Running a Profitable Yard Decoration Company: a Primer
1. A YARD DECORATION BUSINESS: WHAT IT LOOKS LIKE
2. WHAT A YARD DECORATION BUSINESS MODEL COULD LOOK LIKE
3. WHERE TO START- WHAT STARTER PACKAGES TO PURCHASE
4. EXAMPLES OF YARD DECORATIONS
5. THE CUSTOMER CONTRACT
6. WHAT ABOUT BUSINESS INSURANCE?
7. FREE MARKETING ON FACEBOOK AND OTHER METHODS
8. CREATING A FACEBOOK BUSINESS PAGE
9. LISTING ON YARDWOWZA.COM
10. USING YOUTUBE
11. INSTAGRAM AND HOW IT TIES TO FACEBOOK
12. USING DRIVE-BY SIGN MARKETING
13. WORD-OF-MOUTH MARKETING
14. PAID MARKETING ON FACEBOOK AND OTHER MEDIA
15. HOW TO PLACE SIGNS IN A YARD
16. COMMON QUESTIONS
17. MARKET RESEARCH ON YARD DECORATION BUSINESSES
18. SMALL BUSINESS ADMINISTRATION RECOMMENDATIONS
A YARD DECORATION BUSINESS: WHAT IT LOOKS LIKE
Whether you are looking for an additional income flow to your current rental business, or seeking a new adventure, Yard Greeting Rentals is a perfect fit. It is a very simple process to start your own business, as all it takes is getting the yard decorations, finding customers, and renting out the decorations to them. Starting a yard decoration business has many advantages, such as:
- Being able to work out of your home
- Being your own boss, with a flexible schedule
- Low startup costs and low overhead
- Any size vehicle can carry a lawn decoration set
- Easy Income
- Unlimited potential
- Many are able to make back the initial investment in the first weeks of operation!
- You get to deliver smiles daily doing a job you love
Getting a starter kit is the easiest way to get decorations for certain events, such as graduations, birthdays, and holidays like Easter and Halloween. You can also buy your decorations individually, or have them custom-made for specific events and requests. Installing yard decorations is also a cinch, taking an hour or less to drive to your clients and installing the yard decorations.
Yard decoration businesses can be a one-person operation, or a large company with several employees and dozens of sign sets. It is important to not get jealous of bigger companies when you start. Having large numbers may be cool, but it’s not practical to drive around with giant numbers all the time, and they could easily get damaged during delivery.
“We have to bring it back down to practicalities. Mom’s not driving a five-foot letter around. Don’t look at what others are doing, and focus on your own.” -Lesley Cross
WHAT A YARD DECORATION BUSINESS MODEL COULD LOOK LIKE
One of the big questions you may ask is, “What’s the best business model I can use?” The answer is there is no one absolute best model. It all depends on your business environment. For example, if you’re trying to sell signs in a low-income area where money might be tight, you might want to sell them at a reduced price to increase your customer base. If a place rents signs frequently, like a church or school, you can also offer a discount to them or throw in a free sign.
“We have a lot of people that are very low-income in this area, so we try to make it affordable so everyone can afford us.” -Kristen Peterson
As an example business model, charge $75 for a 24-hour rental period. Even with just one rental a week, that’s $3,900 at the end of the year. With one every weekday, it becomes $19,500. Five per weekday? $97,500. While price is important, getting more customers is what causes your profits to grow and create a legitimate business.
With an initial investment of $999 for a starter kit, and $2600 on marketing ($50 a week for Facebook marketing x 52), that’s a $3599 investment to get your business going. With ten rentals each week, you end up with a sweet net profit of $35,401 a year. With an average of an hour to drive to and install a yard greeting sign, you get a lot of money for only ten hours of work a week.
It doesn’t have to be a solo affair! You can get friends, relatives, and family involved as well. Get them involved in the process and use it as an opportunity for teaching your kids about running a business. Have them help take orders, or help set up the signs, or, once they’re old enough, drive the car to your customer’s house. You don’t have to worry about yard decorations being too heavy. They’re extremely light, so even an elementary school student can pick up signs with ease.
Venmo, Paypal, and Square are all good sources of receiving payment and invoices, thanks to their ease of use and ability to have the money put directly in your account. With Venmo, you can even download the sales you’ve made each month.
“I have used Paypal in the past, but I like Square more because I can also go in and enter a sale manually.” -Kristen Peterson
“Venmo is how we get paid about 90% of the time now. There’s no fee with it, and we can download the sales we’ve received through it every month.” -Lesley Cross
WHERE TO START- WHAT STARTER PACKAGES TO PURCHASE
There are many starter packages that can be found online, such as those contained at VictoryStore. The sheer amount of options may be intimidating to those looking to start their businesses. So, what is the best choice for a package to start your own lawn decoration business?
The $999 starter package on VictoryStore is an excellent starting point, with an affordable cost that has over 150 signs and 100 stakes, including decorations perfect for birthdays, sport shout outs, and other celebrations. If you charge $75 for a 24-hour rental period, you can earn back your investment cost in just 13 rentals, with a revenue of $3,900 if you make one rental sale a week.
If you find that you have a higher demand for specific letters or need more, you can buy sets individually. Each starter kit can be customized, allowing you to choose the sign colors you would like. If you are unsure on whether or not you can customize something, just ask. Special kits can even be made if you’re looking for something specific, or only need some parts of the package.
Another consideration to make when starting your business is what your business radius will be. Targeting customers who are five miles or less from where you live is a good starting point, as it ensures all of the locations are close to your home. Only expand if you feel confident and comfortable. If you decide to expand and decide later you want to shrink back down, you can. You can even shrink down but still keep a couple of customers who rent often but live outside the shrunken radius.
“Time is money. Yes, you made $75 putting the sign up, but it took you four hours of driving to do it.” -Lesley Cross
EXAMPLES OF YARD DECORATIONS
There are countless types of yard decorations covering a wide range of occasions, from birthday parties to retirements to homecoming and prom. The amount of options can be too much for some to handle, so this section will focus on a few of them to help give ideas of where you want your yard decoration business to go.
Happy Birthday greetings are the most common use of signs you will see, with a plethora of options to match. VictoryStore has dozens of designs for birthday yard signs, ranging from mermaids to lumberjacks to holy cows. People love it when signs are personalized instead of just being cookie-cutter messages, so it is important to make sure to have enough letters to spell names with the decorations.
Festival and holiday decorations are also common and can cover a wide range of seasonal events that are sure to make an impact. These are simple to make, requiring only a couple of sets of letters and some decorations relevant to the event. If you need certain decorations, VictoryStore has plenty of options available to cover whatever you need.
