Turning a beloved hobby into a successful small business is a dream for many. Whether it’s baking, crafting, or consulting, starting a new company involves thoughtful planning, especially if you’re a first-time business owner. In this guide, we’ll walk you through the essentials, from paperwork to marketing, to help you turn your passion into a thriving business!
When you’re ready to create a new LLC, the first thing you need to do is make it legally official. A Limited Liability Company (LLC) can protect your personal assets and give your business the flexibility to grow. While some people providing a service can work under their own identity and social security number, it’s almost always better to create a new entity to do business under. Filing for an LLC also makes your business official, giving it credibility in the eyes of potential clients and partners.
Choosing the right LLC structure depends on your business’s size, goals, and specific needs. Consulting with a legal professional to determine which LLC structure best fits your circumstances is always a great option if you can’t decide yourself.
Once you decide on the type of LLC to file to start a new company, the next step is to handle the industry or state-specific paperwork necessary to make it official. Each business type may have unique requirements, so take a moment to make sure you file everything necessary.
Some industries require additional licenses or certifications to start a new LLC. Understanding your industry’s unique requirements can save time and prevent legal complications down the road.
For example:
Business and LLC requirements vary by state. Research your state’s filing process and fees to ensure compliance. Many states have online portals to simplify the registration process. We won’t get into the subject of taxes, but you’ll also need to keep in mind that you’ll have to file either annually or quarterly with your state, as well as at least once per year federally to stay in good standing.
When you create a new LLC, you don’t necessarily need to confirm that your business name is available nationwide. Before filing, confirm your desired business name is available in your state. While a unique name can help with branding and prevent future trademark disputes, you should be secure if you find something that’s unique to your industry. Many states offer online tools to search for business name availability.
An Employer Identification Number (EIN) is necessary if you plan to hire employees, open a business bank account (which we’ll get into later), or offer your services to another business. And good news: this is a free and straightforward process through the IRS website. Even if not required, an EIN can simplify tax filings and establish your business’s credibility.
Protecting your intellectual property is helpful if your business involves super unique products, recognizable branding (like Nike with their swoosh), or creative works. Trademarks safeguard your business name and logo, while copyrights protect original content such as artwork or written materials. Registering these assets ensures you have exclusive right to their use and can safeguard you from others stealing your work.
Financial planning is the backbone of any successful business, giving a company a solid base to grow and thrive on. Understanding your costs and potential earnings is key to success in the long run. Knowing these numbers lets businesses make smart decisions about investing, operations, and strategy. A grasp of financial planning can help businesses avoid pitfalls. These include cash flow crises and inadequate funding. With this, you can focus on their long-term goals.
Calculate the total costs involved in producing your goods, breaking them down into three key categories: raw materials, labor, and shipping. This will give you a clear picture of your cost of goods sold (COGS). This data is what makes it possible to set your prices and determine your profit margins. For instance, a baker might calculate the cost of flour, sugar, and labor that goes into producing a single loaf of bread, while a pottery artist might consider the cost of their clay, glaze, and packing supplies.
By knowing your COGS, you can adjust your pricing strategy to ensure you’re making a profit. For example, if your COGS is $10 per unit, you might set a selling price of $15 to achieve a 50% profit margin. If COGS is calculated incorrectly, it can lead to underpricing which may cause lower profits or losses.
As a product-based, first-time business owner, you typically need a substantial amount of upfront capital to get started. For instance, an online secondhand clothing seller may need a large initial inventory, which could cost anywhere from $2,500 to $50,000. Additionally, they need to budget for packaging materials, such as boxes, bags, and labels. On top of that, they may need specialized equipment, like sewing machines or cutting tools, which could add an extra few hundred to few thousand dollars.
It’s absolutely essential to plan and budget for these costs; if not, they can cause financial trouble during the launch phase, a make-or-break time for new businesses. By doing so, a product-based, first-time business owner can ensure they have enough funds to cover these essential expenses and set themselves up for long-term success.
Before you take on your first client, you need to set realistic financial goals. Start by calculating your basic living expenses, like rent, utilities, and groceries. Don’t forget to factor in taxes, as they can take a big bite out of your earnings (a good rule of thumb is to save 30% of all earnings for taxes). Then, think about how much profit you want to make – this could be a certain amount each month or a percentage of your revenue.
Once you have a clear picture of your minimum revenue requirements, you’ll be able to make informed decisions about setting your rates and the kind of clients to attract. For example, if you’re a freelance writer, you might need to charge a certain rate per word or deliverable to meet your revenue goals. Similarly, as a first-time business owner, you’ll need to consider a strategy for regularly updating your rates (i.e., every year, every three years). By understanding your minimum revenue needs, you’ll have the foundation you need to plan for growth and profitability moving forward.
Service-based businesses typically have lower startup costs compared to product-based ventures, but they can still require a significant investment in tools, software, and certifications to start properly. For example, for a management consultant to create a new LLC, they may need to spend thousands of dollars on professional training and certifications, like an MBA, to develop the necessary expertise and build credibility with clients. Similarly, a freelance photographer will likely need to invest in high-quality cameras, lenses, and other equipment, as well as editing software like Adobe Lightroom, to deliver professional-grade photos that meet clients’ expectations.
If there’s one thing you take away from how to start a new LLC right financially, let it be this: separating your personal and business finances should be a top priority. Consider opening a dedicated business bank account (and savings, if you’d like) and use accounting software to track everything – both expenses and earnings alike. This separation simplifies tax preparation and makes it easier to assess your business’s financial health.
Your name is the foundation of your brand and your customers’ first impression with your business. While there’s a complex strategy that can go into naming your business, to get started as you start a new LLC, you can choose something memorable and relevant to your niche. A great name can set the tone for your branding and attract the right audience.
Professional, clear branding that makes it clear who you are and what your business does and stands for, makes all other marketing processes easier. A well-designed logo, cohesive color palette, and consistent messaging create a strong visual identity that resonates with and quickly builds trust with your audience. While this can be tricky to do on your own, you can hire a graphic designer or branding professional or leverage online tools to develop your brand.
It’s almost unheard of to operate a business without a website these days. A website can serve as your online hub, catalog, and FAQ all in one, making it easy to both market and inform your customer base. As you build your site, make sure to include essential information like your services, contact details, and a clear call to action. For product-based businesses, consider adding an e-commerce platform to sell directly to customers.
Social media platforms are powerful tools for connecting with your audience. Not only can you organically connect with your customers and community but you can also advertise to a potentially wider audience, too. Choose platforms that align with your target market and share engaging content regularly and use visuals, stories, and live sessions to create a community around your brand.
It’s never been easier to start a new company and monetize a hobby you love – and your local PostNet center has your back every step of the way! From designing your logo to printing your marketing materials and managing your business mail, we help empower prospective business owners to make their dream a reality. Stop by your local center today and talk to us about your idea!
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