Starting a business 101

Starting a business is an exciting yet daunting task. You may have a great idea for a product or service, but where do you go from there? What does it mean to run a business as opposed to working for someone else? What financial matters need to be in place?

For one, the shift of going from an employee to a business owner requires having a solid idea and a plan for profitability. “When starting a business, it’s important to have a good understanding of your expenses and how you will bring money in to pay them,” said Janet-Lynn Zuk, senior business banker at BOK Financial®.

Here are some other steps you need to take:

The business idea

• Once you have an idea for a business, start with research: Is there a demand for your product or service?
• Are there potential competitors already doing it?
• What makes your idea different or better to fill a need in the market?

A good place to start your research is the Small Business Administration. They offer free and low-cost resources, trainings and events on starting a business. These tools can help you gain a better understanding of how your idea might work in the market, as well as business financials.

“You have to really think about everything from what resources you’ll need, like accountants and marketing people, to how it will impact you financially,” said Zuk. “The SBA can help you narrow your focus so you don’t feel overwhelmed and learn what pieces you may be missing.”

Business plan
Next, you’ll need a written plan, including details on your product or service and what it will take to get into the market, including a potential physical location, inventory, supplies, technology, marketing, staff—and the funding to support it all. This will give you a basic blueprint for your business.

The Small Business Administration provides guidance on how to write a business plan.

Get an EIN number and choose a business structure
For many business owners, this is when things start getting real. Most businesses are required to register on the IRS website for an employer identification (EIN) number to file taxes as a business as opposed to being a sole proprietor using your own Social Security number and doing a Schedule C filing as a freelancer or contractor.

“I always recommend that people sit down with a certified public accountant (CPA) to understand the difference between how you pay yourself and file your taxes as a business owner versus an employee or contractor, plus what the tax implications are for each type of business structure,” said Zuk.

Learn more about filing for an EIN on the IRS website. Then, you’ll need to decide what business structure, or entity you need to be. There are different business structures depending on the type of business you want to form.

• Sole Proprietorship. If you’re just one person selling a product or service, this may be for you. However, keep in mind that you’re also personally liable for the business’s debts and losses.
• Limited Liability Company (LLC). This business type separates your business income from your personal assets. If your business falls on hard times or is sued, your personal finances are not vulnerable, only the finances in the business account are. However, you must keep personal and business assets separate and be strict about your bookkeeping.
• Partnership. If you’re going into business with someone, you can form one of many choices of partnerships: general, limited, limited liability or franchise with different structures to share profits and liabilities.
• Corporation. Larger businesses may be classified as corporations if you intend to have employees and a larger-scale operation. There are also different types of corporations such as a limited liability company (LLC), S corporation, C corporation, nonprofit, professional or cooperative among others.

For more details on types of business entities, see the Small Business Administration. Since January 1, 2024, business entities have also been required to file a Beneficial Ownership Information Report (BOIR) with the Financial Crimes Enforcement Network (FinCEN) under the Corporate Transparency Act (CTA). But for the time being, however, the CTA is not being enforced by FinCEN’s parent agency, the Department of Treasury, against U.S. citizens or beneficial owners of domestic companies.

Claim your name and online presence
Your business entity can be filed under your name or a business name. If you plan to call the business something other than your name, you’ll need to file for a trade name, also known as a “doing business as” (DBA) name or an “assumed” name. Note that some states require that all businesses file a trade name, so check what is required in your state.

You may have a name in mind for your business, but another company may already have it. Do an online search, check social media channels and do a business name search in your state to make sure it’s not already taken. Be sure to lock it down for your online presence by setting up all of your social media and website domain names.

Open a business bank account
When your idea officially becomes a business, it’s time to separate personal and business finances—and to establish a relationship with a banker. Zuk stresses the importance of avoiding comingling the two, especially if you want some degree of protection of your personal assets from any business liabilities.

“Keep a balance sheet that shows all the money going in and out of the business, separate from personal cashflow. Having separate bookkeeping will be critical for examining your business’ growth,” said Zuk.

A separate business account should be used exclusively for all your business expenses and incoming sales payments. It will also make it easier at tax time to see your complete business cashflow. You may also want to consider a business credit card for expenses that you could earn reward points on. Then use the business checking account to make payments on that card, Zuk suggested.

One additional point of emphasis from Zuk is the need to protect your new business from fraud. Phishing attempts and scams targeting small businesses are rampant so working with your bank to protect your account will be paramount, she said.

Finally, she emphasizes that starting a business requires putting some basic financials in place and can feel overwhelming at times—but having the right resources, including a banking team that understands the needs of small business owners, can make it easier.

“Coming up with the business idea is the fun part,” said Zuk. “But you have to look at the execution and make sure it’s something you’re prepared to do, or you might want to wait a little bit until you have the right mindset and funds you’ll need to get started.”