Concepts Entrepreneurs Should Know Before Starting a Business in the US

With the third largest population and a robust economy, the United States is considered the best country for entrepreneurship. American businesses generate a $25.5 trillion GDP, and the 50-state republic is home to some of the world’s most prestigious universities. U.S. residents enjoy tremendous buying power even in the face of the pandemic and inflation.

While owning and operating a business can be lucrative, opening one requires due diligence. The state and federal bureaucracies sometimes make opening an enterprise unnecessarily difficult. For instance, the corporate structure an entrepreneur files with a given state has tax and civil liability ramifications. Bringing a product or service to market also tasks start-up owners with thoughtful planning. If you are considering tapping into the U.S. economy with a new business, these are concepts you need to know.

1: Legal Structure and Business Entities

Choosing the right legal structure for a business entity has a profound effect on taxation and personal liability. Although you will need to secure an Employer Identification Number (EIN) from the Internal Revenue Service (IRS), business filings are typically handled at the state level. That means you must select the state best suited for your product or service. Business entities have subtle regulatory differences, but these are the basic structures.

• Sole Proprietorship: A sole proprietorship can often be run without filing for an EIN. This type of business entity involves one person offering products and services without employees. A sole proprietor does not protect the individual against civil lawsuits, and the person is responsible for debts. The revenue generally appears on the person’s individual IRS filing and the entity requires minimal official document filings.
• Partnerships: This type of business may be owned by more than one person and does not necessarily need to be incorporated. Most partnerships divide the profits evenly or by an agreed-upon formula. The revenue usually appears on individual tax returns. Although a relatively straightforward way to generate revenue, the parties involved may be held liable for debts or incidents connected to the operations.
• Limited Liability Company: An LLC delivers significant tax reduction and civil liability benefits. Considered a hybrid entity, owners can also flow revenue through to their personal tax returns. Forming an LLC allows members to keep more of their revenue by avoiding paying corporate and personal taxes. The other upside involves civil liability. Owners cannot usually be held liable for business debts or be sued civilly for company-related issues. Entrepreneurs also favor LLCs because they require only minimal paperwork and filings.
• Corporations: Forming a corporation is generally a good choice if you anticipate bringing multiple investors or shareholders aboard. Corporations insulate stakeholders from liability and debts. Corporations are typically taxed before dividends are distributed to shareholders. They also require substantial legal filing and tend to get embroiled in bureaucratic red tape.

The importance of choosing the right entity for tax and liability purposes cannot be understated. Legal recognition of an LLC, for instance, provides significant benefits without being overburdened by government requirements.

2: Business Plan Development

Writing a business plan may seem like an unnecessary step for business visionaries who know how they want to proceed. But putting these ideas down on a document seems to take on a life of its own. Entrepreneurs find themselves refining their thinking in certain areas and galvanizing other aspects of the rollout. These are basic steps for creating a formal business plan.

• Executive Summary: Also known as the “elevator pitch,” an executive summary highlights the organization’s broad strokes. It will likely serve as an introduction to the start-up and make a first impression on potential investors.
• Organizational Structure: Along with stating your reasoning for selecting a sole proprietorship, LLC, or another legal entity, the organizational structure summarizes how the operation runs and who is in charge.
• Market Analysis: It’s crucial to conduct impartial market research regarding your product or service. This will include a detailed assessment of consumer demographics and competition. Not every better mousetrap or less expensive service succeeds in a given area. Part of your market analysis involved identifying the right location.
• Financial Analysis: Potential partners and investors are interested in return on investment. Some look for quick turnarounds, while others seek stable, long-term investments. The business plan explains the anticipated growth and profitability based on reliable metrics.

Banks, credit unions, venture capitalists, and others review business plans to decide whether the benefits of your venture outweigh the risks. Without this formal document, reputable lenders and investors usually decline to finance the start-up.

3: Market Research and Analysis

Taking a deep dive into consumer behavior metrics allows entrepreneurs to confirm or rethink the marketability of a given product or service. Understanding the local demographics, buying preferences, and trends helps professionals make informed decisions. These are questions to ask when conducting market research and analysis.

