Congratulations on taking the first step towards starting your own business! Starting a business is exciting and comes with many rewards, but there's also a lot to consider along with some necessary tasks to make sure your business is compliant with state laws. With some planning and a good understanding of the process, you'll be calling yourself a business owner in no time! Use this as your go-to guide for understanding the process and then download the free checklist to make sure you have all your bases covered.
This guide is generally what is needed for anyone starting a business, but there may be rules and regulations specific to your state. I'll include links to some MA websites, but if you're not in MA, you can find your state government website here.
1. Create a Business Plan
You might have a good sense of what kind of business you want, but it's important to put your ideas, goals, and expectations down on paper. Consider including these things when you're writing your business plan:
Executive Summary -this is an overview of your business’ purpose, plans, goals, competition, opportunities, etc
Company description
Market Analysis (opportunities, competition, etc.)
Organizational structure
Products and/or services
Marketing strategies
Funding goals
Financial projections
Having a business plan will not only help you lay the groundwork, it will also help show potential investors, partners, and clients that you're serious. The U.S. Small Business Administration has a great guide if you need help getting started.
2. Decide on a Name for Your Business
Deciding on a business name might be easy for some people, but this is often a struggle for many owners as your name is what establishes your brand identity and your business' purpose. I suggest thinking about the image you want your business to project, and also making sure it's unique enough to remember. You also need to make sure that there isn't another business out there with the same name, or something similar, especially if it's a competitor. Your Secretary of State website likely has a way to search business names, and if you're in MA, the Secretary of Commonwealth website has a few ways to do this.
Each business structure has specific naming requirements, e.g. If you choose an LLC, you must have the words Limited Liability Company or LLC in your registered name.
If you're planning to have an online presence, it's also a good idea to check and see if the domain name you want to associate your business with is available. If you have something specific in mind and commit to that name before looking into this, you might get stuck with a domain name you aren't happy with. GoDaddy, Wix, SquareSpace, and Google are just a few that can be used to search and buy a domain name. We'll get more into this further along in the guide.
3. Decide on a Legal Structure
There are a few types of business structures, or entities to choose from, and each one dictates how your business will run. The most popular types are the sole proprietorship, general partnership, limited liability company (LLC), S corporation, and C corporation. The most commonly used for small businesses is an LLC because of its flexibility and personal asset protection.
It's important to read up on all of your options, and the IRS website is a great place to read up on what you need to know.
4. Choose a Registered Agent
When you get to step 5, you'll need to have a Registered Agent for your LLC business. This is someone who's available between the hours of 9-5, and serves as a point of contact between your business and the state to receive all legal, tax, and compliance communication. They ensure that no important documents, deadlines, or payments fall through the cracks, so you’ll want to choose a person or company you trust.
You can choose either an individual or a business entity as your resident agent in Massachusetts, but they must:
Be an individual Massachusetts resident or a business entity authorized to do business in Massachusetts.
Have a physical address in Massachusetts (P.O. boxes are not allowed)
Have a mailing address in Massachusetts (may be identical to the physical address)
You can choose to be your own registered agent if you meet the above requirements, but you'll need to use your name and not the business name, and if you're working for home, your home address will be used, so you need to be okay with that being made public.
Alternatively, you can use a Registered Agent service like Zen Business or IncFile. Services like these might also offer LLC formation if that's something you want help with.
5. Register Your Business
This is an important one! It's the first step you'll take towards officially starting your business. It's required in all states, and regardless of which business structure you choose, needs to be done on your Secretary of State website. Some of the following is specific to Massachusetts, but aside from the fees this information applies to all states.
LLCs: When you’re ready to get your LLC on record, you’ll need to file a Certificate of Organization with the Commonwealth of MA.
This Massachusetts LLC filing has a filing fee of $500, but it’s a one-time filing and an important one at that. If you choose to file online or by fax, the Commonwealth automatically adds on a $20 expedited processing fee.
Corporations: The filing options and processes are the same for corporations, but the forms and fees differ. Instead of the Certificate of Organization, you’ll file an Articles of Organization. And rather than a flat $500 fee, you’ll pay $275 for the first 275,000 shares of your company, and $100 for each additional 100,000 shares (or fraction thereof).
Sole Proprietorship/General Partnership: There are no official forms or fees to register as a sole proprietor or general partnership. You can simply start doing business and that’s it! While this is obviously faster and easier, I'd still recommend incorporating your business because of the personal asset protection LLCs and corporations provide.
