How to Start a Retail Business: A Step-By-Step Guide

ByIvan Stevanovic
April 26,2022

If owning your own retail business is your vision of a perfect career, you are not alone. With over one million retail businesses in the US alone, retailers thrive in online and real-world environments. Moreover, the opportunities for SMEs and micro-businesses have never been greater.

However, opening a small online retail business - with or without a brick-and-mortar store - requires a lot of strategic planning and hard work. So, how to start a retail business in this day and age? Check out our guide, which will take you through all of the steps needed.

Is Opening a Retail Store Right For You?

Before looking at names for your proposed venture, you must look at the pros and cons of retail to determine whether it is a suitable business model for you. Whether you’ve been planning to start a retail store for many years or it’s something that has emerged following career problems during the pandemic, there is a lot of potential for entrepreneurs looking to enter the arena in 2022 and beyond. Here are just six eye-opening statistics to highlight that:

  • Total global retail sales generated over $25 trillion in 2021 and are anticipated to top $26 trillion in 2022
  • Total eCommerce sales for 2021 were estimated at $870.8 billion, showing a CAGR of over 14% compared to 2020.
  • Over 98% of all retail businesses in the United States are small firms with under 50 employees. 
  • Small to mid-sized retailers have a gross margin of 51% on average. 
  • The retail industry accounts for more than 18% of America’s total gross domestic product (GDP).
  • Small to mid-sized US retailers complete an average of 482 transactions per month.

As the statistics above show, this is an excellent time to consider starting a store. Small retail businesses might not always grab the headlines, but they continue to be the backbone of the retail sector and can achieve significant and stable profits. Moreover, running a business of your own puts you in control of all important work-related matters.

However, be prepared to face a number of challenges. Before looking at how to become a retailer, it’s important to be honest with yourself. There will be long days ahead, particularly in the pre-launch phases. You’ll also need a passion for what you sell and the ability to manage your team effectively. Likewise, you’ll probably have to utilize both eCommerce and traditional selling methods to achieve your business goals.

Still, the best candidates for starting a retail business have never had it better.

12 Steps To Opening a Retail Store in 2022

If you are going to open a local store or a small online retail business, it’s imperative that you do it properly. After all, retail companies are prone to the same failure rates (20% in the first two years) as companies in any other industry. With the right strategy, though, your business will have a much higher chance of thriving in the highly contested retail market.

When starting a retail business, these tips will point you in the right direction.

Step 1: Find Your Niche

Retail is a very broad term., which is why researching the industry and finding your place in the market is the first step you’ll need to take. The results will influence everything from where you look to gain inventory for retail startup stores to guiding your target consumer profile. Finding the right niche is the perfect platform to build your upon.

Very few retail businesses boast a universal appeal. So before starting an eCommerce site or opening a store, you should do the following;

  • Try to create a business you are passionate about. Working on something you love will make tough times seem more manageable, while your enthusiasm can rub off on consumers and workers alike.
  • Think about potential obstacles, particularly in the early stages of running a company. Knowing the pros and cons of retail will make a huge difference.
  • Research the profitability of your niche by looking at Google Trends and other online industry insights. If there is no demand, you’ll need to look elsewhere.
  • Research the competition. Before starting a store, you can learn valuable tips about what to do - and, more importantly, what not to do - as a business owner.
  • Consider whether there is a gap in the market or an area that has shown potential for future growth.

As a business owner, whether you’re in the home decor retail, fashion or food industry, or just about any other niche, there are three main ways to attract customers. You can either bring something entirely new to the table, improve on the quality currently available on the market, or undersell the competition.

Step 2: Write a Business Plan

Many entrepreneurs (not only in retail) will create a basic business plan because they have no experience writing one and don’t realize its importance. In reality, the document is something that provides continued guidance and clarity as you look to turn a vision into a successful enterprise. A good business plan can increase the chances of growth by as much as 30%.

