Last Friday, I had the pleasure of presenting at the Brentwood Business Breakfast on the topic, "Is Your Business Legit?" Drawing from a social media post from October 2024, I expanded on seven essential items to include two more, making a total of nine crucial elements for establishing a legitimate business.
The attendees were really receptive to the information, for which I am thankful, and some even asked for more details. I'm sure the information is appropriate for all readers of this blog. So here are the Nine Items That Make Your Business Legit.
1. A Well Thought Out Business Plan
Business plans are a necessary start for every business. Sometimes, you can just go out and make money by selling goods or providing services. However, the business plan directs how your business will progress and which clients your business will serve. It allows you to differentiate yourself from other businesses in the same category or helps you plan how to communicate to your desired clientele. Business plans are also appropriate, and sometimes necessary, for obtaining funding from investors. Investors want to know that they will receive a return on the capital they provide to get your business going. A well-thought-out business plan will guide your business and show others that you are a legitimate business, even without a large clientele.
2. Registration with the State Secretary of State
I don't give a specific State Secretary of State because you can register a business in any one of the 50 states. Business law is a state issue, and every state has its own laws and fees regarding business entity registration. Large corporations often choose Delaware for incorporation because of its advanced business laws. Some states do not have business entity registration information as public record, so they are better for owner privacy, like Texas. Some business owners choose their state of registration by where the business is located or the fees associated with registration. It's your choice as the business owner; just make sure you register the business in a state. Registering with the state secretary of state is vital to separate your business from personal finances and protect your personal assets.
3. Operating Agreement or Bylaws
The governing documents for your business are either an Operating Agreement, which is for LLCs, or Bylaws, which are for corporations. These documents detail how the business is to be run and governed by those in leadership. They detail who the officers are, how the shareholders interact with the officers and directors, whether you will have a Board of Directors, etc. This is something that serious shareholders and officers will want to have on record for your business. This document is not sent to the state secretary of state; you only keep the document in the company's records. If there is ever an issue as to how a business is run, go to your governing documents.
Further, templates are fine to get you started. The use of those templates, however, is not set in stone. Change them around to meet the needs of your business. Working with an attorney is best for this part of your business formation process.
4. Federal Employer Identification Number (FEIN)
Every business needs a Federal Employer Identification Number (FEIN). This is essentially the social security number for your business. You will use that number on every IRS filing, which includes business income taxes, withholding tax filings, estimated taxes, etc. You will also need this number for opening a business checking account, which you definitely need. The use of the FEIN further proves that your business is separate from your personal affairs. Visit the IRS website to apply for an FEIN immediately after registering your business.
5. Template Contract for Goods or Services
Many businesses operate on an invoice or solely on point of sale receipts. This is not an uncommon occurrence. There are certain events or terms, however, that need to be in written form with proof of assent in the document. Even if you are selling goods for a relatively small amount, a return policy is still a contract between you and your clients regarding purchases from your business. For services contracts, delineating the terms as to how you will perform and when payment is due is vital. My firm operates with contracts for the services that the firm provides. Your business should do the same. Handshakes are great. Sometimes word is bond. In the eyes of the court, however, if it wasn't written, it didn't happen. Further, if the services to be provided could go over a year, are for the sale of goods over $500, or are for the sale of land, the Statute of Frauds requires that you have the agreement in writing in order to sue on that contract. To keep your business practices legit, have a written contract for your sales.
6. Business Checking and Savings Account
When you register your business with the state secretary of state, you create a veil between your business and your personal affairs. In order to maintain this veil, not only do you have to have an active business registration, you must keep your business finances separate from your personal finances. One way to do this is with a separate business checking account. Pay all of your business expenses from the business bank account. Pay yourself from your business bank account to your personal bank account. Only pay for business expenses from your business bank account. If you must use your personal bank account, keep it small and reimburse yourself as any other employee would expect a reimbursement. You will need your FEIN for your business bank account. When there is not a firm line separating your business finances from your personal finances, if you are sued, the opposing party can pierce the corporate veil and reach your personal assets. To keep your personal affairs protected, maintain that corporate veil, and substantiate the legitimacy of your business, open and maintain a business bank account.
For further reading on business finances, read Profit First.
7. Employee Handbook
If you are your business' only employee now, that will not last forever. At some point in time, your business will grow to where employees are needed. Before you hire your first employee, have an employee handbook to onboard your employee. The handbook is essentially the rules for how your business will interact with its employees. It should cover most situations that the employee may encounter while working for your business. There are some terms that are vital, some that are important, and some that are good to include. Employee handbooks are not the same for every business. Like your governing document and your contracts, a template employee handbook is a good start. Just make sure you work with an attorney to ensure that your employee handbook is compliant with federal and state employment law.
8. Business Domain Name
I see it time and again. Business owners with a huge client base and significant income using @gmail, @outlook, or @yahoo.com for their business email. The email address alone says, "I'm not that technologically savvy." or "I don't have the funds to pay for a yearly domain subscription." Domain names are not that expensive and show to your clients and the world that you own a legitimate business. You don't have to have a website, just buy the domain for email purposes. Your trademark attorney will thank you when you apply for a trademark registration for your business.
9. Business Phone Line
Many businesses are online. Anyone can start a business out of their house and run a very successful business. There is no detraction from your business' legitimacy by working from home or the nearest coffee shop. What will detract from your business' legitimacy is your use of your personal phone number for business communication. Get a business phone line for business communication. They are not expensive, and the fees paid for the phone line are a tax deduction. You also do not have to have a brick-and-mortar location to have a business line. You can open a cellular phone line specifically for the business or obtain a VOIP service for your business. Many of them also offer receptionist services for the phone line. Some virtual office memberships will provide a business phone line as well. To substantiate the legitimacy of your business, get a business phone line for business communication.
When I spoke at the Brentwood Business Breakfast, I presented these topics, though other information was provided as well. I also informed the attendees that everything that I communicated to them, my business has as well. I am not the type to adhere to "Do as I say and not as I do." I take pride in showing that the counsel that I am giving works and it is helpful to protect my business and it will be helpful to protect yours as well.
Some information here is not the same as information that I provided at the breakfast. The presentation was not recorded. If you would like to receive the slides from my presentation or have any questions, please feel free to email the firm. Let's work together to ensure your business is as legitimate and successful as possible.
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