This is also true for special events. Using yard decoration signs is an easy way to get lots of attention, so it’s important to use the right decorations to really make your signs stand out.
THE CUSTOMER CONTRACT
Your customer contract should be easy to understand, as the average person is going to be reading it — not a lawyer. Make sure that everything is laid out plainly for the customer, and be sure to include everything the service provides. For example, if you add a small sign advertising your business while your signs are there (which is an easy way to get advertising!), make sure it is stated in your contract so your customer is not surprised by a sign they did not request when they see the final result.
In your contract you should also include specific things the customer should not do, like mow around the signs (just in case they damage them), attach objects to them, modify the signs in any way, and other considerations..
Asking for a photo of the signs when they are set up or, better yet, taking a photo yourself is an excellent way to get free pictures for advertising. Texting a photo to your customers is a nice and easy way to ensure your customer sees how the signs look as soon as they are placed in their yard and provides them with a picture they can share with others.
“I ask them to take a picture of their yard in advance so I know I’ll be at the right house, and it lets me know if there’s a slope or hill that prohibits me from putting the design somewhere.” -Kristen Peterson
WHAT ABOUT BUSINESS INSURANCE?
Business insurance is very important, in case signs or equipment get damaged. Make sure to have insurance for your company, in case things go very wrong or unexpected damage occurs. Sign theft is also a possibility, and having the customer pay for such an occurrence is unreasonable, so having insurance for that is also important. If you are unsure about how to get business insurance, you can always contact your non-business insurance providers for assistance.
FREE MARKETING ON FACEBOOK AND METHODS
I: Creating a Facebook business page
Creating a Facebook business page is simple. Go to facebook.com/pages/create, select business or brand as your page, and enter your business details. To start, you should make your profile picture a well-taken photo of one of your best products, so potential customers can immediately see what your company specializes in. Eventually when your brand becomes well-known, change it to your business logo instead.
A Facebook profile picture is 170x170 pixels on desktop and 128x128 on mobile, so make sure the photo you use is clear and not heavily cluttered. Also make sure there isn’t anything important in the photo’s corners, since a Facebook profile picture is a circle, so the edges get cropped off. You should also create a relevant vanity URL (preferably of your business name) and add tags to help people find your post. Finally, fill out the details on your profile and write a post or two before you publish your page on Facebook for everyone to see.
To sum up the steps you need to take:
- Register for a Facebook Business Page.
- Enter Your Business Information.
- Upload Your Profile Picture & Cover Photo.
- Invite Friends to Like Your Page.
- Include Additional Business Details.
- Add a Button to Your Page.
- Promote Your Facebook Business Page by Being Active on Facebook.
Once you have made a Facebook page, post pictures of the signs you have to provide potential customers with an easily accessible catalog of what you offer. Also ask your customers to create a post with your sign and tag you. It will increase the amount of people who will see your products and create positive buzz. To help get initial attention, get 25–100 of your friends to like your page. This quickly gives your page a sizable base and attracts further people.
II: Listing on YardWowza
YardWowza is a site that allows people to find local providers of yard greetings rentals (such as your business). Listing on YardWowza is free if you are a VictoryStore customer; otherwise, it is a $99 annual fee to list on YardWowza.
III: Using YouTube
Use YouTube to make videos about your company, and then link those videos to your Facebook page to attract more attention to your business. Brief videos are recommended to ensure you don’t exceed potential customer’s attention spans. Make every second of your videos count.
IV: Instagram (and how it ties to Facebook)
Instagram is owned by Facebook but hits a different market, with a lot of younger people using it compared to Facebook. Therefore, it is important to have both a Facebook page and an Instagram page to hit both audiences. Post regularly on both accounts to make sure your business shows up on feeds and stays relevant. Make sure you have links to your business on both sites.
V: Using Drive-by Sign Marketing
An easy way to get people to notice your business is by placing a sign in your yard with your business information. If you rent or donate signs to a school or similar place, you can ask to have a business sign of yours in their yard as well.
You can also set up signs in your own yard (make sure to include your business sign) to show off your skills. Signs catch attention easily, especially elaborate displays with plenty of letters and objects.
When you put your website url on your sign, remove the “www” part of your url. Web browsers automatically add it when people search on the internet. Eliminating those letters helps save space on your sign.
“When you put a web address on a sign or anywhere, do not put the www. It wastes space, and browsers don’t need it anymore.” Steve Grubbs
VI: Word-of-Mouth Marketing
An easy way to get positive word of mouth marketing is to donate a sign to a local school or similar organization for an auction. Tell them the value of the sign, and let them keep all of the proceeds from the sign/signs being auctioned to create goodwill and positive word of mouth. For more frequent customers, you can offer a discount if they use your signs more often. As an example, reduce the price of your signs from $75 to $50 for a school that rents your signs frequently.
Sending an email thanking your customers for renting your signs (and maybe even a coupon as well) also generates positive buzz. If you choose to mail a thank you letter, include your business card as well. Having a referral discount encourages your customers to tell their friends about your business, bringing in even more customers for you.
“We leave a little informational brochure with every sign and five business cards. We ask them to pass them on to their friends, and every time they get a referral, they get $5 off their next order, and a free sign after their fourth referral.” -Kristen Peterson
PAID MARKETING ON FACEBOOK AND OTHER MEDIA
Paying for marketing on Facebook is a great way to get attention. Facebook marketing allows you to reach an even greater amount of people, and helps do some of the work of attracting customers for you. It costs $50 a week to advertise on Facebook, which is a total of $2,600 a year, but it pays for itself. When you buy a starter kit on VictoryStore you get free Facebook advertising for 30 days, which considerably boosts the amount of people who see your company in their feeds.
Another good way to get marketing exposure is to be in your local newspaper. You can either pay for an ad or get featured in an article. Local newspapers love to have articles on positive change and uplifting news, so your business’ story should be attractive to them once you gain enough customers and traction. Don’t wait for newspapers to come to you. Instead, contact the newspaper and offer them the opportunity to write an article about what you’re doing.
“Anytime you are able to get in front of a news organization, whether it’s free marketing or with a donated sign in exchange for reciprocating PR is great.” Lesley Cross
If you choose to use your phone as part of your business, add that phone number to your signs, business cards, and other advertising to further attract customers. Make sure to let customers know if you accept phone calls, texts, or both. If you do choose to use your phone as a business tool, be vigilant about responding back to customers. Don’t make them wait.