You may use a lean startup business plan or a one-page retail business plan if you have a very clear idea of what you are doing. A more thorough approach is necessary if you also need funding. Your plan must:

  • Include an executive summary with a  company description and a look at the internal organization and management. It should also have a  market analysis, a product line, marketing and sales information,  funding requests, financial projections, and an appendix.
  • Detail the challenges you’ll face and what makes your offline or eCommerce retail business unique.
  • Accurately outline your retail startup costs.
  • Detail your intended hiring process, even if you run a home-based online retail business powered by outsourced workers.
  • Follow a suitable format.

The business plan is made for your benefit as much as for finding potential backers or partners. Besides, adopting good organizational skills and an analytical approach at this stage will serve you well throughout the process to come.

Step 3: Finance Your Business

If you’re wondering how to open a retail store with no money, the good news is that there are options available. Making the business a legally sound operation costs next to nothing while online retail startup costs are very low too. Meanwhile, almost a quarter of retail sales are facilitated by drop shipping, which highlights an excellent opportunity to avoid stock costs.

With that said, you’ll still need some funding to get the company rolling - even when you expect to see quick returns. Some good funding options include:

  • Crowdfunding from friends, relatives, colleagues, and even strangers online
  • Bank loans
  • SBA business grants and loans
  • Small retail business credit cards
  • Private investments/angel investors.

You must have a clear understanding of the total retail startup costs and always give yourself a buffer of at least 10% over the estimates. There is nothing worse than failing even before you got the venture up and running because you underestimated the expenses.

Your ideas for a retail business are little more than wishful thinking until you’ve officially registered the company. You must first familiarize yourself with the different types of entities you could register. In most cases, it will be either a sole proprietorship or an LLC, but partnerships and corporations are options too.

The registration process is these days quicker and more convenient than ever before. Nonetheless, you’ll need to complete the following steps;

  • Check your proposed business name against trademark filings in the US Patent and Trademark Office.
  • Establish a detailed description of the business.
  • Register for your Federal Tax ID or Employer Identification Number so that you can work and employ a team.
  • Satisfy any state insurance requirements.
  • Set up a retail checking account for the business.

This part of the process will impact everything from your level of legal protection to the process of receiving funding. It will also determine the way the income will be taxed. With this in mind, it is often advised to use an accountant or financial advisor to handle this part of the process, especially if it’s your first venture.

Step 5: Develop Your Brand Personality

There are almost two billion websites online, and many of them are from competing retailers. If you want your retail store website to stand out from the crowd, you must develop a winning brand personality that resonates with your audience. Again, knowing your niche will be essential.

It takes an average of seven touchpoints to create brand awareness, and prospective leads and clients will form opinions based on several factors. So, you must look to perfect the following:

  • The brand’s visual elements including the logo, color schemes, website design, and more.
  • The layout of a store. When opening a storefront, you must also focus on the signage and window displays. Likewise, your website must have the right landing page.
  • Your mission and vision statement will define what you are and how you want to serve your community. Two-thirds of customers want to use brands that share their views. 
  • Your brand story. It should present the people behind the company earnestly and be something people can relate to.
  • Brand positioning: formal versus informal, budget-friendly versus premium products, etc.

A well-defined brand will help you select the right products, target the best audience for your niche, and perform more consistently.

Step 6: Gain a Business License For Retail

Obtaining the appropriate business licenses for your shop or retail store website might not be the most exciting aspect of launching your company. Still, it is one of the most significant steps you will have to undertake. It will ensure compliance and help you avoid penalties ranging from fines to enforced closure.

To make your business compliant even before opening its doors, you must ensure that you:

  • Get a sales permit from the state, allowing it to actively sell products and collect sales taxes
  • Gain an online retail license (if applicable) that reflects the type of products you are planning to sell
  • Secure product-specific permits (if applicable) for items like alcohol
  • Acquire any local government-issued sign permits and certificates of occupancy for your brick-and-mortar store
  • Secure any appropriate exporting licenses if you plan on having your eCommerce retail business selling internationally.

You will also need to consider issues like COVID-19 mandates and health and safety signage. While primarily thought of as an issue for physical stores, online retail companies may still need to take note for the sake of their workers.

At this stage, it will be worth finding the right business insurance too.

Step 7: Assemble A Winning Team

New retail businesses are unlikely to have an HR team, especially when it’s a home-based online retail business. But that doesn’t change the fact that assembling a great team is one of the most important tasks you’ll face.

