By now you should have a pretty good idea of what kind of business you want to start. If that's the case, then you're headed in the right direction. Now that you have an idea to work with, we can start laying the foundation for your business. Out of all the chapters this one is the most technical because it requires a basic understanding of the legal system and national/provincial/state guidelines with respect to incorporating your business, filing patents or trademarks, opening a bank account, and filing taxes. However, technical knowledge of business and legal requirements is essential if you want to do it by the books and create a legitimate business.
1 - BANKING & FINANCES
Open a small business account at your bank. The first requirement for owning a successful business account is to have a standard checking account, savings account, and credit card to work with. You need these to earn, save, and spend money for your business. I recommend you open a business account at your bank as this will make it easier for you to divide personal and business expenses, which will make your life a lot easier when doing finances, taxes, income statements, and other accounting work. If you're unable to open a business account and only have access to a normal checking account that's fine. I recommend booking an appointment at your bank's local branch to open a small business account which includes a checking account, saving account, and credit card with cash back or rewards.
Unless you have a Visa Debit card, it is highly recommended that you have some kind of cash back rewards credit card for online shopping, paying bills, and earning money at the same time. You can make most of your business purchases with a Visa Debit card, but there are certain products/services/websites that will only allow credit cards. But remember to be careful with credit cards because they create the illusion of owning money when you OWE money. CREDIT IS NOT MONEY, IT IS DEBT - MONEY THAT YOU OWE. Therefore, acquire and use a credit card at your own discretion and DON'T SPEND MONEY YOU DON'T HAVE. Pay your bills as soon as possible and establish a good credit score. If you miss payments or have outstanding loans or debt, your credit score will decrease making it harder to get loans and more credit.
I also recommend open a Free Savings Account (TFSA) or Registered Retirement Savings Plan (RRSP) if you live in Canada, or a 401k if you live in the United States. There are many other forms of savings accounts as well, but the difference between these forms of savings account and normal savings accounts which you can view on your online banking, is that it is harder to withdraw money once you save it. If I earn $1000 and put $100 in my account, and then spend $800 the next day, I could easily withdraw that $100 from my savings in an instant if I needed it. But for tax-free or retirement savings account it is harder to withdraw money. Sometimes it may take a few days, and some accounts don't let you withdraw at all (those for retirement). So do some research and find the right savings account that suits your needs. This entire process makes it harder and less likely for you to spend your savings, making it easier to invest your money.
2 - INCORPORATION
Every legitimate company needs to be incorporated within its jurisdiction. For example, I live in Canada so I registered and incorporated my business at the Federal level, making it a legal entity in Canada, as well as the province of Ontario. I could have also incorporated within the province of Ontario only, but I chose to incorporate federally instead. Every nation/state/province has its own rules and applications for incorporating. To learn more about federal incorporation in Canada, visit the CIPO official website: https://www.ic.gc.ca/eic/site/cd-dgc.nsf/eng/cs06939.html. If you live in the United States you can visit this website to learn more about incorporating your business: https://www.usa-corporate.com/. Otherwise, you will have to do your own research on your own and find the unique website and platform your government/jurisdiction requires you to complete for incorporating.
How do I know if I need to incorporate my business? Is it necessary? How much does it cost?
It costs $330 to file an application for incorporating in Canada, so it's not cheap by any means. Therefore, it's okay to wait until you become profitable to incorporate your business. However, it is recommended you do so earlier rather than later because it is a formal way of legitimizing your business, and you require a business number in order to file certain applications and join certain organizations, so it will make your life easier down the road. Plus, once you incorporate in Canada you're incorporated for life until you disband the corporation so you only have to do it once.
3 - PATENTS, TRADEMARKS, & COPYRIGHT LAWS
Once you have a business bank account and have legally incorporated your business, you need a legal business name to represent your business/company/corporation. Your legal business name can be the same as the one you used to incorporate, but you can also use a different name for your product/service than you do for your corporation. I recommend creating the necessary patents, trademarks, and copyrights as early as possible to protect your intellectual property and prevent other people from stealing your idea and profiting off your hard work. However, this process can be expensive and time consuming so it is not absolutely necessary if you're just getting started. A crucial component of any legitimate business is filing trademarks, patents, and copyrights where necessary, so I've provided brief descriptions for each of these categories so you know which ones your business needs.