For your own website, make sure it has all of the information for your business, your products, and, most importantly, a form people can fill out for requests and rentals. Being able to place an order directly on the site makes things even more convenient, and more convenience means customers are more likely to purchase your services.
HOW TO PLACE SIGNS IN A YARD
You should make sure the colors you choose work well together when you place signs in a yard, along with using the correct stakes. If you’re unsure of how a design will look, you can always use your own yard to test it out. Practice makes perfect, so make sure to experiment some and find what looks best. And if you’re embarrassed at the possibility of people seeing something less than stellar, you can always use your backyard as a testing area instead.
“I set up everything in my yard. Whether I lay it on the ground or put it up in my yard I do it, because colors just should not go together.” -Kristen Peterson
Having your signs pre-staked saves a lot of time, as you don’t have to spend time attaching and detaching the stakes when you arrive at the customer’s house.
“You’re wasting too much time when you get to the house if you don’t have your stakes in.” Kristen Peterson
It is also important to accommodate for yard sizes. Not all yards can accommodate large letters, so having backup smaller letters for yards that are not as large is a smart plan. It’s essential that your sign is “filled” with decorations throughout the space it covers, to make sure there is little-to-no blank space on the final product.
“We went with the 18 inch letters because some of our yards are not large enough for 24 inch letters, and they are affected by the wind more.” -Lesley Cross
A little trick you can do to reduce the possibility of running out of a certain color or design is to ask for a “top three” or “top five” of their favorite colors and designs, so you can use multiple of them in the product, and have backups in case you run out of a specific color or design. You can always improvise if you run out of a certain letter, like using a candle instead of an I or a beach ball instead of an O.
“We’ve gotten away from asking what color they want because if they all want blue, then someone’s not getting blue.” -Lesley Cross
Being able to place signs in almost all weather is very important, to make sure that you are still able to serve your customers even if conditions aren’t good.
“We received an order, this is what we’re doing, as long as it’s safe we still need to continue with it.” -Lesley Cross
Q: What is included in the $999 starter package?
A: The starter package includes: three alphabet sets, two number sets, one punctuation set, one st/nd/rd/th, sixteen stars, ten presents, sixteen balloons, four balloon clusters, ten birthday candles, six birthday cakes, two basketballs/soccer balls/volleyballs/baseballs/softballs/footballs, six American flags, twelve Emojis, fifty short stakes, and fifty EZ stakes. It also includes three yard signs with your business name, a pair of car magnets with your business name, and free Facebook advertising for 30 days.
Q: For the car magnets and business sign, do we have to send you a design, or will you make one for us?
A: Either is fine, and proofs are sent before they are made to make sure you approve of the design.
Q: Should you start with hiring other people to do the signs for you?
A: Start with just yourself, and wait until you have a constant stream of jobs each week before you bring other people onto your workforce.
Q: What kind of customization does VictoryStore offer?
A: If you can think of it, they can do it. Just ask and they’ll let you know.
Q: For advertising, are there certain policies or procedures that need to be presented to customers?
A: It is recommended to have a one-pager to explain your company’s standard policies and procedures for your customers to read. You should also have an email address/contact form so people can contact you/tell you specific requests.
Q: How many stakes should I use per sign?
A: Using two per sign helps make sure they do not spin in the wind. Most signs come with only one stake per sign, though, so you may have to buy extra to have two each.
Q: How should I keep track of my inventory?
A: Using a spreadsheet is an excellent way to keep track of what you currently have, especially for things such as the amount of letters and colors currently being used in others yards. In terms of physically storing, organizing by color or type works very well, and makes it easy to find signs when you need to rent them.
Q: My customer wants us to set up earlier/later than our usual times. What should we do?
A: If you know the area well, then doing it a bit earlier/later should be alright, if you’re comfortable with the time. Above all, being comfortable with the location and time should decide whether or not you should do the order at that time. Putting in your contract that you can cancel an order if you don’t feel comfortable with the location is a good idea, just in case a situation occurs.
(“I have in my contract that if I get to an area and I don’t feel comfortable with it, I can cancel the order at my discretion.” -Kristen Peterson)
Q: How long is a normal rental period? -Gina Chirico
A: From sunup to sundown is a good time frame, or the night before until sundown.
Q: Do you charge extra for weekends or holidays? -Sue Chasteen
A: It is recommended to do one fee for typical days (ie non-holidays) as it makes understanding rates easier for your customers. However, it is recommended to charge a little extra for holidays, as there will be a lot of demand/orders that day.
Q: How can I store my inventory in a neat/organized way? -Gina Chirico
A: Using totes sorted by color and alphabet is a wonderful way to store your signs that is very space-efficient.
Q: What are some essentials you take with your orders you wish you took earlier? -Trav Bri
A: Extra tape, clear stakes, rag, hammer, Benadryl, water, mosquito spray, extra shoes in case you step in something bad, no-slip grip gloves
Q: Should I pull signs early from a customer because of pending storms and high/damaging winds? -Aimee Schluter
A: It is worth putting in your contract you can do such at your discretion, (mainly if high winds or hail is oncoming) as you don’t want your signs to get damaged/blown away.
Q: Is anyone serving (x location)?
A: Use Yardwowza to see for yourself if anyone is in your area. This is useful for finding people to do your signs, or for getting an idea of how much competition is in your area.
Q: Should I make a website, or just use social media? -Rachel Trumbull
A: It’s good to have both. You can use your site for order forms and to show all your products, while using your social media for marketing
Q: Has anyone tried/does anyone have advice for…
A: Join the Facebook group VictoryStore Yard Decoration Rental Business Owner Group to share and ask for all sorts of tips on what to do for your yard decoration business!
Q: How do I deal with a request/event that takes place at a random time? (ie a baby being born)
A: Extend the rental time, or ask them to call you 24 hours in advance to give you time to set up and not get too surprised by it
MARKET RESEARCH ON YARD DECORATION BUSINESSES
We asked 100 yard decoration business owners about their companies. These are the results of that survey.
Top-selling Categories (Ranked Score)
SMALL BUSINESS ADMINISTRATION RECOMMENDATIONS
There are many ways to start a small business. Instead of trying to find one for yourself, however, the Small Business Administration has ten recommendations to help ensure that your business will get off the ground successfully.
1: Conduct market research
Market research will tell you if there’s an opportunity to turn your idea into a successful business. It’s a way to gather information about potential customers and businesses already operating in your area. Use that information to find a competitive advantage for your business.
Use market research to find customers
Market research blends consumer behavior and economic trends to confirm and improve your business idea. It’s crucial to understand your consumer base from the outset. Market research lets you reduce risks even while your business is still just a gleam in your eye. Gather demographic information to better understand opportunities and limitations for gaining customers. This could include population data on age, wealth, family, interests, or anything else that’s relevant for your business. Then answer these questions to get a good sense of your market.