There is a long list of workers you may need, from factory workers to shop floor assistants. When starting a retail business, this is one area where you will have plenty of options to consider. You can:

  • Hire permanent on-site workers like store salespersons and office workers
  • Utilize remote workers 
  • Partner with courier services and order fulfillment teams, as well as IT and cybersecurity experts
  • Utilize the gig economy to find short-term contractors for issues like graphic design
  • Use work placement schemes and internships to manage your staffing budget.

Not all of your employees will be needed right away. Even so, it’s essential to plan ahead so that your retail business keeps running smoothly. Otherwise, you could hit numerous setbacks along the way.

Step 8: Know Your Products

Finding the right inventory for a retail startup can be tricky. Whether it’s a greenhouse retail business or a food venture, you need to prioritize top-shelf goods to make a dent in the market. Ultimately, you will achieve nothing if the product quality isn’t up to scratch. Returning customers spend 33% more than first-time visitors. Giving them a reason to return is vital, and products are the answer.

There are various options at your disposal. If looking at how to start a fashion retail business, for example, you may wish to;

  • Design and manufacture the products in-house
  • Take your designs and outsource the manufacturing to another company
  • Consider selling existing garments as a reseller
  • Dropship or look to affiliate marketing 
  • Create a combination of two or more of the methods given above.

Whether it’s fashion or not, you need to focus on quality and be able to provide a wide range of options for consumers. Don’t forget about product personalization, though. 93% of B2B professionals believe it has a significant effect on revenue growth, so it’s definitely worth considering. If using outside vendors, be sure that they are trustworthy and will represent your brand well.

Step 9: Develop Your Physical & Online Stores

When starting a merchandising business, you have to create the right store to attract traffic. For a brick-and-mortar store, you’ll need to find a location where foot traffic is viable without spending a fortune.

It’s important that your retail store website ticks a number of boxes. You need to:

  • Check that your web host offers excellent uptime. Nearly 90% of consumers won’t return to a site that delivers a poor user experience.
  • Make the website visible. Search engines are the number one source of online traffic, especially from consumers prepared to do some shopping.
  • The website uses a suitable CMS and has a layout with clear navigation to product pages.
  • Utilize several landing pages. Creating 30 or more can bring as many as seven times more leads.
  • Support your website with social media marketing and PPC.

In short, your online store is a storefront and shop floor at the same time. If you do not make the right design and marketing choices, even the best products will fail to convert leads to sales. Conversely, an attractive-looking store that’s easy to navigate keeps users interested for longer, translating to more revenue.

Step 10: Consider Third-Party Selling

Even with a strong marketing strategy, it will be difficult to get people to find your store at first. Therefore, you may want to consider starting an Amazon retail store too. Around half of all US eCommerce goes through the platform. You’ll still be competing against other companies, but displaying your goods in the largest shopping window around will give you a better shot at success.

You may find that consumers buy from Amazon at first because they trust it more than a newly opened store. Give them time, though. Here are some things you can do to draw potential prospects in faster:

  • Ensure that all product images make a big impression
  • Focus on creating backend search terms
  • Utilize your product descriptions to tell your brand story.
  • Look for social media integrations and social influencer marketing. 

Other popular options include Etsy, eBay, and Walmart. However, the right choice will depend largely on the type of products you sell.

Step 11: Find The Right Retail POS

If you want your in-house retail store website or physical store to perform well, you’ll need to use a variety of tactics. Partnering with another local non-competing business or playing an active role in the local retailer community will help greatly. You should also consider your retail POS system carefully.

Omnichannel integration works great for retailers in both eCommerce and offline ventures. Here are some other factors that you’ll want to consider at this stage:

  • Online consumers want multiple payment options. You never want to lose a sale because someone is unable to make a payment.
  • eCommerce sites that offer repayment models will open their doors to bigger client bases due to the added flexibility they provide, but this could easily be a trap if your finances aren’t solid.
  • Mobile POS terminal payments have become increasingly common, especially with local retail businesses.
  • You will need a quality retail POS system to boost consumer satisfaction and sales.
  • POS terminals can now integrate with customer care, order fulfillment, and other features to deliver a better UX.

