One of the upsides to working for someone else, especially if that someone else is part of an established company, is not having to worry about a lot of the logistics of business operation that often have nothing to do with your actual area of expertise. Unless your small business happens to specialize in financial, legal, or tax services, chances are dealing with those issues is about as enjoyable as a trip to the dentist…if the dentist wanted to talk about money while drilling in your mouth.
But alas, for those who enjoy all the excitement and flexibility of running their own business, making sure your legal standing is in order is a necessary part of the game. Luckily, once you understand what you need to do, it’s not as complicated or as time consuming as it might seem. We have a simple breakdown of what you need to make sure you’re covered:
1. Tax ID Number
You will need to obtain an Employer’s Identification Number through the IRS if you have, or plan to have, employees other than yourself. If, however, you are the sole proprietor and have no additional partners or employees, you can use your social security number instead.
2. Any relevant permits
What, if any, special permits you need depends a lot on what exactly your business does, and more specifically, what it will be doing in your home. For example, if you plan to make or sell food, you likely need a food permit, which can be obtained from your local health department. Certain occupational licenses might be necessary if you are doing something like running an in-home daycare center. Regardless of what kind of home business you’re running, you must check into whether or not you need a zoning permit; not all areas are zoned for home businesses.
If you work at home, it’s unlikely that your homeowners or renters insurance covers businesses based in you home. First, talk to your insurance rep. As much as you can keep all of your insurance with one company, the easier (and usually, cheaper.) If they are unable to cover your business, seek other resources. Again, this is one of those things that won’t take you a lot of time to check off your list, but it makes a profound impact on the security and legal validity of your small business.
Getting an outside party to handle your payroll is a no-brainer – but what about other tricky financial issues? Some of the more complicated legal aspects of running a small business – and the ones that don’t go away after the start up period – have to do with taxes. We could (and hey, probably will) write a whole separate article about the dos and don’ts of small business taxes, and yes, it’s entire possible to handle these things on your own. But our suggestion: outsource it. There are lots of accountants who handle payroll and taxes for small businesses and they are amazing at it. Honestly, these are the tasks that give the rest of us migraines and keep us up at night wondering if we’re handling them correctly or if we have a very tense meeting with the IRS coming up as a result of our misunderstanding. But for accountants, they could do it – and do it correctly – in their sleep. Plus, there are accountants who basically work on a freelance basis with small businesses – for a reasonable retainer fee, they handle your tax stuff, and do it all remotely, with minimal disruption to your workday. They’re like financial fairy godmothers. We highly recommend one.
Even if you read a hundred articles like this, and do everything prescribed, there really is nothing like sitting down with a lawyer, letting them look at your actual business, look you in the eyes, and assure you that you’re good to go. Unfortunately, a lot of small business owners don’t think this is an option for them.
Here’s the thought process that results in most small business owners not having a lawyer: We’re programmed to believe that all lawyers make buckets of money (this, by the way, is not always true, so be a good friend and pick up the tab every now and then when dining out with your lawyer pals), and since very few small businesses have buckets of money, we assume we can’t afford to hire a lawyer. We also assume that hiring a lawyer means hiring a lawyer full-time. So much of this is erroneous.
The truth is, consulting with a lawyer doesn’t have to be super expensive. There are legal professionals whose entire focus is helping small businesses navigate the legalities of running their companies. Most of the time, they charge a reasonable fee, which they are able to do because they have a lot of clients with whom they only spend a small amount of time. Because that’s the other truth – you likely don’t need a full-time lawyer. Very few businesses do. Look into small business legal consultants – you’ll be surprised how much less time and money it will cost you than you think, and the peace of mind of knowing that you’re legally squared away is more than worth it.