Passionate about starting a venture?
Well, for the starters, sole proprietorships are always the best choice.
But as a ‘would be’ entrepreneur, you must know about sole proprietorships – like getting started and how to register a sole proprietorship business.
Are you thinking about how to start a sole proprietorship? Then, you have arrived at the right place!
This write-up is all about starting a sole proprietorship business.
Keep scrolling to know more about this business structure!
Becoming a sole proprietor is easy.
A sole proprietorship is the simplest business structure owned by a single individual.
In this form of business, an individual starts a venture under their name (or a fictitious name). One of the sole proprietorship features is that the venture is not separate from its owner.
Also, the entire ownership and control of the venture lie in the hands of the single proprietor.
So, if you want to open a sole proprietorship, all you need to do is start selling a product or a service. You will become a sole proprietor by default.
Before we address how to start a sole proprietorship, you must know the pros and cons of a sole proprietorship business.
So, here are the main advantages and disadvantages of a sole proprietorship.
However, most sole proprietors take professional help for taxes, accounting, legal compliances, etc. However, most sole proprietors hire professionals for taxes, accounting, legal compliances, etc.
Are you caught up in how to start a sole proprietorship or how to register a sole proprietorship?
This section details the steps of starting a new business as a sole proprietorship.
So, let’s explore the steps to set up a sole proprietorship!
What is required to start a sole proprietorship? Of course, a name!
To get started, you need to develop a name for your business. Brainstorm and create a list of unique names that reflect your business status.
There are certain aspects to naming a sole proprietorship, like using your name or fictitious. Let’s jump to the next step to know more about these aspects.
When you have the list of names, the next thing you must do is register the business as a sole proprietorship.
Now, if you choose to run the business under your name like several freelancers do, registering the business name isn’t necessary. However, if you want to use a fictitious name or DBA (Doing Business As) for your business, you should get it registered.
For example, if Millie Jones runs a furniture business under her name, she can skip the sole proprietorship name registration. However, if she uses a fictitious name like Vintage Barn, she must register the name or DBA with the local authorities.
Note that the business name must be unique. Also, you might trademark your name for legal protection. Trademarking your name is significant when the business becomes a brand.
Most businesses, nowadays, have a website from the very beginning. So, once you have settled on a name and completed the business registration of the sole proprietorship, purchase your domain.
The domain name is what identifies your website. Considering the above example, the domain for Millie Jones’ website would look something like www.vintagebarn.com.
It is best to choose the domain name same as your business name. But if it’s unavailable, choose a variation of your business name that’s similar. Also, you might not build your website right away. But buying a domain name at the initial stage is always preferable to ensure no other business buys it.
Once you decide to form a sole proprietorship, go by the book to prevent any hassles. Significantly, you obtain all the necessary permits for your business and your business licenses. Without licenses and permits, you might attract huge penalties.
The licenses and permits for your business will depend on the nature of the business and the area of operation. For instance, a health department permit would be necessary if you open a restaurant.
In most sole proprietorships, the owner’s Social Security number is the tax ID number. However, if you decide to hire employees or set up retirement plans, you need an employer identification number or EIN.
When filing taxes, you will need to provide this EIN to the Internal Revenue Service or IRS. You can get your EIN for free. It is a simple and easy process that you can carry out through the Small Business Administration’s website.
As we have already mentioned in sole proprietorships, the business and its owner are not separate. Hence, the business income is directly passed as the owner’s income.
However, it is often recommended that you open a business account with the bank to keep your personal and business expenses separate. Further, if you have a separate bank account for your business, you can accept credit card payments and issue checks. It will also help you build a credit history for your business. This means getting loans will become comparatively easy.
Besides, a separate business account allows you to present your business profits and losses clearly to the IRS. Also, through the different accounts, you can detail the specific expenses like business travel, banking fees, office space, utilities, etc. You can write off these expenses on your taxes as well.
Adequate insurance coverage is a must for sole proprietorships, especially because sole proprietors have unlimited liability. Proper insurance coverage can limit business risks and provide you protection against certain situations.
While insurance coverages depend on the nature of the business, here are a few must-have insurances.
Apart from these insurance policies, don’t forget the workers’ compensation insurance when you start hiring. This insurance coverage will help you pay the medical bills, missed wages, and ongoing care if an employee gets hurt or suffers from a work-related illness.
Since we have discussed in detail the steps involved in starting a sole proprietorship business, it's time to consider the costs associated. How much do one need to start a sole proprietorship business startup? Well, the answer is, it depends!
Based on the type of industry you choose and the location, costs vary. Some common factors that can add to the cost of starting sole proprietorship business are:
From the simplest business cards to branding your business, there are so many itineraries that determine the cost of a startup, which depends a lot on the niche and place of business.
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Depends on the industry you choose and the location.
Yes, you can.
Anyone above 18 years old can start a sole proprietorship. Even though children below 18 years can run a sole proprietorship, they will not be legally responsible until they turn 18.
Yes, one can easily start a sole proprietorship if they follow the steps systematically.