Even as a new retailer, you must look to set high standards right away. It is the only way to win new customers and set the foundation of a long-lasting relationship that will see them spending big on your brand in the years to come.

Step 12: Make an Advertising Push Before Opening Your Doors 

At this stage, you are finally almost ready to open your doors and start selling products. A good local advertising campaign for a brick-and-mortar store will go a long way towards generating hype for your products. The same goes for your online store, which you’ll need to advertise well on social networks and in the relevant forums and chat groups. At this stage, you should know your target audience well and can make the most impactful advertising campaign.

Final Words

Thousands of entrepreneurs will start an eCommerce retail business this year, while many more will open brick-and-mortar stores. While some will be destined for failure, those who take all the necessary steps to prepare properly and enter their niche with the right attitude will see their retail business thrive and generate profits quickly.

Consumers are far more interested in quality products, customer experience, brand authenticity, and corporate responsibility than the brand's size. Find the right audience and meet their needs well, and success should follow.

How can I open a retail store with no money?

Home-based online retail business ventures remove the costs of renting premises. Meanwhile, you can look to free online website builders and eCommerce strategies like dropshipping or affiliate marketing to save even more funds. Some money is needed for registering the firm and hosting your site, but you can save these funds in no time.

Is retail business profitable?

Successful ones certainly are. Research shows that brick-and-mortar stores can expect to make around 4% profits while online shops see 6% returns. While this may be smaller than some industries, companies that perform well will see far larger profits. Better still, unlike many business ideas, retailers can see those profits as early as year one.

How long does it take to open a retail store?

Timescales will vary from one business to the next.  You’ll have to consider issues such as what stage of planning you are in and whether it is a full-time venture or a side hustle. On average, though, a new business owner can expect to open a brick-and-mortar store in around six months or an eCommerce retail store within a few weeks.

Is starting a retail business hard?

If you’re looking at how to start a retail business, the good news is that officially registering an entity and launching an eCommerce store is now more affordable and accessible than ever. The real challenge comes from sourcing and marketing the right products to the right people. Traditional brick-and-mortar stores will need a longer preparation and will cost far more to get started, but it’s still a worthy consideration, especially if you have premises you could use for your business operations.

About the author

Ivan is an energetic ambivert with a passion for creative writing, music, languages and technology. He loves writing about small businesses and startups, and is on a constant mission to help you make the most informed choices about the various aspects of running your own business. In his free time, he enjoys playing and listening to music, biking, cooking, reading novels and playing video games.

