Not sure what the steps you need to follow to become a successful sole proprietor are? We’ve got your back. In this post, we’ll talk about everything you need to know before you establish a sole proprietorship.
The good news is that sole proprietorship is one of the easiest business entity types to establish. However, you need to get relevant licenses and permits to operate your business legally. As a sole proprietor, you are also personally liable for your company’s taxes, debts, and other lawsuits.
Essential Steps to Become a Successful Sole Proprietor: A Quick Guide
Did you know that over 70% of businesses in the US today are run by sole proprietors? It’s also the most common business structure. If you want to become a sole proprietor, here are the steps you should start with:
1. Ensure You Understand the Requirements of a Sole Proprietorship
To become a successful sole proprietor, you need to understand the pros and cons of the business arrangement well.
Simplified taxation, full control over revenue, and complete decision-making authority are some of the common advantages of establishing a sole proprietorship.
On the other hand, your personal assets may be at risk in a sole proprietorship. In addition to this, you also need to pay self-employment taxes as a sole proprietor.
2. Choose a Business Name
The next step to becoming a sole proprietor is to choose a suitable business name. Make sure that the name you choose isn’t already used up by another business. Typically, you should pick a name that is unique, easy to remember, and brandable.
You can check the website of the United States Patent and Trademark Office (USPTO) to find out if the name you have chosen has already been trademarked. If not, you should consider filing for a trademark for the name you finalize.
It is also recommended that you look for a suitable domain name for the business name you’ve chosen. Later on, it can be useful for your marketing activities.
3. Get Your DBA Registered
As a sole proprietor, your personal name is going to be the legal business name. Alternatively, you can also choose to run your sole proprietorship under a different business name. For this, you will have to register a fictitious name. This name is also called “doing business as” or DBA.
In some cases, you will also need to separate your personal and business funds. When you’re opening a bank account for your business, a DBA is often required. Depending on the state that your business is registered in, you also may need follow-ups after that.
Additionally, you may also be required to publicly publish the name of your DBA. Along with it, you will also need to provide proof of publication directly to the local government.
These processes and paperwork can be confusing. If you want to expedite the application process to form your sole proprietorship, you can get in touch with GovDocFiling. They will help you get it done in a hassle-free manner without any additional expenses.
4. Register For a Business License
As a sole proprietor, you will also need to register for business licenses. The kind of licenses required may vary depending upon the city or state you’re in. The fine for conducting business without a valid license can be high, so do not skip this step.
Keep in mind that you may need a business license when you are trying to open a bank account for your business.
5. Get Your Employer Identification Number (EIN)
As a sole proprietor, you may not need an EIN as you operate on your own. You can run your business and file taxes under your social security number, However, if you do hire an employee, you should file for a federal employer identification number (EIN). It’s free, so you don’t have to worry about any additional expenses.
6. Open a Business Bank Account
As a sole proprietor, you should open a separate business bank account that includes only business-related transactions. If you get audited, having a separate business bank account makes it easy to re-check your business expenses and income.
It also helps you build a good credit history which is extremely important and can help you secure loans.
7. Buy a Suitable Insurance Plan
As a sole proprietor, you always face some kind of liability. In case of debt, you may have to pay it off from your personal savings. To reduce the risk and liability involved, you should ensure that you have adequate insurance.
For this, you should consider getting health coverage, auto insurance, property coverage, liability coverage, and disability coverage. Buying all of these can be expensive. However, they ensure that all your personal assets stay protected from any potential lawsuits and setbacks.
As a sole proprietor, you’re going to have it easy when it comes to business formation formalities. However, you should know all the steps involved in the process. The risk of forming a sole proprietorship can seem high. But if you do it right, the rewards can be equally great.
The best part is that you can set up a sole proprietorship without having to hire others or even lease a building. You can get started whenever you want. Are you ready to begin your journey as a sole proprietor?
Do you have any questions about forming a sole proprietorship? Please feel free to mention them in the comments section.
Brett Shapiro is a co-owner of GovDocFiling. He had an entrepreneurial spirit since he was young. He started GovDocFiling, a simple resource center that takes care of the mundane, yet critical, formation documentation for any new business entity.
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