- Demand: Is there a desire for your product or service?
- Market size: How many people would be interested in your offering?
- Economic indicators: What is the income range and employment rate?
- Location: Where do your customers live and where can your business reach?
- Market saturation: How many similar options are already available to consumers?
- Pricing: What do potential customers pay for these alternatives?
You’ll also want to keep up with the latest small business trends. It’s important to gain a sense of the specific market share that will impact your profits. You can do market research using existing sources, or you can do the research yourself and go direct to consumers. Existing sources can save you a lot of time and energy, but the information might not be as specific to your audience as you’d like. Use it to answer questions that are both general and quantifiable, like industry trends, demographics, and household incomes.
Asking consumers yourself can give you a nuanced understanding of your specific target audience. But direct research can be time consuming and expensive. Use it to answer specific questions about your business or customers, like reactions to your logo, improvements you could make to buying experience, and where customers might go instead of your business.
Here are a few methods you can use to do direct research:
- Focus groups
- In-depth interviews
Use competitive analysis to find a market advantage
Competitive analysis helps you learn from businesses competing for your potential customers. This is key to defining a competitive edge that creates sustainable revenue.Your competitive analysis should identify your competition by product line or service and market segment. Assess the following characteristics of the competitive landscape:
- Market share
- Strengths and weaknesses
- Your window of opportunity to enter the market
- The importance of your target market to your competitors
- Any barriers that may hinder you as you enter the market
- Indirect or secondary competitors who may impact your success
Several industries might be competing to serve the same market you’re targeting. That’s why you should make sure to differentiate your competitive analysis by industry. Important industry factors to consider include level of competition, threat of new competitors or services, and the effect of suppliers and customers on price.
2: Write your business plan
Your business plan is the foundation of your business. It’s a roadmap for how to structure, run, and grow your new business. You’ll use it to convince people that working with you — or investing in your company — is a smart choice.
Business plans help you run your business
A good business plan guides you through each stage of starting and managing your business. You’ll use your business plan as a roadmap for how to structure, run, and grow your new business. It’s a way to think through the key elements of your business. Business plans can help you get funding or bring on new business partners. Investors want to feel confident they’ll see a return on their investment. Your business plan is the tool you’ll use to convince people that working with you — or investing in your company — is a smart choice.
Pick a business plan format that works for you
There’s no right or wrong way to write a business plan. What’s important is that your plan meets your needs. Most business plans fall into one of two common categories: traditional or lean startup. Traditional business plans are more common, use a standard structure, and encourage you to go into detail in each section. They tend to require more work upfront and can be dozens of pages long. Lean startup business plans are less common but still use a standard structure. They focus on summarizing only the most important points of the key elements of your plan. They can take as little as one hour to make and are typically only one page.
Traditional business plan format
You might prefer a traditional business plan format if you’re very detail oriented, want a comprehensive plan, or plan to request financing from traditional sources. When you write your business plan, you don’t have to stick to the exact business plan outline. Instead, use the sections that make the most sense for your business and your needs. Traditional business plans use some combination of these nine sections.
Briefly tell your reader what your company is and why it will be successful. Include your mission statement, your product or service, and basic information about your company’s leadership team, employees, and location. You should also include financial information and high-level growth plans if you plan to ask for financing.
Use your company description to provide detailed information about your company. Go into detail about the problems your business solves. Be specific, and list out the consumers, organization, or businesses your company plans to serve. Explain the competitive advantages that will make your business a success. Are there experts on your team? Have you found the perfect location for your store? Your company description is the place to boast about your strengths.
You’ll need a good understanding of your industry outlook and target market. Competitive research will show you what other businesses are doing and what their strengths are. In your market research, look for trends and themes. What do successful competitors do? Why does it work? Can you do it better? Now’s the time to answer these questions.
Organization and management
Tell your reader how your company will be structured and who will run it. Describe the legal structure of your business. State whether you have or intend to incorporate your business as a C or an S corporation, form a general or limited partnership, or if you’re a sole proprietor or LLC. Use an organizational chart to lay out who’s in charge of what in your company. Show how each person’s unique experience will contribute to the success of your venture. Consider including resumes and CVs of key members of your team.
Service or product line
Describe what you sell or what service you offer. Explain how it benefits your customers and what the product lifecycle looks like. Share your plans for intellectual property, like copyright or patent filings. If you’re doing research and development for your service or product, explain it in detail.
Marketing and sales
There’s no single way to approach a marketing strategy. Your strategy should evolve and change to fit your unique needs. Your goal in this section is to describe how you’ll attract and retain customers. You’ll also describe how a sale will actually happen. You’ll refer to this section later when you make financial projections, so make sure to thoroughly describe your complete marketing and sales strategies.
If you’re asking for funding, this is where you’ll outline your funding requirements. Your goal is to clearly explain how much funding you’ll need over the next five years and what you’ll use it for. Specify whether you want debt or equity, the terms you’d like applied, and the length of time your request will cover. Give a detailed description of how you’ll use your funds. Specify if you need funds to buy equipment or materials, pay salaries, or cover specific bills until revenue increases. Always include a description of your future strategic financial plans, like paying off debt or selling your business.
Supplement your funding request with financial projections. Your goal is to convince the reader that your business is stable and will be a financial success. If your business is already established, include income statements, balance sheets, and cash flow statements for the last three to five years. If you have other collateral you could put against a loan, make sure to list it now. Provide a prospective financial outlook for the next five years. Include forecasted income statements, balance sheets, cash flow statements, and capital expenditure budgets. For the first year, be even more specific and use quarterly — or even monthly — projections. Make sure to clearly explain your projections, and match them to your funding requests. This is a great place to use graphs and charts to tell the financial story of your business.
Use your appendix to provide supporting documents or other materials specially requested. Common items to include are credit histories, resumes, product pictures, letters of reference, licenses, permits, or patents, legal documents, permits, and other contracts.
Lean startup format
You might prefer a lean startup format if you want to explain or start your business quickly, your business is relatively simple, or you plan to regularly change and refine your business plan. Lean startup formats are charts that use only a handful of elements to describe your company’s value proposition, infrastructure, customers, and finances. They’re useful for visualizing tradeoffs and fundamental facts about your company. There are many versions of lean startup templates, but one of the oldest and most well known is the Business Model Canvas, developed by Alex Osterwalder. You can search the web to find free templates of the Business Model Canvas, or other versions, to build your business plan. We’ll discuss the nine components of the Business Model Canvas version here.