More From Our Blog

Most business activities come with a high degree of risk. To minimize it, companies or organizations may obtain a certificate of insurance (COI) from an insurance company, outlining the coverage they have and expected outcomes. Aside from answering the question: “What is a COI?” this article discusses its importance and the types of COIs you can get. What Is a COI? A COI in business protects your company from specific occurrences defined in the terms of the insurance program. If you’re considering a partnership with another company, the COI also serves to give everyone peace of mind, as it represents reassurance that financial losses would be minimal should the collaboration fall through. COI documents contain all the essential details of your insurance policy in an easy-to-digest format. This information includes the details of the protected parties, the types of losses covered, the dates during which the policy is effective, and policy limits. Do I Need a COI? There are several reasons organizations get and request COIs. These include:  Proving Their Insurance Status A business certificate of insurance proves to clients that the company in question is insured. A reputable company should always be insured, and having your COI ready is one way to maintain that reputation. Outsourcing Protection Hiring additional workers outside of your organization comes with various risks. COI compliance is vital here, as it prevents you from rendering your insurance coverage void, even if your contractor is at fault. Make sure to only create contracts that adhere to your COI and the contractor’s. Reduces Liability Examine the COIs from potential partners carefully: In some cases, you can transfer your losses to the other party if things go wrong, and if your COI is not watertight, it might be able to do the same to you. Information Access Lastly, a COI policyholder can obtain the information to prove its insurance status rapidly, saving itself lots of time and administrative snags. Who Needs a COI? COIs are generally required whenever one company cooperates with another. For instance, if you run a toy store and supply products made by third-party manufacturers, you need guarantees their coverage is good enough to protect you and your customers should something go wrong. The same principle applies to running a bar: For example, if a brewery supplies you with bad ale, you need to make sure your COI or their insurance protects you if the potential injured parties decide to sue you for damages. The number of COIs you need to ask for can be pretty high during the regular operation of your business. A bar, for instance, may require COIs both from product suppliers (such as breweries), as well as ancillary service providers, such as cleaning agencies, marketing firms, and even interior designers. When you request a certificate of insurance for business, you’re not saying that you don’t trust your partners. Instead, you’re doing something that minimizes risk, and you should ask them to do the same. Even if you’ve worked with a company many times before, getting a COI is still a good idea every time you sign a new contract. This way, you prevent anyone from taking unnecessary risks. What Is an Additional Insured? There are three relevant entities in any certificate of insurance for a small business: The policyholder, certificate holder, and additional insured. The policyholder is the entity that originally took out the policy. For instance, it could be a builder, or building company. The certificate holder is the person who requested the COI. This could be a subcontracting firm working with the builder, perhaps a plumber. An additional insured is a business or entity that benefits from one of the signing parties’ insurance, but has not paid for it directly. This category of entities can make claims under the policy, even though it did not purchase it.  To reduce risk exposure, certificate holders will often ask policyholders to provide the details of additional insured parties, or request to be named as additional insured on the policyholders' document. In some cases, COIs offer “blanket insurance.” These terms provide all third-party partners (as defined by the terms of the insurance document) with coverage, negating the need to manually add additional insured entities. How Much Does a Certificate of Insurance Cost? In most cases, the COI cost is zero. Insurers typically offer it as a complimentary service. If insurance brokers attempt to charge your for COI issuance, you may want to go with a different provider. Be mindful that you may need to pay additional fees if you request policy changes to cover your new circumstances. As usual, the greater the coverage you have, the higher your premiums. How To Get A Certificate Of Insurance If you have a small-business insurance policy, how do you get a certificate of insurance? The answer is: Easily. Here are the steps you’ll need to take: Step 1: Contact Your Client If a client requests a COI, first ask them for their limits and minimums for the policy. You want to avoid sending over a COI that does not meet their requirements. If you need to increase your premium, write down your client’s name, address, and tax identification number. Your broker can use this in negotiations with your insurer to come to an acceptable price. Step 2: Call Your Broker The next step is to call your broker and familiarize them with the policy requirements. In some cases, your premium will already cover your partner’s limits and minimums, so your broker will contact your insurer to provide the COI. However, if it doesn't, the broker will ask your insurer for a quote on rider coverage for the length of the project. If the risk is high, you will have to pay an additional fee and take out a rider policy, which means extra paperwork. Step 3: Receive the COI The last step is to wait for the COI to arrive. Once you receive the printed certificate, you can send it to your client as proof of insurance and complete any pending negotiations or transactions before beginning work.  