If you’re launching a small business, it’s critical to get your foundation right from day one. Starting a business is relatively straightforward, but staying compliant, fundable, and operationally efficient requires more than just registering a name.

Below is a checklist of key steps to take when starting a small business, along with the reasons each step matters.

Define Your Business Structure

One of your first decisions will be determining your small business’s structure, which affects ownership, tax status, and liability. The most common structures are:

Sole Proprietorship

• One person owns and operates the business. This is common for freelancers, consultants, contractors, and very small service businesses. It is simple to start, but there is generally no legal separation between you and the business.

Limited Liability Company (LLC)

• Popular for small businesses because it can provide liability protection and flexible tax treatment.

S Corporation

• A federal tax election rather than a state business entity. It can be useful for profitable businesses that want pass-through tax treatment and formal payroll.

C Corporation

• Often used by businesses that plan to raise outside investment, issue stock, or grow nationally.

Partnership

• Two or more people operate a business together. A formal partnership agreement is recommended.

Talk to an attorney or CPA about where your business is going, not just where it’s starting. Many businesses start as LLCs and later convert to C-Corps as they grow.

The SBA website provides additional details on different business structures.

Register Your Business With the Correct State Agency

Each state has its own business filing office.

• Register a Business in Pennsylvania
• Pennsylvania Business Tax Registration

Before registering, search the state business database to make sure the name you want is available. A state name registration does not automatically give you national trademark rights, so also search the U.S. Patent and Trademark Office database if the name is central to your brand.

Register for an Employer Identification Number (EIN)

Regardless of your structure, you’ll need an EIN if you have employees, or operate as a corporation or partnership. Sole proprietors can use their Social Security Number (SSN) unless an EIN is required for other purposes, like opening a business bank account. You can apply for an EIN on the IRS website.

Register for a Tax ID Number

Each state sets its own sales tax requirements. If your business sells goods or certain services, you may need to collect sales tax and remit it to the state.

Every business must also pay income tax on its net profit, which is calculated as total income, minus expenses. Different tax rates apply based on your business structure. Sole proprietors and partnerships report income on their personal tax returns, while corporations and some LLCs file separately.

• Pennsylvania Business Tax Registration

Working with an accountant is recommended to ensure accurate filing, and to understand which business expenses are deductible.

Keep Business Records for at Least 7 Years

Accurate records help track your income and expenses, providing essential documentation in case of an IRS audit. This includes invoices, receipts, payroll records, and bank statements. Using accounting software like QuickBooks, FreshBooks, or Xero can simplify recordkeeping.

Read our article about The Business Records You Need to Keep.

Withhold Employee Taxes and Submit to IRS

Employers are required to withhold federal and, in some cases, state taxes from employees’ paychecks, including Social Security and Medicare taxes. As an employer, you’re responsible for depositing these withholdings with the IRS and filing quarterly payroll tax reports. For more information, consult the IRS Employer’s Tax Guide (Publication 15).

Obtain Necessary Permits and Licenses

Licensing varies by industry and locality. You may need a city or county business license, zoning or home occupation permit, health department approvals (for food or wellness businesses,) and professional certifications (for trades, legal, financial, or medical services)

Check with the SBA’s online guide to determine the permits your business may need. If you’re unsure which requirements apply to your small business, contact your industry association for guidance.

Be Able to Accept Funds

You’ll need to have a way for customers to pay you. Common examples are:

• ACH (Automated Clearing House) Services to process transactions electronically so your money arrives immediately.
• Digital apps that are specific to your small business.

Take Out Business Insurance

Depending on your business type, you will need insurance, such as general liability, professional liability, property insurance, or workers’ compensation. Some types of coverage are essential for certain industries, while others, like cyber insurance, may be beneficial depending on your business operations.

Select a Business Name

Choose a name that reflects your business and check for availability to make sure it’s not in use by another business in your state. Use the US Patent and Trademark Office’s online search tool to check for trademark conflicts.

Next Steps

• Make a checklist of tasks specific to your business and consult a professional to make sure you’re fully compliant with federal, state, and local requirements.
• Talk to us about opening a dedicated business account. Keeping personal and business finances separate will make accounting easier and help with tax compliance. We can also advise you on credit options, business insurance, and tools to streamline your finances.
• Consider setting up accounting software, such as Xero or QuickBooks, to manage invoicing, expenses, and taxes more efficiently. These tools can simplify your bookkeeping, save time, and reduce errors, giving you a clearer picture of your business’s financial health.
• Think ahead about your goals for business expansion, staffing, or potential funding needs. Understanding your growth roadmap early on will help you prepare for the next steps, like hiring employees, obtaining insurance, and managing additional compliance requirements.

It’s important to keep these musts in mind. Going into business for yourself can be very rewarding, but first make sure all your boxes are checked.

If you need guidance setting up your small business, or have any questions, contact Diamond Credit Union’s Business Service’s team.