Note the other businesses or services you’ll work with to run your business. Think about suppliers, manufacturers, subcontractors and similar strategic partners.
List the ways your business will gain a competitive advantage. Highlight things like selling direct to consumers, or using technology to tap into the sharing economy.
List any resource you’ll leverage to create value for your customer. Your most important assets could include staff, capital, or intellectual property. Don’t forget to leverage business resources that might be available to women, veterans, Native Americans, and HUBZone businesses.
Make a clear and compelling statement about the unique value your company brings to the market.
Describe how customers will interact with your business. Is it automated or personal? In person or online? Think through the customer experience from start to finish.
Be specific when you name your target market. Your business won’t be for everybody, so it’s important to have a clear sense of who your business will serve.
List the most important ways you’ll talk to your customers. Most businesses use a mix of channels and optimize them over time.
Will your company focus on reducing cost or maximizing value? Define your strategy, then list the most significant costs you’ll face pursuing it.
Explain how your company will actually make money. Some examples are direct sales, memberships fees, and selling advertising space. If your company has multiple revenue streams, list them all.
3: Fund your business
Your business plan will help you figure out how much money you’ll need to start your business. If you don’t have that amount on hand, you’ll need to either raise or borrow the capital. Fortunately, there are more ways than ever to find the capital you need.
Determine how much funding you’ll need
Every business has different needs, and no financial solution is one size fits all. Your personal financial situation and vision for your business will shape the financial future of your business. Once you know how much startup funding you’ll need, it’s time to figure out how you’ll get it
Fund your business yourself with self-funding
Otherwise known as bootstrapping, self-funding lets you leverage your own financial resources to support your business. Self-funding can come in the form of turning to family and friends for capital, using your savings accounts, or even tapping into your 401k. With self-funding, you retain complete control over the business but you also take on all the risk yourself. Be careful not to spend more than you can afford, and be especially careful if you choose to use tap into retirement accounts early. You might face expensive fees or penalties, or damage your ability to retire on time — so you should check with your plan’s administrator and a personal financial advisor first.
Get venture capital from investors
Investors can give you funding to start your business in the form of venture capital investments. Venture capital is normally offered in exchange for an ownership share and active role in the company. Venture capital differs from traditional financing in a number of important ways. Venture capital typically:
- Focuses high-growth companies
- Invests capital in return for equity, rather than debt (it’s not a loan)
- Takes higher risks in exchange for potential higher returns
- Has a longer investment horizon than traditional financing
- Almost all venture capitalists will, at a minimum, want a seat on the board of directors.
So be prepared to give up some portion of both control and ownership of your company in exchange for funding.
How to get venture capital funding
There’s no guaranteed way to get venture capital, but the process generally follows a standard order of basic steps.
1: Find an investor
Look for individual investors — sometimes called “angel investors” — or venture capital firms. Be sure to do enough background research to know if the investor is reputable and has experience working with startup companies.
2: Share your business plan
The investor will review your business plan to make sure it meets their investing criteria. Most investment funds concentrate on an industry, geographic area, or stage of business development.
3: Go through due diligence review
The investors will look at your company’s management team, market, products and services, corporate governance documents, and financial statements.
4: Work out the terms
If they want to invest, the next step is to agree on a term sheet that describes the terms and conditions for the fund to make an investment.
Once you agree on a term sheet, you can get the investment! Once a venture fund has invested, it becomes actively involved in the company. Venture funds normally come in “rounds.” As the company meets milestones, further rounds of financing are made available, with adjustments in price as the company executes its plan.
Use crowdfunding to fund your business
Crowdfunding raises funds for a business from a large number of people, called crowdfunders. Crowdfunders aren’t technically investors, because they don’t receive a share of ownership in the business and don’t expect a financial return on their money. Instead, crowdfunders expect to get a “gift” from your company as thanks for their contribution. Often, that gift is the product you plan to sell or other special perks, like meeting the business owner or getting their name in the credits. This makes crowdfunding a popular option for people who want to produce creative works (like a documentary), or a physical product (like a high-tech cooler).
Crowdfunding is also popular because it’s very low risk for business owners. Not only do you get to retain full control of your company, but if your plan fails, you’re typically under no obligation to repay your crowdfunders. Every crowdfunding platform is different, so make sure to read the fine print and understand your full financial and legal obligations.
Get a small business loan
If you want to retain complete control of your business, but don’t have enough funds to start, consider a small business loan. To increase your chances of securing a loan, you should have a business plan, expense sheet, and financial projections for the next five years. These tools will give you an idea of how much you’ll need to ask for, and will help the bank know they’re making a smart choice by giving you a loan. Once you have your materials ready, contact banks and credit unions to request a loan. You’ll want to compare offers to get the best possible terms for your loan.
4: Pick your business location
Your business location is one of the most important decisions you’ll make. Whether you’re setting up a brick-and-mortar business or launching an online store, the choices you make could affect your taxes, legal requirements, and revenue.
Research the best place to locate your business
You’ll need to register your business, pay taxes, and get licenses and permits in the place you choose to locate your business. Where you locate your business depends in part on the location of your target market, business partners, and your personal preferences. In addition, you should consider the costs, benefits, and restrictions of different government agencies.
Region-specific business expenses
When you calculate your startup costs, take into account the way different expenses might cost more or less depending on your location. Costs that can vary significantly by location include standard salaries, minimum wage laws, property values, rental rates, business insurance rates, utilities, and government licenses and fees.
Local zoning ordinances
If you buy, rent, build, or plan to work out of a physical property for your business, make sure it conforms to local zoning requirements. Neighborhoods are generally zoned for either commercial or residential use. Zoning ordinances can restrict or entirely ban specific kinds of businesses from operating in an area. You might have fewer zoning restrictions if you base your business out of your home, but zoning ordinances can still apply even to home-based businesses. Zoning laws are typically controlled at the local level, so check with your department of city planning, or similar office, to find out about the zoning laws in your area.
State and local taxes
Consider the tax landscape for the state, county, and city. Income tax, sales tax, property tax, and corporate taxes can vary significantly from place to place. In fact, some states are well-known for creating tax environments that are very friendly to certain kinds of companies. That’s part of the reason why tech startups, financial institutions, and manufacturing tend to concentrate in certain areas of the country. Visit state and local government websites to find out what the tax landscape for your area looks like.
State and local government incentives
Some state and local governments offer special tax credits for small businesses. You might also find state-specific small business loans or other financial incentives. Incentive programs and benefits are often related to job creation, energy efficiency, urban redevelopment, and technology. Visit local SBA Offices, Small Business Development Centers, Women’s Business Centers state and local government websites to find more information.
