By Satta Sarmah Hightower | Illustrations By Cornelia Li
With a goal to build something uniquely their own, more people are turning to entrepreneurship. Americans filed 5.5 million new business applications in 2023, setting a new record, according to the U.S. Census Bureau.
For those who hope to do the same, here are four steps aspiring entrepreneurs can take before their grand opening, including finding insurance that fits their needs.
Buying insurance is one way to help safeguard your business, according to Arguello, who encourages owners to fully engage in the process.
“Understanding what you're getting and the coverages you selected can help you make sound decisions,” he emphasizes.
Insurance should be tailored to each
business’ needs, Arguello explains. But at a baseline, business owners should consider a business owners policy. This policy covers business property and equipment in the event of a covered loss and provides coverage for legal expenses up to a certain amount for covered claims.
Arguello says business owners can build on this coverage to help further protect themselves. Some common policy endorsements include protections to help small business owners recover from events involving compromised data, spoiled food and products that are damaged while they are being transported. A short-term disability policy, meanwhile, offers income protection to help cover monthly expenses if you're unable to work because of a total disability due to illness or injury.
Work with your insurance agent to understand what additional options may be right for
your business.
Insurance Coverage Helps Manage Risk
Help
Protect What You’ve Built
“If you want to go fast, go alone. If you want to go far, go together.”
This age-old saying is especially true for first-time business owners. You’ll need all the resources, support and hard-earned wisdom you can get, which is why building a network is so crucial for building your business.
Fernando Arguello, a State Farm Insurance agent in Brentwood, Tennessee who offers small business insurance, encourages business owners to attend networking events and get involved in their local chamber of commerce to build meaningful connections.
“Join all these different types of groups so you can develop relationships with other people who are in the same boat as you are,” he said. “These entities can provide learning opportunities for things that you may not know.”
Business Groups Support New Entrepreneurs
Network To Learn And Meet Peers
To keep your business expenses and personal income separate, open a business bank account.
Ninety-seven percent of business owners have one, according to the National Federation of Independent Business. With a business account, you can keep better track of both inbound and outbound payments as well as where your business nets out after everything is reconciled.
Many financial institutions offer online budgeting and forecasting tools that streamline financial management. You can use these tools to help you track cash flow, prepare for seasonal changes in demand, manage business taxes and ensure you have all the funding needed to operate and meet your monthly obligations. When considering the needs of your business, you’ll want to consult financial and tax experts.
Business Accounts Create Order & Clarity
Protect Your Personal Income
Once you’ve decided on a structure, you’ll need to name your business, register it with the state and obtain an employee identification number (EIN) from the IRS if your business is an LLC or corporation.
You may need to apply for a business license and permits, but this can vary based on the industry and state and local law. Pennsylvania, for example, does not require a license for pet groomers, but in New York City professional groomers must get a permit. Make sure to consult your legal advisor when assessing your business needs.
Corporation
Limited Liability Company
Partnership
Sole Proprietorship
Like an LLC, a corporation provides liability protection. However, it is more complicated and costly to set up and maintain because you’ll have to file annual reports, pay business taxes, and continuously manage other regulatory requirements.
Unlike a sole proprietorship, an
LLC creates a separate legal
entity that eliminates a business owner’s personal liability for business debts or lawsuits. An LLC also offers tax advantages.
If your company involves at least one other cofounder or co-owner, a partnership structure may be the best option to clearly outline how you’ll divide ownership, responsibilities and profit and losses.
This business structure is fairly straightforward to set up but comes with greater liability risks because there’s no legal separation between the business owner and the business itself.
Taking a business from a kernel of an idea to a real entity with paying customers requires several legal and regulatory steps.
Whether you plan to launch a pet grooming business or an online thrift store, you’ll need to decide on a business structure. Some of the most common include:
Registration & Licensing Provide Legitimacy
Make It Official
