There’s a part of Murphy’s Law that states, “Whenever you set out to do something, something else must be done first.” Welcome to the concept of “setup.”
From laptop operating systems to children’s play dates, many things in our lives require some kind of setup. They can be as easy as a self-inflating rescue raft or as challenging as assembling some types of Scandanavian furniture.
Here’s some good news. When it comes to starting a business, a sole proprietorship often has the easiest setup. Before we get to that, let’s answer, “What is a sole proprietorship?”
It’s the simplest and most common structure chosen to start a business, and it’s owned and run by one person. Unlike an incorporated business, it’s not a separate entity. You are the business and the business is you. That means you’re entitled to all profits, but you’re also responsible for all your business’s debts, losses and liabilities.
Now, here’s how to get one started.
We know, this first step doesn’t sound very easy. But don’t let the wording fool you. Jumping into business as a sole proprietor is like jumping into a pool. You want to know how deep the water is and how many other people might be in there splashing around.
Market research is a way to understand the opportunities and the risks that may await you after you take the plunge. A good way to start is by looking at these six areas.
This may seem a bit obvious, but it’s important. You may have an awesome product or you offer a cool service, but if no one wants it, it’ll be hard to turn it into a profitable business.
For example, let’s say you make killer mac and cheese and want to start a food truck business. Do people like your mac and cheese (Um, yes!)? Are they willing to pay money for good mac and cheese (Yes, again!)? Alright then, we’re off to a good start.
What percent of the people in your business area eat mac and cheese? And how often? Having a lot of mac and cheese lovers or having very few can be both good and bad. Knowing this information can help you when considering some of these other areas. More on this in a bit.
If there are a lot of people enjoying mac and cheese (see above) there’s a good chance there are a good number of businesses serving it up for them. If so, you may want to consider how you can do it better.
If there aren’t a lot of people eating mac and cheese in your area, they may not know what they’re missing. That could give you a chance to dominate the market.
Here’s where your food truck might be a good idea. If customers are going to restaurants or stores to get their mac and cheese, being able to bring it to them could be a great way to differentiate your business and drive sales.
Or maybe you have different varieties to offer, such as vegan or lactose-free mac and cheese.
Knowing where the mac and cheese lovers are can help you determine where to set up shop or how to plan a truck route.
Is there an opportunity to offer something that’s more affordable, or maybe people would be willing to pay more for a premium mac and cheese that you offer.
You certainly can go deeper into your market research, and the Small Business Administration has some helpful tools to help you with that.
Much like market research, this may not be as complicated as you may think. Think of it as a roadmap (or a navigation app) for your business. It helps you lay out how you plan to reach your destination (a successful business).
And much like a navigation app, it can help you find ways around trouble or obstacles that might pop up along the way.
Speaking of help, as a company that provides insurance for small businesses, many people we talk with are just getting their dream off the ground. We’ve learned a lot from our customers, and that has helped us create both a business plan template and a guide for creating a business plan specifically for new business owners like you.
Since we’re on the subject of business insurance, a good time to look into it is well before you open your doors or gas up your food truck. As a small business owner, you’re going to have a full plate. And as a sole proprietor, you’re going to have a lot of full plates (marketing, operations, accounting, production).
When you’re trying to manage everything without a lot of help, mistakes can happen. Even an innocent mistake can put all you’ve worked for at risk if someone files a claim against you.
Take a look at the average cost of the most common claims:
$30,000 for property damage or accident claims $50,000 for reputational harm claims (e.g., in cases of slander or libel) $20,000 for a customer slip-and-fall case
That’s why it’s so important to have sole proprietorship insurance. This coverage can help protect you when you make a mistake, or if a customer gets hurt in your store, your office, or even at your food truck.
Here’s an example of what sole proprietor liability could mean for you. Let’s say that you have a cleaning business and you’re cleaning a customer’s kitchen floor. The customer walks in to get a glass of water, and before you can warn her, she slips and falls.
Her back is hurt so badly that she has to be taken to the hospital in an ambulance. She ends up needing physical therapy for eight weeks, and those sessions are pricey.
Without sole proprietor insurance, there’s a good chance that you and your business would have to pay your customer’s medical bills from your own pocket, which isn’t just a financial hit on your business — it could affect your family’s finances.
Here’s another example. Imagine you're an acupuncturist and while setting up your acupuncture bed at a client’s house, you accidentally knock over and break their TV. The client is furious and sues you for the damage.