Federal government incentives
The federal government offers benefits to small businesses that contract with the government and are based in underutilized areas. Check into the Historically Underutilized Business Zones (HUBZone) program to see if you qualify for preferential access to federal procurement opportunities.
5: Choose a business structure
The legal structure you choose for your business will impact your business registration requirements, how much you pay in taxes, and your personal liability.
Your business structure affects how much you pay in taxes, your ability to raise money, the paperwork you need to file, and your personal liability. You’ll need to choose a business structure before you register your business with the state. Most businesses will also need to get a tax ID number and file for the appropriate licenses and permits. Choose carefully. While you may convert to a different business structure in the future, there may be restrictions based on your location. This could also result in tax consequences and unintended dissolution, among other complications. Consulting with business counselors, attorneys, and accountants can prove helpful.
Review common business structures
A sole proprietorship is easy to form and gives you complete control of your business. You’re automatically considered to be a sole proprietorship if you do business activities but don’t register as any other kind of business.
Sole proprietorships do not produce a separate business entity. This means your business assets and liabilities are not separate from your personal assets and liabilities. You can be held personally liable for the debts and obligations of the business. Sole proprietors are still able to get a trade name. It can also be hard to raise money because you can’t sell stock, and banks are hesitant to lend to sole proprietorships. Sole proprietorships can be a good choice for low-risk businesses and owners who want to test their business idea before forming a more formal business.
Partnerships are the simplest structure for two or more people to own a business together. There are two common kinds of partnerships: limited partnerships (LP) and limited liability partnerships (LLP). Limited partnerships have only one general partner with unlimited liability, and all other partners have limited liability. The partners with limited liability also tend to have limited control over the company, which is documented in a partnership agreement. Profits are passed through to personal tax returns, and the general partner — the partner without limited liability — must also pay self-employment taxes.
Limited liability partnerships are similar to limited partnerships, but give limited liability to every owner. An LLP protects each partner from debts against the partnership, they won’t be responsible for the actions of other partners. Partnerships can be a good choice for businesses with multiple owners, professional groups (like attorneys), and groups who want to test their business idea before forming a more formal business.
Limited liability company (LLC)
An LLC lets you take advantage of the benefits of both the corporation and partnership business structures.LLCs protect you from personal liability in most instances, your personal assets — like your vehicle, house, and savings accounts — won’t be at risk in case your LLC faces bankruptcy or lawsuits. Profits and losses can get passed through to your personal income without facing corporate taxes. However, members of an LLC are considered self-employed and must pay self-employment tax contributions towards Medicare and Social Security.
LLCs can have a limited life in many states. When a member joins or leaves an LLC, some states may require the LLC to be dissolved and re-formed with new membership — unless there’s already an agreement in place within the LLC for buying, selling, and transferring ownership. LLCs can be a good choice for medium- or higher-risk businesses, owners with significant personal assets they want to be protected, and owners who want to pay a lower tax rate than they would with a corporation.
A corporation, sometimes called a C corp, is a legal entity that’s separate from its owners. Corporations can make a profit, be taxed, and can be held legally liable. Corporations offer the strongest protection to its owners from personal liability, but the cost to form a corporation is higher than other structures. Corporations also require more extensive record-keeping, operational processes, and reporting.
Unlike sole proprietors, partnerships, and LLCs, corporations pay income tax on their profits. In some cases, corporate profits are taxed twice — first, when the company makes a profit, and again when dividends are paid to shareholders on their personal tax returns. Corporations have a completely independent life separate from its shareholders. If a shareholder leaves the company or sells his or her shares, the C corp can continue doing business relatively undisturbed. Corporations have an advantage when it comes to raising capital because they can raise funds through the sale of stock, which can also be a benefit in attracting employees. Corporations can be a good choice for medium- or higher-risk businesses, businesses that need to raise money, and businesses that plan to “go public” or eventually be sold.
An S corporation, sometimes called an S corp, is a special type of corporation that’s designed to avoid the double taxation drawback of regular C corps. S corps allow profits, and some losses, to be passed through directly to owners’ personal income without ever being subject to corporate tax rates. Not all states tax S corps equally, but most recognize them the same way the federal government does and taxes the shareholders accordingly. Some states tax S corps on profits above a specified limit and other states don’t recognize the S corp election at all, simply treating the business as a C corp.
S corps must file with the IRS to get S corp status, a different process from registering with their state. There are special limits on S corps. S corps can’t have more than 100 shareholders, and all shareholders must be U.S. citizens. You’ll still have to follow strict filing and operational processes of a C corp. S corps also have an independent life, just like C corps. If a shareholder leaves the company or sells his or her shares, the S corp can continue doing business relatively undisturbed. S corps can be a good choice for a business that would otherwise be a C corp, but meet the criteria to file as an S corp.
A benefit corporation, sometimes called a B corp, is a for-profit corporation recognized by a majority of U.S. states. B corps are different from C corps in purpose, accountability, and transparency, but aren’t different in how they’re taxed.B corps are driven by both mission and profit. Shareholders hold the company accountable to produce some sort of public benefit in addition to a financial profit. Some states require B corps to submit annual benefit reports that demonstrate their contribution to the public good. There are several third-party B corp certification services, but none are required for a company to be legally considered a B corp in a state where the legal status is available.
Close corporations resemble B corps but have a less traditional corporate structure. These shed many formalities that typically govern corporations and apply to smaller companies. State rules vary, but shares are usually barred from public trading. Close corporations can be run by a small group of shareholders without a board of directors.
Nonprofit corporations are organized to do charity, education, religious, literary, or scientific work. Because their work benefits the public, nonprofits can receive tax-exempt status, meaning they don’t pay state or federal taxes income taxes on any profits it makes. Nonprofits must file with the IRS to get tax exemption, a different process from registering with their state. Nonprofit corporations need to follow organizational rules very similar to a regular C corp. They also need to follow special rules about what they do with any profits they earn. For example, they can’t distribute profits to members or political campaigns. Nonprofits are often called 501(c)(3) corporations — a reference to the section of the Internal Revenue Code that is most commonly used to grant tax-exempt status.
A cooperative is a business or organization owned by and operated for the benefit of those using its services. Profits and earnings generated by the cooperative are distributed among the members, also known as user-owners. Typically, an elected board of directors and officers run the cooperative while regular members have voting power to control the direction of the cooperative. Members can become part of the cooperative by purchasing shares, though the amount of shares they hold does not affect the weight of their vote.