While the process is easy to understand, you need to start it early. Obtaining a COI from your broker can sometimes take several weeks. Types of COIs There are three types of COIs that cooperating companies can apply for, depending on the nature of the task in front of them, and the underlying insurance product concerned. Certificate Of Liability Insurance Liability lawsuit costs and settlements can run into the millions. Therefore, all participating businesses should have insurance that covers the risks they might face. Liability insurance protects the policyholder, certificate holder, and any additional insured. If you are requesting a COI from a third party, check that its insurance offers the right level of coverage and features, and whether additional insureds can be entities, too, not only individuals. Make sure the COI includes a description of the operations your potential partner is working on. You need to confirm that their insurer covers it adequately for the type of work it actually does. Lastly, check that coverage is primary and noncontributory. This means the policyholder’s policy will respond first in the event of a loss, even if there are multiple, overlapping policies all providing similar coverage, and don’t require you to contribute to the premium. Certificate of Auto Liability Insurance If you are working with a vendor that owns, operates, leases, or hires vehicles, you may want an auto COI. These confirm the partner company has sufficient coverage for your operational requirements. Certificate of Workers’ Compensation Insurance Lastly, you may require a certificate of workers’ compensation insurance, and you’ll need to check it’s written in line with the workers’ comp laws in your area. Workers’ compensation ensures that the policyholder has sufficient coverage to pay workers in the event of an injury. How To Check COI Compliance Companies check COI compliance via audits. The auditor must have a good understanding of endorsement terminology, insurance policies, contract requirements, and ACORD forms and standards. COI non-compliance can be extremely costly, because compensation can run into millions of dollars. Therefore, firms must ensure they are fully compliant before proceeding with work. COI Tracking For large companies and those that work with many firms, COI tracking is critical. Many projects require a paper trail comprising hundreds of COIs. In most cases, project managers don’t have the time to manage all those documents, so they use software instead. The benefits include: Managing changes in project scope, conditions, and coverage over time across multiple vendors Detecting coverage gaps that might increase the risk of liability Improving productivity by dedicating fewer staffers to COI administration Automating notifications of coverage lapses When Should You Ask for a Certificate of Insurance? You should always ask for a certificate of insurance if a vendor does work that increases your liability. If you work with a partner, you may still be liable for losses (such as the injury of a colleague), even if they don’t occur on your property. Always verify the COIs before asking the contractor to begin work. Don’t work with any entity that only provides verbal assurance, as this implies a misunderstanding of the terms and conditions of an insurance policy. Wrap Up So, what is a COI? The acronym stands for “certificate of insurance.” This is a mechanism businesses use to reduce their risk whenever they partner with a third-party entity. When you ask for a COI, you verify that your vendor’s insurance policy is sufficient to meet your standards for risk mitigation. And when you supply a COI, you reassure partners that you can cover any losses that occur as a result of your work.
By Danica Jovic · April 21,2022
Most startup founders register their business as a sole proprietorship: It is the choice picked by approximately 73% of all US companies. As your business evolves, though, you may find yourself wondering how to change a sole proprietorship to an LLC. You’re in the right place: This guide will teach you how to transfer from a sole proprietorship to LLC operations with ease and explain all the benefits associated with opening an LLC. Why Convert a Sole Proprietorship to an LLC? Before you change a sole proprietorship to an LLC, you should confirm that it is the most suitable solution for the future of your venture. The key incentives for opening an LLC are: Switching to an LLC separates your personal and business assets, which can deliver an extra layer of protection by removing personal liabilities Although this is not guaranteed, becoming an LLC can lower your tax bill without taking on some of the downsides of partnerships or corporations Turning from a sole proprietor to an LLC will allow you to implement a more fluid approach to management In many cases, LLC operations offer a nice midpoint between sole proprietorships and corporations. The personal benefits of limited liability can aid your financial situation and give you peace of mind, while securing an LLC operating agreement is a lot simpler than you might imagine. Can All Sole Proprietorships Become LLCs? Not all sole proprietors can’t switch to LLC registrations. Attorneys are perhaps the most common example, but other professionals can fall into this category as well. You must take this into account when considering a sole proprietorship vs. an LLC.  But even if your business can switch to an LLC, your sole proprietorship and LLC comparison should take into account some of the more attractive features of the former. Remaining a sole proprietor means you can avoid the LLC application process, and your ongoing legal matters will be minimal as long as you handle your accounts and taxes. Your business fees will be lower, too. On the other hand, it’ll be harder to get credit or sell the business at a later date. How Do You Change a Sole Proprietorship to an LLC? The time it takes to transfer from a sole proprietorship to an LLC is no longer than the time it would take to register a new company - about 14-21 days. The process of going from a sole proprietorship to an LLC can be completed by following these simple steps: Step 1: Consider outside support You don’t have to go through the procedure of opening an LLC alone. There are many professional LLC services that can guide you through the formation process to ensure that all compliance regulations are met.  