Starting your own business can be viewed both as an opportunity and a challenge. Depending on the person, some could be excited while others may be frightened even by the idea of running their own business. The truth is, there are many aspects you would have to look after, but these depend on the scale of your business. If you plan on running a small, home-based operation, things might not be so complicated.
But the questions are usually fairly similar for everyone: where to start, what to do, is this a sustainable business, am I qualified and trained for this? This would be a logical set of questions to ask yourself. And the answers will reveal whether you are ready or not.
A number of entrepreneurs who take the step towards running their own business tend to spend years as employees specifically targeting certain positions in any given company in order to acquire skills that will enable them to run a business on their own successfully. It is a reasonable approach as you enter the entrepreneurial world already equipped with a respectable knowledge of the market, where the demand is tight, where the supply is tight, what the market gaps are, who the best supplier is and so on.
But regardless of your expertise, knowledge and prior experience, you should always look into certain aspects of your plan and evaluated your idea before you go on further into devoting your time and effort and making an initial investment. Make sure you get to know the market and determine whether you would be better off starting a new business from scratch or maybe acquiring an already established business. A checklist of sorts will come in handy as it will enable you to tick off one segment of your venture after another and keep track of your progress. Put everything on the checklist, from questions, potential markets, preferred markets, preferred products to desired income.
The initial analysis should look into the market dynamics, the relation between supply and demand and try to find the markets and products you would be comfortable working with. This part is important because, if you plan on working with a product or in a market that is tightly contested and bordering on oversupply, the chances of your success are drastically decreasing. This is why it is advisable to look for market gaps and undersupplied segments you could exploit and tap into. If the demand exceeds supply it means you have a ready customer base and the competition is not as severe as it would be in some of the most popular markets, especially if you plan on purchasing cheap wholesale merchandise to sell on e-commerce platforms like Amazon.
Competing against established Amazon Sellers in segments such as electronics can be a recipe for failure. In order to build your business up for success, it is often better to start small, tap into an underserved market and build your name and reputation there before expanding and branching out into new market segments.
The checklist will look into opportunities and feasibility of your idea. But after you have done your market research and identified potential segments you could exploit, it is time you moved forward and made a business plan. This will be a guideline for establishing your business within your desired parameters and a legal framework of a state like Illinois, which will be the focus state of this article. If you are looking for financing and credibility in front of potential investors, a well-constructed business plan can be a major plus. You should include the results from your initial feasibility checklist research into the business plan and expand it with your goals and objectives, plans on how to reach these goals and how to exploit the identified market gap.
It also has to include cash flow prediction as well as expenses, and costs and targeted revenue and income. These segments of your business plan are of great importance in case you are looking for external financing from either banks, private investors or any other investment organization. A business plan will be the first document you are asked for by the said organizations.
Funding and your business plan are only pieces of a more complex puzzle called starting your own business. There is a legal portion to it, the part which will actually allow you to open doors to your company within a certain state. The regulatory framework, as well as the steps you have to take to start a business in Illinois, will be covered in the next part of the article.
Steps to registering a business in the state of Illinois are similar to other states and they include choosing a name, legal structure, acquiring licenses and permits as well filing taxes.
The first step within the legal framework is choosing the legal structure of your business. According to the Illinois Department of Commerce’s First Stop Business Information Center, a business can be organized in several ways, depending on your preference and requirements, and each legal form comes with its advantages and disadvantages.
The Department of Commerce advises consultation with an attorney before choosing the legal structure you would register. You should look into the cost of the formation as well as the complexity of the procedure, tax implications, whether you would require additional funding from investors or a bank loan as well as the objectives you would like to achieve with your business. Most of these will have been answered already in your business plan. From there on, you have several options, namely, Sole Proprietorship, General Partnership, Limited Partnership, Limited Liability Partnership, Limited Liability Company, Limited Liability Limited Partnership, Low-Profit Limited Liability Company or Corporation options, such as C Corporation and S Corporation.
Sole Proprietorship is the simplest legal business structure as the business is owned and run by a single person. It is easily formed and has a minimum of government restrictions and controls. However, the downside is that there is no distinction between the business and the owner, meaning there is less protection to personal liability.
General Partnership is formed between two or more individuals joining forces to run a business. This form allows the partners to agree the equity stake in the company as well as the responsibility share in regards to work, profits and losses. A Limited Partnership, on the other hand, is created by a general partner and limited partners with limited liability. In general, the structures differ in the extent of liabilities of each partner.
