How to Form an Official Business When on a Tight Budget

Last Updated: 

September 30, 2023

How to Form an Official Business When on a Tight Budget in the US

If you are like most entrepreneurs, you are strapped for cash. You’ve dedicated every last penny to creating a marketable product or service to fill a demand, leaving precious few dollars to formally launch the enterprise in accordance with state and local laws. Starting your own business can be quite challenging, especially when on a tight budget. Thankfully, many resources can guide you through the process of forming a cost-effective business, such as how to form an llc, enabling you to make your entrepreneurial dreams a reality.

Key Takeaways on Forming a Business on a Budget:

  1. Understand Business Formation Costs: Be aware of the various costs involved in starting a business, including state and federal permit and license fees, which can range from $100 to $300, and annual reporting fees. Some certifications may incur additional overhead expenses like mail postage and bookkeeping.
  2. Naming and Publication Fees: New LLCs require an official name, which comes with a fee. Opting for an assumed name for marketing purposes will incur an additional cost. Protect your business name with a federal trademark, which typically costs about $500. In some states, you may also need to pay a publication fee to announce your business in a local paper.
  3. Registered Agent and Franchise Taxes: Businesses need to account for registered agent service fees and franchise or privilege taxes, which can be a flat fee or a percentage of the yearly income. These costs can vary significantly depending on the state.
  4. Choosing the Right Business Entity: While LLCs are popular due to their affordability and protection of personal assets, other options like business partnerships and corporations (S-corporation and C-corporation) are also available. Each type has its own set of rules regarding liability and taxation.
  5. DIY to Save Costs: Entrepreneurs can find ways to reduce costs, such as serving as their own registered agent or writing their own operating agreement. However, this requires a willingness to navigate complex state regulations and potentially having personal information published online.
  6. Seek Professional Assistance: Consider hiring a specialised LLC formation specialist to handle bureaucratic responsibilities and ensure a smooth business launch. This can be especially beneficial if you are operating in multiple states or a state different from your residence.
  7. Tax Planning: Mitigate financial setbacks through strategic tax planning. Consult with a tax planning specialist and business law attorney to explore tax incentives and strategies that can benefit your business, such as choosing a state with favorable tax rates for business establishment.
  8. Maintain Focus: Despite the challenges posed by legal and bureaucratic requirements, maintain your entrepreneurial spirit and focus on achieving your business goals. Proper preparation and adherence to necessary regulations can pave the way to realising your dream of establishing a successful business.

Starting a business on a tight budget is challenging but possible with careful planning and awareness of the various costs involved. It is essential to research and understand the different aspects of business formation to navigate the process successfully while optimising your budget.

Discover Real-World Success Stories

Business Formation Costs to be Aware of

Starting a business isn’t free. Aside from investing your time, intellectual capital and sweat equity into the enterprise, there are formal costs that must be paid in full prior to the company’s official launch. The cost to launch a business differs by state. Fail to cover the state’s required costs and you will face a financial penalty.

Launch a limited liability company, also referred to as an LLC, and you’ll face expenses for licensing and registering the business. There are also costs tied to business permits to boot. Be sure to satisfy your state’s filing cost to launch an official business. The filing fee is likely to cost between $100 and $300. The majority of states also mandate the payment of yearly reporting fees that are typically in the range from several thousand dollars all the way down to a mere $20.

Be mindful of both state and federal permit and license requirements along with their associated fees. Licences empower the business to perform a specific act such as selling a product or providing a service for payment. Permits are a form of licence that pertain to safety and health in the context of conducting business. New LLCs might also have to pay for certification. Though SBA certification is not mandatory across the board, it has specific advantages such as referential treatment and public relations that ameliorate the challenge of timely scaling to capture market share.

As an example, certified businesses often qualify for specialised contracts such as set-aside agreements. Additional examples of certifications for small businesses include those for veteran-owned enterprises, businesses owned by women and businesses owned by individuals with disabilities resulting from military service. Though some certification filings are available at no cost, there are associated overhead expenses such as:

  • Mail postage
  • Notary public service to make legal documents official
  • Bookkeeping
  • Making copies of business documents

Naming, Publication, Registered Agent Fees and More

We would be remiss not to mention that new LLCs require an official moniker that has an attached naming fee. Some business owners choose an assumed name for marketing purposes. Opt for an assumed name and you’ll have to pay the assumed name certificate cost. Certain states such as Alabama require an additional fee for reserving the business name. Don’t forget to file the federal trademark to prevent other businesses from using your business name. The federal trademark cost typically runs about $500. You can use a business name generator to help you come up with a unique and creative name for your business.

