Starting a business isn’t easy, but here and there, there are steps that you can occasionally skip. This might be possible in situations wherein the business is exceptionally small, such as in a craftmaking business selling items at flea markets and such, or when the business could more easily be described as a hobby. These three steps, however, have to be followed, or there could be serious legal ramifications regardless of what you’re in the business of.
First up, understand your competition. Nothing spells doom for a new business like an owner failing to take into account the fact that other businesses in their area might have been doing the job longer and have a well-established and loyal customer base. Many times, pulling loyal customers away from an established business is next to impossible, and often requires a stunning level of advertising and community outreach. For smaller enterprises, it simply isn’t worthwhile in many instances to try to upset the status quo. Take a cruise through your local phone book, and find all the businesses doing anything even remotely similar to what you’re planning to do. If you can’t offer a better experience, better prices, or better service, then your business will flop practically before you make it to opening day.
Secondly, get right with the IRS. The tax code very narrowly defines what is and what isn’t a business, so if it even has the slightest tinge of business to it, it’s a good idea to figure out where you stand with your taxes. According to the IRS, a business is any occupation in which you regularly produce goods or undertake services with the expectation of making a profit. Its the “making a profit” part that they’re most interested in. Let’s say you’re a hobbyist who makes homemade candles. If you give a few to some friends, and two or three of your friends pay you for your time and supplies, then (within certain limitations,) they don’t care if you register as a business. This just gets listed on your typical income tax return as hobby income.
If, however, you go to farmers’ markets to sell your candles, then regardless of how much you sell, be it one candle or a thousand, you have to register as a business and pay business taxes in addition to your standard income tax.
Finally, it’s critical to cover yourself when it comes to the regulations in your local area. You may be required to carry business insurance, or there may be local ordinances covering the placement of signs or other promotional material. Further, there may be local taxes to account for, environmental concerns, and safety issues that need to be addressed. All these are covered to large extent by government regulations, so take the time to verse yourself in how your locality will respond to your business in a regulatory sense. This way, you’ll save loads of money, time, and trouble, and in the end, your business will be far more likely to be successful for the long-term.
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