Sole proprietorships are the preferred business structure for many small business owners.
A sole proprietorship is simple and convenient because it enables entrepreneurs to launch a new business venture with relatively few startup requirements.
In a sole proprietorship, the business and the business owner are indistinguishable. So instead of setting up an entirely new legal entity, the business' legal existence is based on the owner, effectively limiting the amount of paperwork that is required to get the company off the ground.
However, there are some details that require attention before you launch a sole proprietorship. While some of them are legal, others are just common sense.
- Consider your business model. Starting a sole proprietorship is usually a lot easier than ending one. Before you pull the trigger on your sole proprietorship, make sure you understand your business model and craft a business plan to determine whether your idea is viable as a legitimate business.
- Choose a name. Naming your business is more complicated than you think. Obviously, you're looking for a name that will attract customers and describe your company. But the name you choose also has consequences for marketing, branding, and other business functions. Once you think you've decided on a name conduct a trademark and website domain search to make sure it's unique. You may also need to file a DBA with the appropriate agency.
- Licenses and permits. License and permit requirements vary from one industry to the next. You'll typically be required to obtain permits and licenses before you can operate your business. That means you'll have to give yourself plenty of time for licensing before you hang a shingle and start earning revenue.
- Employer identification number. If your business is going to hire employees you'll need a federal Employer Identification Number (EIN). Your EIN enables you to fulfill your sole proprietorships tax responsibilities, but the good news is that it can be easily setup through the IRS website.
- Quarterly tax payments. As a sole proprietorship, you'll be expected to make quarterly tax payments. If you haven't made quarterly tax payments before you may want to contact an accountant to discuss your tax liability and establish a quarterly payment plan.