Combine different business structures
Designations like S corp and nonprofit aren’t strictly business structures — they can also be understood as a tax status. It’s possible for an LLC to be taxed as a C corp, S corp, or a nonprofit. These arrangements are far less common and can be more difficult to setup. If you’re considering one of these non-standard structures, you should speak with a business counselor or an attorney to help you decide.
6: Choose your business name
It’s not easy to pick the perfect name. You’ll want one that reflects your brand and captures your spirit. You’ll also want to make sure your business name isn’t already being used by someone else.
Register your business name to protect it
You’ll want to choose a business name that reflects your brand identity and doesn’t clash with the types of goods and services you offer. Once you settle on a name you like, you need to protect it. There are four different ways to register your business name. Each way of registering your name serves a different purpose, and some may be legally required depending on your business structure and location.
- Entity name protects you at state level
- Trademark protects you at a federal level
- Doing Business As (DBA) doesn’t give legal protection, but might be legally required
- Domain name protects your business website address
Each of these name registrations are legally independent. Most small businesses try to use the same name for each kind of registration, but you’re not normally required to.
4 different ways to register your business name
An entity name can protect the name of your business at a state level. Depending on your business structure and location, the state may require you to register a legal entity name. Your entity name is how the state identifies your business. Each state may have different rules about what your entity name can be and usage of company suffixes. Most states don’t allow you to register a name that’s already been registered by someone else, and some states require your entity name to reflect the kind of business it represents.
In most cases, your entity name registration protects your business and prevents anyone else in the state from operating under the same entity name. However, there are exceptions pertaining to state and business structure. Check with your state for rules about how to register your business name.
A trademark can protect the name of your business, goods, and services at a national level. Trademarks prevent others in the same (or similar) industry in the U.S. from using your trademarked names. For example, if you were an electronics company and wanted to call your business Springfield Electronic Accessories and one of your products Screen Cover 5000, trademarking those names would prevent other electronics businesses or similar products from using those same names.
Businesses in every state are subject to trademark infringement lawsuits, which can prove costly. That’s why you should check your prospective business, product, and service names against the official trademark database, maintained by the United States Patent and Trademark Office.
Doing Business As (DBA) name
You might need to register your DBA — also known as a trade name, fictitious name, or assumed name — with the state, county, or city your business is located in. Registering your DBA name doesn’t provide legal protection by itself, but most states require you to register your DBA if you use one. Some business structures require you to use a DBA. Even if you’re not required to register a DBA, you might want to anyway. A DBA lets you conduct business under a different identity from your own personal name or your formal business entity name. As an added bonus, getting a DBA and federal tax ID number (EIN) allows you to open a business bank account.
Multiple businesses can go by the same DBA in one state, so you’re less restricted in what you can choose. There’s also more leeway in the clarity of business function. For example, a small business owner could use Springfield Electronic Accessories for their entity name but use TechBuddy for their DBA. Just remember that trademark infringement laws will still apply.
Determine your DBA requirements based on your specific location. Requirements vary by business structure as well as by state, county, and municipality, so check with local government offices and websites.
If you want an online presence for your business, start by registering a domain name — also known as your website address, or URL. Once you register your domain name, no one else can use it for as long as you continue to own it. It’s a good way to protect your brand presence online.
If someone else has already registered the domain you wanted to use, that’s okay. Your domain name doesn’t actually need to be the same as your legal business name, trademark, or DBA. For example, Springfield Electronic Accessories could register the domain name techbuddyspringfield.com. You’ll register your domain name through a registrar service. Consult a directory of accredited registrars to determine which ones are safe to use, and then pick one that offers you the best combination of price and customer service. You’ll need to renew your domain registration on a regular basis.
7: Register your business
Once you’ve picked the perfect business name, it’s time to make it legal and protect your brand. If you’re doing business under a name different than your own, you’ll need to register with the federal government, and maybe your state government, too.
Find out if you need to register your business
Your location and business structure determine how you’ll need to register your business. Determine those factors first, and registration becomes very straightforward. For most small businesses, registering your business is as simple as registering your business name with state and local governments. In some cases, you don’t need to register at all. If you conduct business as yourself using your legal name, you won’t need to register anywhere. But remember, if you don’t register your business, you could miss out on personal liability protection, legal benefits, and tax benefits.
Register with federal agencies
Most businesses don’t need to register with the federal government to become a legal entity, other than simply filing to get a federal tax ID. Small businesses sometimes register with the federal government for trademark protection or tax exempt status. If you want to trademark your business, brand or product name, file with the United States Patent and Trademark office once you’ve formed your business. If you want tax-exempt status for a nonprofit corporation, register your business as a tax-exempt entity with the IRS. To create an S corp, you’ll need to file form 2553 with the IRS.
Register with state agencies
If your business is an LLC, corporation, partnership, or nonprofit corporation, you’ll probably need to register with any state where you conduct business activities.Typically, you’re considered to be conducting business activities in a state when:
- Your business has a physical presence in the state
- You often have in-person meetings with clients in the state
- A significant portion of your company’s revenue comes from the state
- Any of your employees work in the state
Some states allow you to register online, and some states make you file paper documents in person or through the mail. Most states require you to register with the Secretary of State’s office, a Business Bureau, or a Business Agency.
Get a registered agent
If your business is an LLC, corporation, partnership, or nonprofit corporation, you’ll need a registered agent in your state before you file. A registered agent receives official papers and legal documents on behalf of your company. The registered agent must be located in the state where you register. Many business owners prefer to use a registered agent service rather than do this role themselves.
File for foreign qualification
If your LLC, corporation, partnership, or nonprofit corporation conducts business activities in more than one state, you might need to form your business in one state and then file for foreign qualification in other states where your business is active. The state where you form your business will consider your business to be domestic, while every other state will view your business as foreign. Foreign qualification notifies the state that a foreign business is active there.
Foreign qualified businesses typically need to pay taxes and annual report fees in both their state of formation and states where they’re foreign qualified. To foreign qualify, file a Certificate of Authority with the state. Many states also require a Certificate of Good Standing from your state of formation. Each state charges a filing fee, but the amount varies by state and business structure. Check with state offices to find out foreign qualification requirements and fees.
File state documents and fees
In most cases, the total cost to register your business will be less than $300, but fees vary depending on your state and business structure. The information you’ll need typically includes:
- Business name
- Business location
- Ownership, management structure, or directors
- Registered agent information
- Number and value of shares (if you’re a corporation)
The documents you need — and what goes in them — will vary based on your state and business structure.
