Insights - GBS Group

How to start a business in the United States

Written by Jose Diaz | December 29, 2020

The United States is the world's largest economy, according to the IMF statistics, its gross domestic product exceeds China's by 40% and it represents the "land of opportunity". Start a business in the United States! Why not? It is totally feasible, with the right advice.

Although it is difficult to believe, the economic data shows that:

  • Only the economy of the State of California is as big as the United Kingdom’s
  • The state of Texas has a higher GDP than Canada.
  • North America moves 24.8% of the world economy.

And besides:

  • State and federal laws fully respect the fundamental rights of individuals.
  • Its tax scheme, while demanding, provides credits and exemptions.
  • There is absolute independence among the government branches.
  • Different federal and local agencies promote free, lawful, lucrative and socially responsible economic activity.

These forceful arguments lead us to think seriously about how to start a business in the United States?

Here is the answer, the key steps to start a business in the United States.

1.- Buy a running business or start from scratch?

The first quandary you should resolve when starting a business in the USA is:  should I buy a business up and running or start a business from scratch?

Well, the risks and considerations are very different in each case.

When you buy an active business, it obviously has a trajectory and numbers that you can evaluate, in order to assess whether the profit is adjusted to the price you will have to pay and the legacy expenses or liabilities.

Now, when you start a business from zero, you'll need to be clear about the market you'll face, and the characteristics of the service or product you'll offer, all under a plan that will dictate the journey to follow.

2.- Information Management

To formulate a plan and mark a path with safe steps, managing information is required.

We talk about the general and specific "duties and regulations" that apply to the type of business and its location.

All in order to avoid the costly mistakes and omissions of your responsibilities as a future entrepreneur and employer in the USA.

It is important to attend seminars, webinars, specific workshops, participate in specific guilds, chambers of commerce or other organizations or companies that provide information.

We can summarize some excellent free resources:

  • US Federal Government Information and Services Guide: USA.gov.es
  • The Federal Agency for Small Business Administration: SBA
  • SB SCORE & UCSB Latino Business Association
  • Small Business Development Centers (SBDC)

3.- Formulate a business plan

Planning for success is key and no one will sit with you at a negotiation table if you don't have what you want to do in writing.

You must formulate a business plan and have it handy; a short, clear and coherent plan that will provide concrete information about where you want to go and what strategies you plan to implement.

Very briefly, a business plan must include:

  • An executive summary
  • Characterization of the product or service
  • Intended market
  • Description of the competition
  • Technical aspects: location, capacity, equipment, processes
  • Human capital
  • Economic requirements: installation costs, investment in assets, working capital for the start-up
  • Financial projections and evaluation.

4.- Define the entity or legal structure that will govern the business

Here, the size of the business and the type of responsibility define its legal structure.

Although there are several ways to define the legal structure of a business in the USA, the most common ones are:

  1. Sole Proprietorship: the entrepreneur or businessperson, on his or her own, will have unlimited responsibility, and it does not require registration.
  2. Partnership of individuals with unlimited responsibility: similar to the sole proprietorship entity, but with multiple partners. They will be liable with all their assets for any right or obligation and it does not require a formal registration.
  3. Limited Liability Company or LLC: It is the closest thing to an SL or SRL in Latin America. In this case, the registration of the company partially protects the equity or responsibility of the individuals who created it, up to the amount they have invested.
  4. C-Corp: it is similar to a C.A. in Latin America, and it is suited for large businesses and it is subjected to different tax schemes, rights and duties.
  5. S-Corp: A corporation that transfers its obligation to pay tax to its shareholders.
  6. Non-profit organization: as its name indicates, it is aimed at social or community work.

Related Post: Different Business Structures in the USA.

5.- Registration with the IRS

Another important step in starting a business in the United States is to register it in the Internal Revenue Service (IRS).

If it is an LLC or corporation, you will need to register it in the IRS to obtain a Tax Identification Number.

Single Proprietorships and Partnerships may submit tax returns under the owner’s SSN, however, if they are going to hire employees, they are required to obtain from the IRS an Employer Tax Identification Number (Form SS-4 FEIN or EIN).

If your business has a trademark or patent, it will require an additional registration in the Patent and Trademark Office.

6.- State and local registrations and licenses

Each state has its own tax service that requires its own registration.

In addition, each state, according to its laws, has registrations, certificates of use and  particular or occupational licenses, depending on the activity or business, including state trademark registration.

Specific licenses apply in most states for very specific activities such as: gastronomy, hospitality, health, pharmacies, construction, chemical management and personal care, among other activities.

In the regional structure, below the state is the county where the business will be established, governed by a local government, with its own registrations and local annual licenses.

A company may require one or more state or local licenses, depending on the type of product or service it will provide.

A visit or consultation of the web portal to the Department of Business and Professional Regulation (DBPR) in the State and the County will be a must to know the specific requirements and procedures.

Finally, if you decided to form an LLC or corporation and you register it in Maryland, for example, but you'll have a branch, warehouse or office with staff in Alabama, you'll also need to register in that state.

This situation doesn't happen if you just sell or provide services without involving a new location or branch outside your state.

7.- The "Doing Business As" or fictitious name

It will apply when a company decides to have one or more businesses with a name different than the record that was created.

For example, when "Stream LLC" (the company) wants to rent co-Working spaces under the name "WeWork", then a fictitious name (DBA) needs to be registered for this purpose.

You must register a DBA with the Department of Corporations in the State where it will be established.

8.- Open a bank account

One perhaps somewhat obvious step in starting a business in the USA, or anywhere in the world, is banking or access to banking services.

In the United States, there are commercial banks and savings and loan cooperatives that provide retail banking services.

The first step will be to open a bank account and the fundamental basic requirements are:

  • The EIN or Employer Identification Number
  • The company’s deed of incorporation
  • Licenses to operate according to the type of business.

The SBA or Small Business Administration provides more information.

Starting a Business in the US - Conclusion

At this point, we already have: a defined, ongoing business plan; a business organized under a legal entity; formal registrations with the State Department, IRS, the county or city; licenses granted and a commercial bank account.

This way, you will be able to start a business successfully in the United States; however, there will be many more subsequent procedures inherent to it, such as:

  • Accounting duties
  • Duties to foreign staff
  • Tax return
  • Asset tax
  • Sales tax
  • State and local taxes
  • Payroll taxes
  • Social Security and Medicare
  • Unemployment insurance
  • Intellectual property
  • Financing or  access to loans
  • Other formalities and duties.

An expert hand willing to provide support is always within reach.

Keep in mind that "a joint and coordinated work reduces risks and avoids surprises."

Rely on professional advice from gbsgroup.net.