Hiring an attorney to complete the bulk of the work is also an option, but it’ll cost a lot more than an online service.  Step 2: Check the intended business name As you look to transfer from a sole proprietorship to LLC formations, you must also check that the business name is available. Otherwise, you may step on another entrepreneurs’ intellectual property and find yourself facing many legal headaches. You can check the availability of your business name by calling your state’s secretary of state office. Some states also have an online database for a simplified process. If the company name has already been taken, you’ll need to think of another. While it may initially cause some frustration, you can turn it into a positive by rebranding. In addition to being unique, the name of your future LLC must meet your state’s LLC requirements. The naming elements can vary depending on your location but including “Limited Liability Company” or LLC in the name will be necessary. Step 3: Complete your articles of organization After confirming that the name of your LLC is available, you must think about how to change your sole proprietorship to an LLC from a legal standpoint. The paperwork needed is known as the articles of organization and must be completed before moving on with other steps. You will need to state the name and address of your LLC, along with its purpose. You must additionally confirm whether the company intends to be managed by its members or a manager. The most important part of this step, however, is to confirm your designated registered agent. This person will become the main point of contact for interactions with state authorities. You can also opt to become your own registered agent. Step 4: Complete an LLC operating agreement Completing an LLC operating agreement isn’t a requirement in all states, but you should be prepared for this additional step when looking to transfer from a sole proprietorship to an LLC. It’s a document that deals with voting rights, distribution of profits, and exit strategies when a member is ready to leave. In most cases, the document will cover a few sheets of A4. Having a formal document to detail how all these matters will be handled can be very useful, even when the state doesn’t require it. Step 5: Complete your IRS registration When registering your LLC with the IRS, you may operate as a corporation, partnership, or disregarded entity for tax purposes. A default classification will be provided but Form 8832 enables you to change this if required. Even if you hired employees as a sole proprietor, you’ll almost certainly need to register a new EIN number to reflect your LLC. Doing this will aid your payroll, tax filing, and accessing lines of business credit. When your IRS registration and EIN number are under control, you will almost be ready to operate as an LLC. Step 6: Apply for new business licenses and permits  When transitioning from a sole proprietor to an LLC, you may also be required to reapply for various permits and business licenses. In some cases, you simply need to inform the appropriate parties of your change. Once again, it’s best to contact your local state authority to determine what action (if any) is needed following the structural change. Professional licenses, reselling agreements, and all other local permits must be covered by this process. You must not start trading under your LLC before the entire process of getting new permits is finalized. Step 7: Find new business banking solutions While it’s not necessarily a legal requirement to change your business bank account, it’s usually the best option. At the very least, you’ll need to update the bank account details to show that the company is now an LLC.  There will be the added organizational demands of informing clients, but this shouldn’t be too problematic. Your business payments and bills can be switched across automatically, but you should keep the old account open for a few days to ensure all current payments and invoices clear before closure. On a similar note, you must inform insurance companies and other relevant parties about the change of legal entity. Final Thoughts on Registering an LLC Now that you know how to change sole proprietorship to LLC entities in a quick and convenient way, you should be able to make a calculated decision on whether it’s worth the fee of $50 to $500. If it is, the steps above will allow you to do it within days. 
By Vladana Donevski · April 21,2022
If you’re like most small-business owners, you’ve probably heard the term “mergers and acquisitions” or the abbreviation “M&A” but don’t know exactly what it means.  In this comprehensive guide, we’ll break down everything you need to know about company acquisitions. We’ll start with an acquisition definition in business, then move on to the various types of these transactions and how to value a company. Finally, we’ll discuss the key players in mergers and acquisitions. By the end of this guide, you’ll be able to understand what M&As are and why they occur in the business world. What Is an Acquisition in Business? A business acquisition, by definition, occurs when one company purchases another company. The purchased company is known as the target, while the purchasing company is known as the acquirer or acquiring company. The main reason companies engage in a business acquisition is to grow their business further or neutralize competition. Acquisition, Takeover, or Merger: What’s the Difference? These terms are often used interchangeably, creating a fair share of confusion around the process. However, there are some key distinctions among them. An acquisition in business, by definition, occurs when one company purchases another company, and key employees, assets, and management of the acquired company typically become part of the acquiring company.  