How to start a business in Pennsylvania in 8 steps
For some, the thought of starting a business can be overwhelming, while others see it as an opportunity to build something lasting. Those who take the plunge into business ownership will face a rollercoaster ride full of highs and lows during their first couple of years. The most important thing to remember is that early on, it’s all about learning how to run a business.
There will be challenges along the way that you would never have to face if you were working for someone else. To set yourself up for success, you will want to ensure your business has a solid foundation. Here are 8 steps that will help you create and maintain success early on.
1) Think about the type of business you want to start
Deciding to start your business is an important step, but not as important as deciding what type of business you want to run. For a significant portion of new business owners, this is the step that they often get wrong. Instead of considering what type of company they want to start up, they just pick an industry and dive in.
While it is easy to get caught up in the excitement of starting a company, proper planning is essential if you want it to be successful. For instance, choosing a business you are passionate about will make it easier for you to stay committed. Some business owners start companies with only profit in mind, making it hard for them to remain excited about their work.
Doing research is also another important step when deciding what type of business you want to create. Here are just a few items you will want to look into before settling on a business idea:
- Startup costs
- Time commitment
- Growth opportunities
Conducting this research will also help you determine if starting a business makes sense for you at the moment. Businesses require a large time commitment from the owner, especially early on. If you are still on the fence about it, asking yourself these important questions may help bring you clarity.
If you are still interested in diving into the world of entrepreneurship, then the next seven steps will help you lay the foundation for success.
2) Set up your legal structure
Almost as important as deciding on the type of business you want to start is determining how it will be legally structured. There are several business structures to choose from, and each has its benefits and nuances. Depending on which you choose, your business taxes and liability protections could vary.
Here are a few of the most common ways to structure your business entity.
Often the easiest way for a company without employees to structure itself is through a sole proprietorship. Business owners who are sole proprietors generally enjoy benefits such as fewer requirements for business taxes and less paperwork during the initial setup. However, there are a few things to keep in mind.
As a sole proprietor, your personal assets aren’t protected should your company ever be sued or fail to pay its debt. Also, if you want to use something other than your name as your business name, you will need to register your fictitious name with the State of Pennsylvania.
Limited Liability Company (LLC)
For many businesses, a limited liability company makes a lot of sense. Not only is the setup process quick and efficient, but there is an extra layer of protection for business owners as well. With an LLC, the business owner’s personal assets are protected if their company can’t pay its debts.
While you can have a board of directors if you like, it isn’t a requirement with a limited liability company. There isn’t the same pressure to follow a stringent set of reporting requirements as with large corporations.
Sometimes it makes sense to have a partner to help you with your business. If you decide to open the company with someone else, a general partnership could be a great way to go. Not only does it help split responsibilities, but it also gives equal rights to each of the partners. Unfortunately, similar to a sole proprietorship, each partner is personally liable for any debts the business incurs.
Limited partnerships are a great option for companies where one partner isn’t able to handle as much risk. This structure allows for a general partner who runs the business and a limited partner who isn’t allowed to make managerial decisions. The person that is a general partner will be held liable for the debts of the company.
There are many corporations available to Pennsylvania small business owners, including C corporations and S corporations. Both allow owners to protect their personal assets and provide for a greater amount of structure. Even though it usually takes the longest to set up, corporations can be a good option for your Pennsylvania business.
With an abundance of options available, deciding on how you will structure your small business is important. Depending on which option you choose, you may also need to pay a filing fee and complete one or several of the following:
- Articles of incorporation
- Certificate of organization
- DBA or doing business as (If you want to use a different name than your registered name)
- Docketing statement
3) Name and register your business
Creating the name for your business is one of the most exciting steps in the process. The name you choose is the first step in creating a brand identity for your company. While some people choose a name that has meaning behind it, others select a name that will work as their business grows. Regardless of what you choose, you will want to make sure you follow the guidelines for each type of business structure.
For example, if you have a sole proprietorship, you will have to use your company name unless you set up a DBA. Other structures have different naming requirements that you will want to research before filing. If you still have questions, you can always reach out to a resource like Pennsylvania Small Business Development Center for advice.
After you have decided on the name of your business, you will want to register it with the Pennsylvania Department of State. Here is what the process will look like:
- Research the name you want to use to verify its availability
- Apply for an Employer Identification Number (EIN) with the IRS
- File the appropriate Application for Registration of Fictitious Name with Pennsylvania's Corporation Bureau
- Reach out to at least two newspapers to announce the business name registration
4) Apply for licenses and permits
The process of applying for licenses and permits will look different for each business owner. The type of licenses and permits that the state of Pennsylvania requires will be based on the products or services you offer. For example, restaurants will need to obtain permits pertaining to health and safety.
Below are some of the licenses and permits that might be required for your organization:
- Building permit
- Health permit
- Occupational permit
- Zoning permit
- Alcohol & tobacco permit
- Liquor license
- Sales tax permit
To determine the specific type of business license or permit your company needs, reach out to the Pennsylvania State Agency.
5) Choose a location
For business owners who decide to have a brick-and-mortar store, picking the perfect location is important. Selecting a spot without very little foot traffic might be good for a business that is more Business to Business focused but could be detrimental for a coffee shop. Likewise, choosing a location with very little parking could limit the number of people who come to a restaurant.
Another thing to consider is the price of a location. You may have found the perfect spot in downtown Philadelphia, but the rent makes it impossible to turn a profit. While every owner wants the best location, paying too much for it could lead to budget issues later.
6) Open a bank account and prepare for future taxes
One of the biggest mistakes small business owners make is not separating their business and personal finances. Using the same banking account for both can make it difficult to track expenses and profit. Because of this, it is highly recommended to open a business bank account before your company is fully operational.
Different types of businesses will need additional funding to help keep operations running or purchase new equipment. Having a business credit card in addition to a business bank account can help build credit. This can also help if you ever need to take out business loans.
Taxes are another thing you will want to begin thinking about and preparing for. Unless you are a sole proprietor and using your Social Security Number for tax purposes, you will want to ensure that you have a federal employer identification number. Most businesses will be required to pay state taxes, income tax, federal tax, and payroll tax.
7) Purchase business insurance
Now that you have laid the foundation for your business plan and worked through the nuances of business registration and creating bylaws, it’s time to talk about how you protect your business.
Many business owners understand the importance of small business insurance, but most don’t realize how crucial it is to a company’s success. Without proper coverage, a business opens itself up to insurance claims and lawsuits that can be detrimental. Take workers’ compensation, for example. Without the coverage, an injured employee can sue a company for medical expenses and lost wages.
While a general liability insurance policy will help protect a company, Pennsylvania business owners should consider a comprehensive small business insurance bundle policy.
To help owners obtain the coverage they need, Huckleberry offers an affordable small business insurance plan that bundles essential coverages into one policy.
8) Create a marketing plan, hire employees, and more
The eighth and final step in the process is one that you never really complete. During the early stages of your business, you will want to create a marketing plan to help you identify who your customers are and how you will grow. For some small businesses, word of mouth and referrals is a great place to start. For others, creating an online presence makes the most sense.
Regardless of which way you decide to go, you will want to make sure that you track how well your marketing plan is performing and make adjustments as you learn.
Hiring employees may also be something to consider as your business grows. One thing to keep in mind for sole proprietors is that you may have to change the structure of your business if you bring in full-time or part-time employees.
As you grow your business, you will want to evaluate your current insurance coverage as well. At different points in your company’s life, adding another layer of coverage or changing policies altogether might make sense.
Whether you are adding or changing plans, Huckleberry offers a simple process and affordable rates to meet your small business insurance needs.