According to the Canadian Intellectual Property Office (CIPO),
a patent gives you, the inventor, the right to stop others from making, using, or selling your invention. In exchange, you must provide a full description of the invention so that -
all Canadians can benefit from this advance in technology and knowledge. People may read about your invention, though they cannot make, use, or sell it without your permission. You can also use your patent to make a profit by selling it, licensing it, or using it as an asset to negotiate funding. Learn more at the CIPO official website:
How do I know if I need a patent?
You need to file a patent if you have an idea or invention you want to protect. This prevents other people from copying your idea and using it or selling it to others for money. For example, if you invent a new method for extracting plutonium from Mars so you can sell it, you need a patent.
According to the CIPO, a trademark is a combination of letters, words, sounds, or designs that distinguishes one company’s goods or services from another. A trademark should be unique and is important because over time a trademark comes to stand not only for the actual goods and services you sell, but also for your company’s reputation and brand. By registering your trademark, you protect it under law from misuse by others, and you gain exclusive rights to use it throughout Canada for 10 years (a term that you can renew). Read the CIPO official guide to trademarks here:
How do I know if I need a trademark?
You need a trademark if you're trying to protect a name, logo, or design. For example, if you create a logo for your company and don't want anyone else to copy it, you need a trademark (e.g. the McDonald's logo). Or if you have a -
business name that you don't want anyone else copying, you need to trademark it. For example, my legal business name that I used to incorporate my business and is on official documents is 'Elevate International Clothing Co. Ltd.' But this is way too long to on my website and promotional material I use Elevate Clothing Company™. As you can tell I've trademarked the name so only I can use the name Elevate Clothing Company™ (you'd be surprised how many other clothing companies there are that use the word Elevate in their name). Because I want to make sure I'm the only one who can use that name and no one can steal it, I applied for a trademark. Now if someone uses it without my permission I can sue them :D
According to the CIPO, a copyright is the exclusive legal right to produce, reproduce, publish, or perform an original literary, artistic, dramatic or musical work. The creator is usually the copyright owner. However, an employer—for example, a film studio—may have copyright in works created by employees unless there is an agreement in place stating otherwise. Read more about copyrights in the CIPO's official guide: https://www.ic.gc.ca/eic/site/cipointernet-internetopic.nsf/eng/h_wr02281.html
How do I know if I need a copyright?
If you produce original literary, dramatic, musical or artistic work, you'll need to use a copyright so people can't copy it. If you create the best clarinet solo on the planet and upload it on the internet, you want to copyright your album so other people can't copy your song or use it in their music or videos and get profit off of it without your permission. Of course, the whole point of this is to make sure you're the only person that profits off your content/invention/innovation. You can also license others to use your material for a fee, generating more passive income.
4 - DOMAIN & EMAIL REGISTRATION
If you want to start an online business, you will need an exclusive domain and matching email for your website and business communications. It's possible to save money and use Gmail instead of buying your own custom email address, but it looks much more professional if you have your own email that matches your domain name. For example, my personal email is on gmail, but my website domain for my online clothing company is www.elevate-clothing.com, so I created a matching email that I ONLY use for business called firstname.lastname@example.org.
As you can see, the domain name is short and simple, yet it tells the customer everything they need to know about my business. So try to come up with something catchy that people will remember when registering a domain and email. Some examples of website you can use to register a domain and email address are: (www.godaddy.com)(www.webnames.ca)(www.domain.com)
5 - ACCOUNTING & TAXES
An essential component of each business is keeping track of and recording finances so you know exactly where and when purchases and sales happened. If you don't do this, either by recording the information yourself using accounting software like Quick Books, or by hiring an accountant (you can easily find one on Fiverr for very cheap), then you won't be able to calculate your taxes at the end of the tax season.
So it's better to start early and be prepared now, rather than waiting until the end of the tax season (April) to get all your finances together and and dump it on an accountant's desk. Unless you want to avoid paying taxes, in that case you're on your own.
In Canada, you don't have to charge tax until your business earns more than $30,000 in revenue. Each country and province/state has its own rules, so make sure to do some research on how the tax system works in your country/state.
Something I do to minimize time and expenses is I collect all my business expenses in my business account, as well as downloading all invoices from the different websites I use to buy and sell items, and I send them to an accountant I hired on Fiverr every quarter. This means I do my accounting only four times a year. This is ideal for people on a budget who want to stay on top of their finances.