“This article has been contributed by Deborah Sweeney, CEO of MyCorporation.com which provides online legal filing services for entrepreneurs and businesses, startup bundles that include corporation and LLC formation, registered agent services, DBAs, and trademark and copyright filing services.”
The entrepreneurial journey is full of ups and downs with plenty of triumphs — and a handful of mistakes too. From poor research conducted on your target audience to not saving up enough money for a solid financial safety net, it’s important to get all of your ducks in a row before launching the business to ensure you’re off to the best possible start.
One area that tends to get overlooked in the startup process is deciding where to open your small business. Do you incorporate in your home state or seek out a different one instead for big benefits like tax breaks? If so, which of the 50 states in the United States should you look into settling in with your first business? (No pressure or anything!)
Keep calm and incorporate on — our handy primer will ensure that you open up shop in the best possible spot while avoiding making any rookie mistakes along the way.
- Incorporating in the wrong state
How do you know if the state you’re incorporating in is the right one? Most entrepreneurs will likely choose to legitimize a business in the same state they live in due to being familiar with the area, its customer base, and the local laws.
However there are several states that are considered to be “corporate darlings” for small businesses. Two of the most popular ones are Nevada and Delaware, which have a reputation for being tax havens thanks to not charging corporate income tax. Nevada also provides corporations with favorable tax treatment and Delaware enables the owners of corporations to limit the amount of information available about them.
Three more states on the rise include South Dakota, Texas, and Wyoming. Let’s take a look at what each has to offer.
- South Dakota — No corporate or personal income tax and only a few filing requirements.
- Texas — Consistently ranked as one of the best states to do business, there are no personal income tax requirements. Forming an LLC or corporation only requires a one-time formation fee.
- Wyoming — In Wyoming, entrepreneurs are only responsible for federal income taxes. No need to pay for corporate or personal income taxes, franchise taxes, or enforced capital gains taxes!
Of course, these are just a handful of options available to small business owners. Do a little extra research to determine the best state for your business and find out if you need to qualify for any requirements, such as obtaining business licenses or state-based trademarks, before getting started.
- A lack of preparation for new hires
One of the most common mistakes made when starting a business is hiring too quickly. In the beginning stages, it’s easy to let your excitement take over and hire in a hurry, or let your worry that you might not find the “perfect” team members set in and hire quickly out of necessity. Hiring the wrong employees is an expensive mistake, so focus on finding candidates that bring necessary skills to the table.
Beyond seeking talent, make sure you have registered for unemployment insurance and Employer Identification Numbers (EINs). Any business that plans to hire, or will hire, employees needs an EIN to uniquely identify employer tax accounts.
Additionally, having an EIN allows entrepreneurs to open up a bank account for your business (this is highly recommended in order to keep your personal and professional accounts separate) and establish a credit profile.
- Picking the wrong location for a brick and mortar storefront
If you open up a shop to go with your existing online business, it’s key to set up the storefront in the best possible location. Failing to find the best location for your customer base could result in your doors shuttering from lack of business or frequent “We’re moving!” storefront hopping.
Don’t rush into a location simply because it’s cheap or looks good. Find the best location where your business will thrive by doing some research into areas where traffic from your target audience is high. You’ll be much more confident about opening your doors to the public knowing that you are in the right place at the right time with the right offering for your customer base!