire Reporting
- Insurance Requirements
- Workplace Posters
You can visit the Small Business Administration website for the list documents needed, depending on your business type. Get all the documents sorted in time by making a checklist to prevent last minute hassle.
This article will help you in decision-making and planning out your business model. It will work as a checklist for you when you are about to put your business plan in action. To take your business a long way you need to do some prior market research to forecast the scope of your business.
Maintaining a reserve for unforeseen business shocks will make your business shock proof and stable. It is also important to understand the economic and market conditions to understand how changes in these factors will affect your business and industry. However, the key for a successful business of any form lies in being open to changes, being creative and innovative, adapting to the needs of this fast pacing generation.