Launch an LLC in New York, Nebraska or Arizona and you’ll be required to pay a publication fee to publish the necessary notice in the local paper. Publication fees have the potential to cost as much as several thousand dollars or as little as $50.

There is also a cost incurred by the registered agent service or that provided by an individual agent as they serve as the conduit between the state and the business. Finally, new businesses are required to pay franchise taxes while conducting business. Certain states have a baseline yearly tax for businesses referred to as the franchise tax or privilege tax. The franchise tax has the potential to cost nearly $1,000 per year or a specific percentage of yearly income.

Business Entity Types

Though LLCs have emerged as the most popular type of official business entity, there are additional options worth your consideration. As an example, corporations and business partnerships are worth considering. However, once you crunch the numbers, you will find LLCs are favoured for good reason: they are almost always the cheapest option. The icing on the cake is the fact that LLCs limit your legal liability as the business owner, separating the company’s assets from yours, ultimately preventing significant personal financial losses in the event of lost lawsuits.

Business partnerships are joint operations, owned by two or more entrepreneurs. Business partnerships are considered pass-through entities in the context of the law and taxation as they do not carry a business income tax. Rather, each owner reports his or her portion of the business income along with losses on personal tax returns, then pays taxes in accordance with the rate for personal income.

Corporations are distinct legal entities. The owners of corporations are referred to as shareholders. Shareholders are not legally liable for the enterprise’s financial debts. Corporations are divided into the subcategories of S-corporation and C-corporation. S-corporations are limited to 100 people or less who report income as shareholders as either gains/losses on personal tax returns.

C-corporations pay personal taxes in accordance with earned dividends. However, C-corporations do not have a shareholder ceiling. C-corporations shareholders are also empowered to own several classes of stock.

LLC Starting Costs

The costs of launching an LLC listed above have the potential to weigh down a newly-formed business. However, it’s best to understand the various costs associated with starting an LLC, as some costs are mandatory and unavoidable and some can surely be dismissed, especially when you have additional costs associated with starting a business. Creative business owners with the DIY spirit will find ways to bypass or reduce such costs. As an example, it is possible for entrepreneurs who start an LLC to serve as their own registered agent to reduce costs. However, if you take this DIY route, the state government will publicise your name and other related information on the web-based database that contains details of businesses. In general, serving as your own registered agent only makes sense if you are willing to analyse the state’s nuanced regulations.

LLCs are also required to have an operating agreement. Most LLC owners rely on an attorney to craft the legalese of the agreement yet there is the option of writing your own. Invest the time necessary to research and review examples of LLC operating agreements published on the web, input your business’s unique information into the template and your operating agreement might end up similar to that produced by a business attorney.

Every entrepreneur should consider enlisting the assistance of a specialised LLC formation specialist. Such a professional will take responsibility for the residential agent services described above, ensuring the business launches without bureaucratic hindrance. Certain states require annual reports along with additional regulatory documents, necessitating the onboarding of new staff members. However, such bureaucratic responsibilities can be outsourced to a service that specialises in business formation.

If you are launching a business in a state other than your home state or if your new business will operate in several states, give serious consideration to outsourcing LLC formation services’ address services and other support so you can narrow your focus on your business’s value proposition rather than investing your limited time attempting to overcome legal and bureaucratic hurdles.

Maximising Your Tax Benefits

Launching a business incurs costs yet some of those financial setbacks can be mitigated with tax planning. As an example, choosing Delaware as the state to start your business reduces your tax burden. Furthermore, other states such as California have an egregiously high corporate tax rate approaching 9% while states such as Wyoming have no corporate tax rate.

Meet with a tax planning specialist and business law attorney to review tax incentives and incorporate the appropriate strategies into your overarching tax planning strategy. Prepare accordingly and you’ll reap the benefits of tax credits, tax-deductible startup expenses and plenty more.

Keep an Eye on the Prize

Launching an official business clearly poses challenges. Maintain your unbridled entrepreneurial spirit as you satisfy the legal and bureaucratic requirements at both the state and federal levels. Keep a laser-like focus on outcompeting others in your space and you will accomplish the American dream of establishing professional autonomy as a business owner.

Related Articles: