Starting your own business

Some days ago, I Met Sebastian. Sebastian has a killer recipe for homemade arepas. They are so delicious that Sebastian sells every arepa he makes. Sebastian sells his arepas to family and friends. Sebastian makes a few dollars off the arepas he sells each week, and he is happy with his extra few bucks. Sebastian has the idea to make a real business out of selling his arepas, not only to friends and family but to offer them to local supermarkets and other retail outlets.

Through word of mouth, I met Sebastian about two months back. Sebastian gave me some of his arepas to taste and wanted me to distribute his arepas to my customers (I own a distribution company in the food and beverage business). I agree: His arepas are delicious, and I feel he has a real opportunity to succeed. So, I wanted to sit with Sebastian to discuss some business opportunities. The first question I asked Sebastian was about costs. Sebastian offered me the same price he was offering his friends and family, about the same price you would expect to pay at the supermarket. Obviously, Sebastian had not accounted for the additional middlemen’s margins and how they each impact the bottom line. I then asked Sebastian for his FDA registration and the Health Department Certificate. He had neither. Sebastian wanted to expand his success in selling the arepas to his friends and felt he could use the same technique to succeed as a business. Sebastian had a few things to learn.

Throughout my life, I have met several people with great ideas; some had tested that idea at a small scale, like friends and family, but did not know or understand the process of taking that idea or product and making it into a real business. I want to review some of the most essential steps and requirements to launch a business.

For the scope of this article, let’s assume you already have the product or service you want to build a business around. Let’s also assume that you have already worked out costs, selling prices, and profits you can make. So Let’s take a look at the legal steps you must take:

First, you need to decide on the legal structure of your business. You have a few options here: LLC, Corporation, Sole Proprietor, Partnership, and DBA, to list the most basic. Each has pros and cons, mainly concerning how taxes are paid and legal liability. The details of each legal structure for your business will be discussed in an upcoming article. For now, let’s identify what is essential when making this decision: 1) you want to limit your legal liability. Meaning if someone sues your business for any reason, you want to protect your personal assets, like your house, your savings, your retirement plan, etc. 2) second, it is essential you understand the taxes implications. There is a more appropriate and beneficial legal structure for your business, depending on the nature of your products or service. Almost always, you will be able to register your business online - depending upon what state you decide to base your business on. In the appendix, I include the web address to register your business in New York, New Jersey, and Connecticut.

The very next step is to tell the IRS (Internal Revenue Service) that you intend to run a business and request authority to do so. This step can be done online at www.IRS.GOV

The IRS will provide your business with a unique number that identifies it—the Employer Identification Number (EIN). The EIN is to your business what your Social Security Number is to you. This number will now identify your business for as long as your business is active. All other agencies and organizations will use the EIN to identify your business - the bank, the state, the IRS, the insurance carrier, etc. Furthermore, if you sell a taxable product or service, you must collect sales taxes and pass them along to the IRS every quarter—more about this in upcoming articles. For now, let’s understand you must obtain an EIN and possibly authority to collect sales tax from the IRS.

Next, you must open a separate business bank account for your new business. Some new business owners leave this vital step for last. They figure they won’t need a separate bank account until they’re ready to receive customer payments. This could not be further from reality. You want to have the business bank account as early as you can. In this way, you can make all subsequent expenses related to setting up your business right from your business’ bank account. That will make it far easier for your accountant down the road. Also, you will keep better tabs on what business expenses you incur even while setting up your business.

Next, you must consider what kind of insurance coverage you will require. Most immediately, you will want to buy business liability insurance. This is similar to the car insurance we all pay but for your business. This protects your business against accidents, lawsuits, and other mis hops. Depending on your specific product or service, your insurance requirements will vary. A medical doctor will need different insurance than a veterinarian, and a restaurant will be different than a boutique. At this point, your best bet is to contact various insurance carriers and have them quote you a policy. Depending on your product, service, or business structure, you might require additional insurance coverage. For instance, if you hire employees, you will need Worker’s compensation Insurance. If your business has commercial vehicles, you will require commercial auto insurance coverage. At this point, and to be safe, you should consult with an insurance agent or a trusted, knowledgeable source to direct you on what insurance coverages you will need to have.

After these basic steps, the good news is that you are in business! You now also must attend to the details of your product or service, costs, selling prices, margins, budgets, marketing, and all the other fun stuff. 

Let’s not forget that you might still need to cover some additional check marks depending on your product or service. For instance, if you open a restaurant, you must apply and obtain a “Food Service Manager” license and certificate from your county Health Agency. If, like Sebastian, you want to manufacture and sell food products, you must register and comply with the FDA (Food and Drug Administration); if those products contain meat, you must also get a permit from the USDA (United States Department of Agriculture). If your product involves liquor, you much apply for and secure a liquor license from the Alcohol and Tabacco Tax and Trade Bureau (TTB). In short, you must comply with the agency or agencies that control the trade of your product or service. The good news is that, for the most part, information is readily available. You just need to know where to look. 

I understand that it might initially seem a bit overwhelming and complicated. It is not. Yes, if you’re unfamiliar with the process, it might sound quite involved. The key is to find and contact the right person or persons who can assist you and guide you through the process. In many cases, agencies are dedicated to helping small businesses, and they will hold your hand through all these processes and beyond. For instance, Stony Brook University and Farmingdale University have “Business incubators,” - which is an offices where new and small businesses can get assistance and guidance - almost always free.

If you are starting or recently started a new business and would like to get more information, do not hesitate to reach out and contact someone who can shed light on your questions or point you in the right direction. I will be happy to help wherever I can.