Register with local agencies
Typically, you don’t need to register with county or city governments to actually form your business. If your business is an LLC, corporation, partnership, or nonprofit corporation, you might need to file for licenses and permits from the county or city. Some counties and cities also require you to register your DBA — a trade name or a fictitious name — if you use one. Local governments determine registration, licensing, and permitting requirements, so visit local government websites to find out what you need to do.
Stay up to date with registration requirements
Some states require you to provide reports soon after registering depending on your business structure. You may need to file additional documentation with your state tax board or franchise tax board. These filings are typically referred to as Initial Reports or Tax Board registration, and most often need to be filed within 30–90 days after you register with the state. Check with your local tax office or franchise tax board, if it applies to you.
8: Get federal and state tax IDs
You’ll use your employer identification number (EIN) for important steps to start and grow your business, like opening a bank account and paying taxes. It’s like a social security number for your business. Some — but not all — states require you to get a tax ID as well.
Get a federal tax ID number
Your Employer Identification Number (EIN) is your federal tax ID. You need it to pay federal taxes, hire employees, open a bank account, and apply for business licenses and permits.
It’s free to apply for an EIN, and you should do it right after you register your business. Your business needs a federal tax ID number if it does any of the following:
- Pays employees
- Operates as a corporation of partnership
- Files tax returns for employment, excise, or alcohol, tobacco, and firearms
- Withholds taxes on income, other than wages, paid to a non-resident alien
- Uses a Keogh Plan (a tax-deferred pension plan)
- Works with certain types of organizations
Apply for an EIN with the IRS assistance tool. It will guide you through questions and ask for your name, social security number, address, and your “Doing Business As” (DBA) name. Your nine-digit federal tax ID becomes available immediately upon verification.
Change or replace your EIN
If you already have an EIN, you might have to change or replace it with a new one if certain changes have occurred with your business.Types of business changes that might require you to change or replace your EIN are:
- Name change
- Address change
- Changes in ownership
- Changes in management
- Change in tax status
Your requirements will depend on your business structure and the kind of change that occurred. Check with the IRS to determine exactly whether you need to change or replace your EIN.
Get a state tax ID number
The need for a state tax ID number ties directly to whether your business must pay state taxes. Sometimes, you can use state tax ID numbers for other functions, like protection against identity theft for sole proprietors. Tax obligations differ at the state and local levels, so you’ll need to check with your state’s websites. To know whether you need a state tax ID, research and understand your state’s laws regarding income taxes and employment taxes, the two most common forms of state taxes for small businesses. The process to get a state tax ID number is similar to getting a federal tax ID number, but it will vary by state. You’ll have to check with your state government for specific steps.
State income and employment taxes for businesses
Seven states have no income tax, and another two only impose tax on income from dividends. States that do tax income will determine figures based on business structure. Taxes also vary by state on employment insurance and workers’ compensation insurance. Understand these and other implications in calculating startup costs and choosing a business structure. Visit your state’s website to identify whether you need to get a state tax ID number in order to pay state taxes.
9: Apply for licenses and permits
Keep your business running smoothly by staying legally compliant. The licenses and permits you need for your business will vary by industry, state, location, and other factors.
Federal licenses and permits
You’ll need to get a federal license or permit if your business activities are regulated by a federal agency.Check to see if any of your business activities are listed here, and then check with the right federal agency to see how to apply. Requirements and fees depend on your business activity and the agency issuing the license or permit. It’s best to check with the issuing agency for details on the business license cost.
State licenses and permits
The licenses and permits you need from the state, county, or city will depend on your business activities and business location. Your business license fees will also vary. States tend to regulate a broader range of activities than the federal government. For example, business activities that are commonly regulated locally include auctions, construction, and dry cleaning, farming, plumbing, restaurants, retail, and vending machines.
Some licenses and permits expire after a set period of time. Keep close track of when you need to renew them — it’s often easier to renew than it is to apply for a new one. You’ll have to research your own state, county, and city regulations. Industry requirements often vary by state. Visit your state’s website to find out which permits and licenses you need.
10: Open a business bank account
A small business checking account can help you handle legal, tax, and day-to-day issues. The good news is it’s easy to set one up if you have the right registrations and paperwork ready.
Benefits of business bank accounts
As soon as you start accepting or spending money as your business, you should open a business bank account. Common business accounts include a checking account, savings account, credit card account, and a merchant services account. Merchant services accounts allow you to accept credit and debit card transactions from your customers. You can open a business bank account once you’ve gotten your federal EIN. Most business bank accounts offer perks that don’t come with a standard personal bank account.
- Protection. Business banking offers limited personal liability protection by keeping your business funds separate from your personal funds. Merchant services also offer purchase protection for your customers and ensures that their personal information is secure.
- Professionalism. Customers will be able to pay you with credit cards and make checks out to your business instead of directly to you. Plus, you’ll be able to authorize employees to handle day-to-day banking tasks on behalf of the business.
- Preparedness. Business banking usually comes with the option for a line of credit for the company. This can be used in the event of an emergency, or if your business needs new equipment.
- Purchasing power. Credit card accounts can help your business make large startup purchases and help establish a credit history for your business.
Find an account with low fees and good benefits
Some business owners open a business account at the same bank they use for their personal accounts. Rates, fees, and options vary from bank to bank, so you should shop around to make sure you find the lowest fees and the best benefits.
Here are things to consider when you’re opening a business checking or savings account:
- Introductory offers
- Interest rates for savings and checking
- Interest rates for lines of credit
- Transaction fees
- Early termination fees
- Minimum account balance fees
Here are things to consider when you’re opening a merchant services account:
- Discount rate: The percentage charged for every transaction processed.
- Transaction fees: The amount charged for every credit card transaction.
- Address Verification Service (AVS) fees.
- ACH daily batch fees: Fees charged when you settle credit card transactions for that day.
- Monthly minimum fees: Fees charged if your business doesn’t meet the minimum required transactions.
Payment processing companies are an increasingly popular alternative to traditional merchant services accounts. Payment processing companies sometimes provide extra functionality, like accessories that let you use your phone to accept credit card payments. The fee categories that you need to consider will be similar to merchant services account fees. If you find a payment processor that you like, remember that you’ll still need to connect it to a business checking account to receive payments.
Get documents you need to open a business bank account
Opening a business bank account is easy once you’ve picked your bank. Simply go online or to a local branch to begin the process. Here are some of the most common documents banks ask for when you open a business bank account. Some banks may ask for more.
- Employer Identification Number (EIN) (or a Social Security number, if you’re a sole proprietorship)
- Your business’s formation documents
- Ownership agreements
- Business license