How to start your small business: legal necessities and startup costs
Published April 29, 2025 by Angela Talbot
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Categories:
- Business
Starting a small business can be one of life’s most rewarding experiences, but it comes with its fair share of complexities. Before you can open your doors (or launch your website), it’s crucial to ensure that your business is legally compliant and financially prepared. Knowing the legal steps to take and understanding your startup costs will set a solid foundation for future growth.
Here’s everything you need to know to confidently kick-start your entrepreneurial dream.
Choosing your business structure
The first big decision you’ll need to make as a new business owner is selecting the right legal structure. Your choice will affect how you pay taxes, your level of personal liability, and the rules you must follow to operate. Here’s a breakdown of the most common structures to consider, along with their benefits and drawbacks:
1. Sole proprietorship
What it is: The simplest and most common structure for small businesses. You and your business are one and the same legally.
- Benefits:
- Easy to set up
- Minimal costs and paperwork
- Full control over the business
- Drawbacks:
- Unlimited personal liability (your personal assets are at risk if your business runs into debt or legal issues)
2. Limited liability company (LLC)
What it is: An LLC is a hybrid structure that offers the liability protection of a corporation with the tax advantages and flexibility of a partnership.
- Benefits:
- Limited personal liability
- Flexible tax options (choose to be taxed as a sole proprietor, partnership, or corporation)
- Drawbacks:
- More paperwork and fees than a sole proprietorship
3. Corporation (C Corp or S Corp)
What it is: A more complex structure usually suited for larger businesses or those planning to scale quickly.
- Benefits:
- Limited personal liability
- Easier to raise funds by issuing shares
- Drawbacks:
- Complex and costly setup
- Extensive record-keeping and reporting requirements
4. Partnership
What it is: A business owned by two or more individuals.
- Benefits:
- Shared responsibility among partners
- Relatively easy and inexpensive to start
- Drawbacks:
- Shared liability
- Potential conflicts between partners
Before finalizing your decision, consult a licensed attorney or accountant to determine the best structure for your unique goals and situation.
Understanding startup costs
One of the biggest challenges for aspiring entrepreneurs is estimating and managing their startup costs. Knowing what to expect will help you create a realistic budget and avoid financial stress down the road. Here are the essential costs to account for when starting your small business:
Licenses and permits
Most businesses will require some type of license or permit to operate legally. These include local business licenses, zoning permits, and professional certifications. Fees can range from $50 to several hundred dollars, depending on your location and industry.
Business registration
Filing fees are required to register your business name and structure. For example, forming an LLC may cost anywhere from $100 to $500, depending on your state. In Massachusetts, the LLC filing fee is $500. If you plan to file a DBA certificate, that’s at the town or city level, and cost can vary from $40 to $60 in MA. Check your town’s requirements here.
Inventory and supplies
If your business involves selling physical products, factor in the cost of initial inventory, packaging, and supplies. Inventory expenses will vary greatly depending on the type of products you sell.
Marketing and branding
Building your brand and creating awareness comes at a cost. This includes logo design, website development, digital advertising (Google Ads, Meta Ads, etc.), email marketing tools, business cards/print materials, and other marketing efforts like networking and trade shows. Expect to budget between $5,000 and $15,000 for your launch phase depending on how much you can DIY versus outsource. It’s essential to prioritize marketing needs based on your business goals and your target audience. If you outsource things like digital marketing, social media management, or SEO (Search Engine Optimization) services to Marketing companies, that can add to your costs significantly.
Technology
Essential software and tools can add up quickly—think accounting software, e-commerce platforms, or point-of-sale systems. Monthly subscriptions for essential tech tools range from $10 to $300+, potentially making your annual costs of these software tools thousands.
Office or workspace
If you need a physical location, budget for rent, utilities, and insurance. Many entrepreneurs start from home to save money, but keep expansion costs in mind for the future.
Professional services
Hiring an attorney, accountant, or consultant early on can ensure compliance and prevent costly mistakes. Their fees can vary widely, but it’s worth budgeting at least $1,000 for initial consultations.
Securing funding and managing cash flow
Now that you have a clear understanding of your potential expenses, it’s time to think about how you’ll fund your business. Here are some options to raise capital and keep your cash flow healthy from day one:
1. Personal savings
Many entrepreneurs use personal savings to fund their business. While this can help you avoid debt, be cautious about depleting your safety net.
2. Small business loans
Banks, credit unions, and online lenders offer loans specifically for small businesses. Prepare a detailed business plan and financial projections to strengthen your application.
3. Grants
Small business grants are available from government programs and private organizations. While they’re competitive, they provide funding you don’t have to repay.
4. Investors
If you’re comfortable sharing ownership of your business, consider seeking angel investors or venture capitalists. They can provide significant funding in exchange for equity.
5. Crowdfunding
Platforms like Kickstarter and GoFundMe allow you to raise funds through small contributions from a large audience. This approach is particularly effective for product-based businesses. Be sure to check the specifics of the crowdfunding site you choose, as some of these require that you meet or exceed you funding goal in order to keep the contributions. If you raise less funds than your goal amount, you may not receive them.
6. Monitor cash flow consistently
Once your business is up and running, prioritize cash flow management. Use tools like Webster First’s Cash Management Suite to set up recurring ACH and wire payments and enhanced entitlements with segments, reporting, workflows, and notifications.
How to protect your business
Protecting your business from financial and legal risks is critical. Consider these key steps to safeguard your hard work and investment:
1. Insurance
Invest in proper insurance coverage, including general liability insurance, property insurance, and professional liability coverage. This ensures your business is protected against unexpected events.
2. Intellectual property
Protect your brand and ideas by registering trademarks, patents, and copyrights as needed. For example, trademarking your business name and logo can prevent competitors from using them.
3. Contracts
Use clear, legally binding contracts when working with clients, vendors, or partners. A written agreement reduces the potential for disputes down the road.
4. Data security
If your business collects customer information, invest in cybersecurity measures to protect sensitive data. Consider consulting a cybersecurity expert to help you implement the right protocols.
Starting small, thinking big
Starting a small business is no small feat—but with the right preparation, the rewards can outweigh the challenges. By understanding your legal obligations, budgeting effectively, and protecting your venture, you can set yourself up for long-term success.
Take the first step today by researching your business location’s specific license and registration requirements. And if you’re feeling overwhelmed, don’t hesitate to seek support from mentors, business consultants, or local small business associations.
Success starts with preparation—make sure you’re ready to turn your dreams into reality!
Disclaimer: The information provided in this blog is for informational purposes only and should not be considered as legal, tax, or financial advice. All figures and examples mentioned are estimates and may not reflect your specific circumstances. For personalized advice, it is recommended to consult with a qualified attorney, accountant, or financial advisor. Always conduct thorough research to ensure compliance with local laws and regulations that may apply to your situation.
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