Fortunately, if you have sole proprietor insurance, not only will your policy cover replacing the TV, it also may cover the fees associated with a lawsuit (up to policy limits).
We get it. For sole proprietorship insurance can seem even more complicated than market research and business plans. No worries. We’re here to fix that. After all, we’re called Simply Business for a reason.
Give us 10 minutes and we can get you the coverage you need to help protect you from sole proprietor liability at an affordable rate.
For a sole proprietorship, this step can be both simple and fun. As a sole proprietor, the legal name of your business could be your personal name, like John’s Mac & Cheese. See, simple. However, if you want to create a more distinctive, fun name, you can also do that.
In that case, you should check the United States Patent and Trademark Office (USPTO) to make sure no one else is using that name. If not, then you’ll need to register it as a “fictitious” name, commonly known as a DBA (doing business as).
Choosing a name can be fun, and it also can help you stand out from your competitors. If you’re looking for some inspiration, check out these cool business names.
When it comes to naming, it also can make sense to register an online domain name, especially if you have a DBA. This not only secures the name for when you’re ready to launch your website or other online presence — it typically prevents someone else from laying claim to it.
Speaking of launching your website, you may want to move that up on your to-do list if it’s not there already. Here are a couple of reasons why:
Studies show that between 70% and 80% of people research a company online before visiting a small business or making a purchase with them.
Also, 97% of consumers go online to find a local business or local services.
Yet despite that, less than two-thirds (64%) of small businesses have a website.
If those numbers make sense to you, but how to put a website together doesn’t, we’ve got an article that can help get you online in no time.
Depending on what you do, you may need certain licenses, permits, or other approvals and certifications to get started. For instance, your mac and cheese truck will likely need a health department permit for preparing or serving food.
These can vary by state and whether or not your business activities are regulated by a federal agency. We have some information about business licenses here that can help.
However, unlike other forms of businesses, in most cases you typically won't have to register or formally declare that you’re in business, which can save you time and money right off the bat.
Something else to consider is getting an EIN (employer identification number) from the IRS. This will make tax reporting easier and is helpful if you decide to bring on any employees or independent contractors.
While you can legally use your personal bank account for business payments and deposits, it’s a good idea to look at opening a business bank account.
A business bank account enables you to accept credit card payments, can make tax reporting easier for you and your accountant, and helps build a credit history for your business.
Finding the best bank requires that you have a thorough understanding of what your business needs are and what the bank can offer you. Do you just need a checking account to pay bills and deposit receipts, as you might with a food truck?
Or will you need access to loans or business credit cards for purchases? Is banking online during off-hours better for your schedule, or is seeing a familiar face when you walk into the lobby more your style?
Different banks offer different features and services, and along with them, different types of fees and requirements. You can find more useful information about how to choose the best bank for your small business at Simply U, our small business resource center.
It’s easy to think of small businesses, and especially sole proprietorships, as the “little guys” in the U.S. economy. And it may feel that way if you’re working out of a tiny storefront or a cramped food truck. In reality, sole proprietors play a significant role in the business world.
According to the Small Business Administration’s (SBA) Office of Advocacy, small businesses make up 99.9% of all U.S. businesses. And sole proprietors account for 73.2% of those small businesses.
One of the reasons there are so many sole proprietorships could have to do with how easy it is to set one up. Sole proprietorships also offer greater control of your business, simpler tax filing, and other benefits you can learn more about here.
And one final bit of good news. If you’re thinking of starting a sole proprietorship and you’ve read to this point in the article, congratulations. You’ve already taken the first step.
As a 9-year-old at summer camp, I hated it — especially after being pulled screaming from the pool during the swimming competition. While this left me without an aquatic achievement patch, it also inspired the letter to my parents that got me an early release from Camp Willard. That showed me the power of writing. I’ve done my best to use it only for good ever since, such as writing helpful articles for small business owners.
Ed writes on a number of topics such as liability insurance, small business funding, and employee management.
This content is for general, informational purposes only and is not intended to provide legal, tax, accounting, or financial advice. Please obtain expert advice from industry specific professionals who may better understand your business’s needs. Read our full disclaimer
*Harborway Insurance policies are underwritten by Spinnaker Insurance Company and reinsured by Munich Re, an A+ (Superior) rated insurance carrier by AM Best. Harborway Insurance is a brand name of Harborway Insurance Agency, LLC, a licensed insurance producer in all 50 states and the District of Columbia. California license #6004217.