A takeover typically occurs in the same manner - a company purchases all or the controlling block of shares of another company. While it’s a synonym for acquisition, this term is often used in media to signify that the purchase was made in a hostile manner.  A merger deal is relatively rare. It occurs when two companies merge to form a new legal entity. For the term to apply, all the aspects of the deal - including which company’s management will be in charge, the changes in the value of both company’s stock, and the distribution of seats on the new board of directors - should reflect the fact that the two companies are true equals.  For example, if one company’s stock value is rising and the other company’s stock is losing value after the deal has been announced, it’s likely that the company whose shares drop in value is, in fact, the acquirer. What Types of Acquisitions Are There? There are many forms an acquisition may take, but they can generally be classified into two broad categories: friendly and hostile. Friendly Acquisition A friendly acquisition is one in which the target company agrees to be acquired by the acquiring firm. In most cases, the management of the target company will work with the acquirer to make the transition process as smooth as possible. That’s why, once the target firm agrees on the deal, the acquisition is typically completed without any major complications. Hostile Acquisition A hostile acquisition, also known as a hostile takeover, is one of the examples of acquisition in which the acquired company doesn’t want to be acquired by the acquirer. In a hostile acquisition, the acquirer will attempt to purchase the target company without the approval of its management. Typically, a larger company does this by purchasing a controlling block of a smaller company’s shares and therefore earns a controlling stake in the business.  This can often lead to a lengthy and complex battle between the two companies, as each tries to convince shareholders to support its position. Through the acquisition of stock, the acquiring company aims to limit the target company’s decision-making. Usually done by companies within the same industry, this has often been a key aspect of large companies’ growth strategy. Who Are the Key Players in an Acquisition? There are many players involved in the acquisition of companies. The most important are the target company, the acquirer, and the investment bankers. The target company is the company that is being acquired by the acquirer. The target company’s management will typically be heavily involved in negotiating the terms of the deal and ensuring that it is in the best interests of shareholders. The acquirer is the company that is purchasing the target company. The acquirer’s management will typically be responsible for negotiating the terms of the deal and conducting due diligence on the target. Investment bankers are the financial advisers to both the target and the acquirer in the process of acquisition in business. They will typically be responsible for helping to negotiate the terms of the deal and providing advice on financial matters. Acquisition deals are often reached after a complex and lengthy negotiation process. However, with the help of an experienced team of advisers, they can be completed successfully. Why Do Companies Acquire Other Businesses? There are many reasons for an acquisition. Most of them boil down to improving one’s business, sales, processes, or supply chain. To Maintain or Establish Monopoly on the Market An acquisition can be a way for a company to consolidate its position in an industry. For example, if there are only a few companies that manufacture a particular product, it might make sense for one of those companies to acquire the others to increase its market share. On the same note, acquisitions can also be motivated by a desire to reduce competition. For example, if two companies are competing for the same customers, one of them might decide that it would be more profitable to acquire the other and thus eliminate the competition. This is an example of an acquisition you’ll most likely hear about in the news. To Upgrade Current Processes and Obtain New Technology Another reason for company acquisitions is to obtain access to new technology, patents, or other assets that would be difficult or impossible to replicate. For example, starting a new supply chain or expanding into a foreign market might prove to be much more expensive for a parent company than purchasing a target firm that has its own supply chain. It Can Be a Good Investment In some cases, a company might decide to acquire another business simply because it’s a good investment. For example, if a company has excess cash and believes that another company is currently undervalued by the market, it might decide to purchase the target to make a profit when reselling it. Sometimes, companies will resell a company as a whole, other times, they may sell it in parts.  How To Value a Company for a Potential Acquisition To complete a business acquisition, the acquirer must first identify a target company. Once acquisition candidates have been identified, the acquirer will typically conduct due diligence to assess the value of the target companies and determine whether or not one of them is a good fit for the acquiring company. To value a company for a potential acquisition, the acquirer will typically conduct a financial analysis of the target designated for business acquisition, meaning: a review of the target’s financial statements, assets and liabilities, and an assessment of its competitive position and future prospects. Further Reading Selling a Business: A Checklist of the Crucial Factors You’ll Need To Consider Top 30 Small-Town Business Ideas for Success How To Own a Franchise: Simple Guide Wrapping Up Acquisitions can be complex processes involving business intelligence. If you’ve been thinking about acquiring a business or selling your company but don’t know where to start, take some time to explore the various types of deals available and how they might fit into your situation.
By Vladana Donevski · May 17,2022

Leave your comment

Your email address will not be published.

There are no comments yet