Foreign Entities: If your business is already up and running in another state, Massachusetts will consider it a “foreign” entity rather than a “domestic” one. In this case, don’t worry about the Certificate of Organization or Articles of Organization. Rather, you’ll need to go through the foreign qualification process, which involves filing a “Foreign LLC Application for Registration” for $500 or a “Foreign Corporation Certificate of Registration” for $400.
6. Get an EIN
An Employer Identification Number, or EIN, is similar to a Social Security number and necessary for State and Federal taxes.
If you’re forming an LLC, it will be considered a “pass-through” entity, so the business itself won’t pay federal income taxes. Instead, you'll report income and losses on your personal tax returns.
But this doesn’t mean you can go without an EIN. If your LLC pays any type of business taxes – like Income, Sales, Use, or Unemployment Taxes – or hires employees, you’ll need to get one. You can apply for an EIN on the IRS website.
7. Open a Business Bank Account
If there's one thing a bookkeeper or a CPA will tell a new business owner, it's open a separate business account AND to use it solely for business. LLCs and Corporations are required to keep business and personal expenses separate, or they risk losing the personal asset protection that an LLC or Corporation gives. This is one thing that many business owners don't realize, but the good news is you're reading this, so now you know-no commingling!
Opening a bank account is very simple and can be done at your bank's local branch. It can be a small, local bank or a bigger national bank like Chase or Bank of America. You'll need your formation documents, your EIN, your ID and some personal information.
8. Business Tax Obligations
Owning a business goes hand in hand with paying taxes.
LLCs don't need to file a corporate tax return and pay federal income taxes, as these taxes are handled on your personal tax return. Corporations, however, do need to file a Corporate Income Tax Return and a Corporate Excise Tax. Sole proprietorships/general partnerships will need to pay self-employment taxes.
Sales and Use Taxes: Any MA business that sells goods must pay Sales and Use Taxes at a rate of 6.25% Other states may have states may have different tax rates that include city, county and municipal tax rates. If your business is collecting sales tax (especially across state lines) it's very beneficial to use a tax software like Avalara or TaxJar to make sure you're in compliance.
Withholding Tax: If you hire employees, you’ll need to withhold a certain amount from their wages to pay their personal income tax. Using a payroll service like Gusto or ADP will save you the headache of trying to figure out the withholding amounts and will ensure you're compliant.
Unemployment Insurance Contributions: Any Massachusetts business that hires employees must also make quarterly contributions to Unemployment Insurance.
Other Taxes: Your business activities and/or products might require it to pay other various taxes, like a Cigarette and Tobacco Excise or a Satellite Service Excise.
Quarterly Income Tax: Individuals, including sole proprietors, partners, and S corporation shareholders, generally have to make estimated tax payments if they expect to owe tax of $1,000 or more when their return is filed. Read more about estimated taxes for MA here.
If your business is in Massachusetts, the state makes it fairly easy to register your business and pay taxes online at MassTaxConnect
9. Set Up a Bookkeeping/Accounting System
It's a good idea to track your business financials from Day 1. If you're on a tight budget you could use an Excel spread sheet but if you have the budget for software, I'd suggest getting a QuickBooks account. There are other bookkeeping software options like Xero or Wave but I prefer QuickBooks as it can grow with your business. If you're interested in a QuickBooks subscription, click here to sign up for QuickBooks online with my partner discount of 30% off your first year.
10. Consider a Payroll Company
This won't apply to every business owner, but if you're planning on hiring employees, definitely go through a payroll company. They'll handle all of the state and federal taxes and make sure you're in compliance from the beginning, along with issuing W2s at tax time. If you're paying contractors, Gusto also offers contractor payments and issues 1099s. If you choose not to go through a payroll company for contractor payments, I'd suggest using something like Zelle for an ACH transfer, paying by check, or Melio for business to business payments. I would not suggest paying through CashApp, Venmo or PayPal as they don't have good records of payments made. Good record keeping is important for tracking contractor payments as you'll need to issue 1099s to anyone you paid more than $600. Read more here about who gets a 1099 at tax time.
If you're interested in using Gusto for your payroll, click here to sign up with my referral code and receive a $100 Visa gift card.
11. Market Your Business
Now that you've started your business, you need customers! Aside from having family and friends spread the word (free advertising!) social media for your business is so important! You can create a Facebook business page, an Instagram page, a LinkedIn, and a Google Business page. Not all of these are necessary but they are a great way to connect with customers and show off what you do. Just remember that if you start any of these, make sure you keep the account active by posting to the account. A website and business cards are also great ways to get your business out there.
Regardless of what kind of business you're starting, it's a big undertaking but checking off all of these tasks will ensure you're off to a great start!