• Does a need exist for the product or service?
• Is there a demand for the product or service?
• Will the population support the new business?
• Do residents or tourists possess the discretionary income to pay for it?
• What are the anticipated operating expenses in potential locations?

Business professionals use tools such as surveys, economic data, Census information, and focus groups to determine viability. You may need to run the numbers on several locations before finding the ideal site.

4: Funding and Financial Planning

Launching an organization in the digital age gives prospective entrepreneurs wide-reaching funding opportunities. People are no longer at the mercy of corporate banks that often set the bar too high for business loans. Along with using your own money and bootstrapping it, thought leaders can reach out to angel investors, venture capitalists, and even engage in crowdfunding. The key is to craft a persuasive executive summary supported by hard data.

Once you have the resources needed to get the operation up and running, astute financial planning plays into the long-term economic success of a company. By using cash flow statements that highlight trends and balance sheets, you’ll be able to follow the financial trajectory of the LLC.

5: Legal and Regulatory Compliance

Adhering to legal and regulatory compliance mandates has become more complex than ever before. Small and mid-sized businesses were once tasked with only meeting commonsense local ordinances as well as health and environmental regulations. Today, organizations must follow stringent data privacy regulations promulgated by state, federal, and international bodies.

You may be astonished to discover that collecting consumer information from people in other states or Europe adds a layer of cybersecurity compliance. Before you schedule a ribbon cutting, make a list of necessary licenses, permits, trademarks, zoning laws, and digital protection regulations that apply to your operation.

6: Taxation and Accounting

Although the U.S. remains an attractive country to open a business, it does level significant corporate taxes. You won’t find the U.S. on the list of 15 countries that do not tax industries. On the other hand, it doesn’t have a place on the countries with the highest tax burdens. The IRS taxes businesses at a rate of 21 percent, which is slightly lower than the international average.

Upwards of 44 states also tax corporations, which is why so many small businesses file LLCs in states that minimize their tax liability. In addition to planning for the IRS, employers typically need to handle payroll and sales taxes, among others. During your market research and financial planning sessions, consider your potential tax liability and how it will be managed.

7: Building a Strong Brand

The importance of developing a positive and memorable brand remains mission-critical. Iconic images, colors, and taglines all help create a visceral reaction. Consumers who simply like the way your logo, website, and marketing materials look are more likely to give products and services a chance. Needless to say, smart branding that creates a visual identity can make a significant difference. These are branding tips worth considering.

• Use free or low-cost design tools to craft an eye-catching logo.
• Manipulate potential logos to ensure they work in different landscapes.
• Work with a small, impartial focus group to get logo and tagline feedback.
• Create a user-friendly and attractive website for order fulfillment.

Building a brand narrative is also essential to the success of your business. Consider enlisting the support of a professional writer to create a persuasive narrative to sync with your logo, tagline, and marketing materials. When these branding elements work in concert, the public perception of your brand takes on a life of its own.

8: Networking and Support Systems

In a competitive global marketplace, organizations prosper when they work together. Taking advantage of networking opportunities and developing mutually beneficial support systems helps shepherd newly-minted LLCs through the early years. For example, microbreweries without kitchens sometimes partner with local food trucks to supply menu items for their tasting rooms. These business relationships can be further explored by each entity promoting the other through hard-copy marketing materials and social media posts. These are other ways to build professional relationships.

• Attend local networking gatherings.
• Sponsor meaningful non-profit events.
• Volunteer for community-oriented causes.

Entrepreneurs can also reach out and benefit from mentorship programs and business incubators, as well as professional associations. Remember to deploy your branding materials tactfully and get the word out that you deliver quality products and services at a lower price than competitors.

According to the U.S. Small Business Administration, 99 percent of all companies possess a modest number of employees. Start-ups and other small operations create more than 62 percent of American jobs. The average small business owner makes a six-figure salary in the U.S., highlighting why so many entrepreneurs prefer to open shop in one of the 50 states.