Starting a new business can be a very exciting time in someone's life. However, if you don't understand the process to actually make your business legitimate you may be very disappointed by the length of time it takes to get rolling.
The first step is obviously to come up with an idea, think it through and develop the details. A business Plan is a great way to accomplish this. The next step most people jump into is developing the product or service. They spend all their time and money on getting the product to market and then when they finally do they are left with a huge problem. They have no way to collect money. This is because they skipped the step of registering their business and getting a bank account. Unfortunately this step can be the longest and most painful.
To collect money you need a bank account and possible a credit card processor. The credit card part is easy if you have a bank account so that is where this article focuses. After the Patriot Act went into affect getting a business bank account became more difficult. They require a lot of proof that your business is legitimate and registered. The problem is that it can take weeks to get a business registered and receive your EIN number (used for taxes and employees).
You have several choices when forming a new business such as sole proprietorship, partnership, LLC, or Corporation. The first two require registering with your county and placing ads in newspapers alerting the public of your new venture. This method is not very costly and is usually under $100. However, it can take over a month for all the ads to run and so you are stuck without a bank account for a long time. It should also be noted that the owners can be help personally liable for business debts.
LLCs and Corporations have limited liability on the other hand. They are more expensive depending on what state you register in but can be filled faster than the other options. The main difference between an LLC and a Corporation is the treatment of taxes. An LLC's profits flow through to its owners like a partnership whereas Corporations get taxed at the corporate level and then again as individual income when money is taken out.
Whichever form you choose it is a good idea to get this taken care of before product development. This way when you product is ready so are you.