With the legal structure selected, you are required to register a business name. Sole Proprietorships and General Partnerships require this step in case they plan on operating under a name different from that of the business owner. Under the Illinois Assumed Name Act, sole proprietors and general partnerships are required to register with the local county clerk’s office. You will have to file an application with a certificate with the name of the business, legal names and addresses of the owners, as well as office locations. You’ll also have to submit and publish a legal notice. You can find the full list of county clerk offices here. You can check the name availability in the Secretary of State Database of registered corporate names.
All business structure registrations are completed through the Illinois Secretary of State.
Your next step is to check what licenses and permits your business may require. IN the state of Illinois the Illinois Department of Financial and Professional Regulation (IDFPR) is
the main licensing agency. It is divided into several divisions. The agency has a full list of occupations and career areas it is responsible for licensing. You can seek assistance from the First Stop Business Information Center in determining whether your occupational activities are regulated. For any additional licenses, registrations or permits you might need contact the Securities Department of the Secretary of State’s office which licenses securities
dealers, salespersons, and investment advisors.
The majority of businesses are also required to register with the Illinois Department of Revenue (IDOR). This department also issues licenses for retailers and other businesses such as hotel operators.
The next step in the business registration process can either be simple or the most complex one, based on the legal structure of your business, the size and scale of operations. The state of Illinois requires any business engaging in making sales or purchasing merchandise for resale to register for a sales tax. You should also contact the Internal Revenue Service in order to inform yourself about the Federal tax requirements, which might include applying for a Federal Employer Identification Number.
According to the Illinois Department of Revenue, sales tax refers to several tax acts and is a combination of the occupation taxes and use taxes. “Sales tax” is the combination of all state, local, mass transit, home rule occupation and use, non-home rule occupation and use, park district, county public safety and facilities, county school facility tax, and business district taxes,” the IDOR website reads. Anyone selling tangible personal property for use or consumption is required to apply for a sales tax permit.
However, before applying for a sales tax permit there are several things to consider. The first one is whether you have a sales tax nexus or a significant presence in the state of Illinois. If you have an office, a warehouse or a place of business, an employee, contractor, representative or a salesperson within the state or a 3rd party affiliate, you have the Illinois sales tax nexus. For further details on the sales tax nexus, read the IDOR’s guide. The next step is to check whether the services you provide or the products you sell are taxable in the state of Illinois. For the most part, services are not taxable unless you are creating or manufacturing a product. Selling tangible products is taxable, however, there are several exceptions.
If you have determined that you have a sales tax nexus, you can register for a sales tax permit through MyTaxIllinois or by filing the REG-1 form, which is the Illinois Business Registration Application to the address provided in the Contact Details sections of this article under Central Registration Division. As you can see in the form, you will be required to provide your EIN, legal business name or DBA (doing business as), your primary business address and a mailing address in case it is different from the primary address. It also includes providing details about the type of business, owners and business activities.
There is no charge when applying for a sales tax permit in the State of Illinois, and the registration might take six to eight weeks if you file your REG-1 form via mail. The online registration does significantly reduce the process and you can expect to have your sales tax permit within two business days. Once you receive the permit, you are not required to renew it; however, any change to the ownership or address have to be updated.
Like many other states, Illinois provides certain sales tax exemptions. According to the Illinois Department of Revenue, sales or purchases made for resale are tax exempt if a buyer provides a valid resale certificate. There are other exemptions such as selling to charitable, religious, educational, governmental or recreational organizations. However, if you are planning on registering a small business with a plan to buy cheap wholesale merchandise for resale on e-commerce platforms such as Amazon, you should apply for a resale certificate (Form CRT-61).
In order to purchase merchandise for resale tax exempt, you have to provide the Certificate of Resale to the seller who will keep the certificate in case the DOR requests it as proof that the sale was tax exempt. If you are making a number of purchases for resale from the same supplier, you can provide a blanket certificate of resale. The Department of Revenue requires the Certificate of Resale is updated every three years.
There are certain guidelines when supplying or receiving a certificate of resale. The certificate has to be filled properly and signed by the purchaser. MyTaxIllinois allows you to verify the validity of the resale certificate as well as the buyer’s tax ID online.
First Stop Business Information Center
500 East Monroe
Springfield, IL 62701
320 W. Washington St., 3rd Floor
Springfield, IL 62786
Jefferson Terrace, Ste. 300A
300 West Jefferson Street
Springfield, IL 62702
Illinois Department of Revenue
PO Box 19030
Springfield, IL 62794-9030
100 West Randolph Street
Chicago, IL 60601-3274
101 West Jefferson Street
PO Box 19030
Springfield, IL 62794-9030
Phone: 1 800 732-8866 or 1 217 782-3336
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