This is post 5 of 10 in a series discussing the essential steps for launching a successful, sustainable solopreneur business. If you missed the disclaimer post, it is helpful if you take a minute to read it before going forward. Here’s the link to the post.
So far I’ve covered the following sequential steps:
1. Define Your UVP and Prime Prospects
2. Perform Your Market Research
3. Create Your Business Plan
4. Square Away Your Finances
Today, we’re going to get into what licenses and permits, certifications and legal structure you may need and how to go about applying for them. The type of business you are developing, your industry focus and where you set up shop will dictate your legal requirements and help you determine what certifications (if any) and legal structure will benefit you most.
I believe in saving time, so I’ll start with giving you a shortcut. I recommend you go to BizFilings.com. For a nominal fee, they will create a report that includes the necessary forms and government agencies to apply for the licenses, permits and if you choose, legal structure, specific to your business.
I used their service for setting up The Solopreneur’s Guide. I received my report within three business days. For $99, It gave me everything I needed for licenses and permits (and $115 for incorporation, which I didn’t select), and freed up my time to focus on other start-up activities. There were some additional fees required by government agencies, but not much.
If you prefer the more hands on approach, you can consult with an attorney, a CPA and the government agencies direct.
When taking this route, here is a list of things to know and consider:
1. Be prepared.
To minimize wasting time and money, when meeting with an attorney, CPA or government agency, be prepared. This is part of the reason why I created this series in a specific, sequential order. As I mentioned above, your business structure, industry and location will affect the licenses and permits you need and the legal structure with the most advantages. Since you already created your business plan by this point, you should have all the answers necessary.
2. Select your legal structure first.
Since this post focuses on the needs of solopreneurs, the two legal structures that apply are sole proprietorship and Single Member Limited Liability Company (SMLLC).
Which one is right for you? The three main criteria that will affect your decision are:
a) Ease of set up (time and money)
b) Tax benefits
c) Liability coverage
The sole proprietorship is inexpensive, easy to set up and simplifies the tax process since the IRS only taxes you once on your personal income tax returns.
The potential down side to this structure is it doesn’t offer any liability protection (for debts and damages) and it is difficult to raise capital. You can get around some of this, however. For example, you could purchase business liability insurance and / or improve the language in your business contracts and proposals with disclaimers and indemnification clauses.
A SMLLC offers pass though taxation like a sole proprietorship, but offers some liability protection. It is more complex and expensive to set up, acting like a hybrid between a sole proprietorship and a corporation.
I prefer to keep things simple. However, if you are tempted to structure your business as a SMLLC, I recommend you seek out professional help to make sure you fully understand all the pros and cons.
3. You may need to connect with more than one agency.
Depending on your business structure, industry and location, you may need to apply for licenses and permits with local, county, state and federal agencies. How can you find out which agencies? Since the laws vary by location, you will need to do your research. You can either do a search on Google or stop by city hall or your local chamber of commerce and see if they can point you ion the right direction.
Before you launch a home-based business, you had better check your local zoning laws. If you are purely running an internet based business, you should be fine. However, if you plan on manufacturing or having walk-up traffic at your home, there is the possibility that you may be in violation of your city or county zoning laws.
The zoning laws are mainly a way to protect your neighbors from undo noise, traffic and other interruptions that a business may cause. If you’re in doubt, check with the local or county agency that manages your zoning laws.
5. SSN vs EIN
Do I need an Employer Identification Number or can I just use my Social Security Number. The quick answer to this question is to read a chart created by the IRS with some quick, simple questions. Here’s the link: IRS EIN Chart
6. Do I need to be “certified”?
Depending on your business, certification may or may not be necessary. For example, business coaches aren’t required by law to pass certification. Some choose to take courses and test with schools or industry associations as a way to differentiate their services.
In some cases, being “certified” creates a benefit for winning business or securing funding. For example, certification as an 8 (a) by the Small Business Administration (SBA) can provide socially and economically disadvantaged people with management and financial help, plus elevate their ability to compete for government contracts.
When in doubt, check with your local chamber of commerce or industry association.
7. Don’t skip this step.
While in many cases, it may seem easy to fly under the radar in hopes of minimizing costs, the government usually will catch up with you. And when they do, you may have to alter your business, change location, pay hefty fines or shut down. If your business is relatively basic, check out BizFilings.com. If you think you have liabilities and tax ramifications that may benefit from a more thorough review, get with an attorney and CPA.
The worst thing you can do is to become frustrated, choosing to take care of these requirements later when the IRS or other government officials catch up with you.
Disclaimer – I am not a CPA or a lawyer. My information and insight comes from my own research and personal experience as a multiple business owner and small business consultant. Although I have some experience with business licenses, permits, certifications and legal structures, there are variables that can alter your requirements including changes to current laws.
Next up in the series is, “Develop Your Products”.
All the Best,
The Solopreneur’s Guide