A sole proprietorship is the most common type of business. It is a business you start yourself. However, this does not mean that you can simply start doing work on your own and call it a business. A true sole proprietorship requires some planning and several steps to set up correctly and legally.
Step One: Make a business plan. This does not have to be formal, but you should have a very good idea of what business you plan to do, how you plan to do it, and how much it’s all going to cost, and all of it needs to be put down onto paper. This should include a complete list of products and services, whether or not you will need to hire employees, and what equipment you need to start.
Step Two: Do your research. Know what licenses you need to obtain and what laws apply to you and your industry. You should also understand the requirements you are obliged to meet as a taxpayer, and learn how to file self-employment tax throughout the year. An accountant can help you with this as well.
Step Three: To be a legal business you have to file for a business license. Even if you are planning on a home business, if you want to form a sole proprietorship you will need a business license. You will also need to check on local, state and federal tax requirements for your business, including sales tax. You do not have to obtain a federal employment identification number unless you plan on hiring employees.
Step Four: File a fictitious name statement. This is required to do business legally under a name other than your own. For example, if your name is John Doe and you provide lawn care services, you can operate as Doe Lawn Care Services without filing a fictitious name statement. However, if you want to operate as Sunny Day Lawn Care Services, you’ll need to file the statement.
Step Five: Purchase all necessary equipment for your business. You should also have a website, email address, and toll free number, based on the type of business you do. Consider hiring an accountant to assist in taxes, and a lawyer for legal matters.