Starting a new business in North Carolina and becoming a small business owner can be an exciting experience, but before taking the plunge and investing a lot of time and money, it is important to assess the feasibility of your business idea.

First, research the industry you plan to enter. Learn about current trends, costs associated with starting a business, and any other relevant information. This will help you determine if there is a need for your product or service and if there is enough demand to sustain your business. Additionally, consider the competition in the area and how you can differentiate yourself from them.

Also, be sure to take advantage of our business library, which includes detailed industry information on over 300 ideas and includes trends, costs to start, tips, and lots more that can help further research your business idea.

Once a solid business idea is in place, it’s time to start working on the business plan. A well-thought-out business plan is the key to your long-term success as it provides a foundation for your business and a roadmap for its future. Not only that but lenders and investors will require one before they will consider funding.

A business plan will typically include an overview of the company’s mission statement and goals, a description of the products or services offered, an analysis of the market, information on the management team, and financial projections.

Related: How to write a business plan

The next step to starting a business in North Carolina is selecting a business entity.

The business entity is sometimes referred to as a business structure or legal structure, which refers to how a business is legally organized. There are four primary business entities: sole proprietorship, partnership, corporation, and Limited Liability Company (LLC). A brief description of each is below.

A Sole Proprietorship is an individual that decides to go into business. This is the easiest and least expensive of the four entities to set up, as there is no state filing. The ease of startup is a big selling point; however, a major downside to the sole proprietorship is that the owner is personally responsible for all debts and actions of the company. If the business is sued, the owner’s personal assets are potentially at risk. Another potential downside is that the owner will pay self-employment tax on all business profits which may be more costly than some other entities.

Related: What is a sole proprietorship?

General Partnerships consist of two or more people conducting a business together. Like the sole proprietorship, there is no formal state filing. Also, like the sole proprietorship, the partnership has unlimited liability. If the partnership were to be sued, the partner’s personal assets are equally at risk. The partnership itself does not pay tax from business income. Instead, profits and losses are passed through to the owner’s personal tax return. This income is subject to self-employment tax.

Related: What is a partnership?

A Corporation is a business structure that is a separate entity from the individual. While corporations are more expensive and difficult to form than sole proprietorships and partnerships, the major advantage is that the corporation provides personal asset protection for the owners, should the corporation be sued. The downside is the compliance requirements and administrative burdens of having a board of directors, annual meetings for directors and shareholders, appointing a registered agent, filing the annual report, and more.

There are multiple ways a corporation can elect to be taxed, which include the C-corporation and S-corporation. Electing how the entity should be taxed is complicated, so be sure to talk with your CPA as there is the potential of double taxation where profits and dividends are both taxed. Also, there is no self-employment tax with a corporation, as income to the owner(s) will come from either a salary or dividends, which may be beneficial.

Related: How to form a North Carolina corporation

The Limited Liability Company (LLC) is a popular business entity choice because it provides the liability protection of a corporation with the sole proprietorship’s ease of operation. The Limited Liability Company does not have many of the burdens the corporation has and has the greatest tax flexibility of the four entities. Income can be taxed as a pass-through entity like the sole proprietor, partnership, or S corporation.

Related: How to form a North Carolina LLC

When starting a business in North Carolina, it is important to understand the various licenses and permits that may be necessary for your business. Depending on the type of business you are operating, you may need to obtain multiple licenses and permits from different state agencies.

Business Licenses: The state of North Carolina doesn’t have a general business license; however, many cities require a business license to operate. Business Link North Carolina (BLNC) is a free source to find which local licenses are needed.

Employer Identification Number (EIN): An EIN is a unique nine-digit number assigned by the Internal Revenue Service (IRS) for tax purposes. You can apply for an EIN online through the IRS website. Partnerships, corporations, and most LLCs OR sole proprietorships with employees MUST register for an EIN.

Sole proprietorships or single-member LLCs with no employees are NOT required to get an EIN. In these instances, the owner’s social security number is used to identify the business.

Sales & Use Tax Number: Businesses selling products, and certain services will need to register for a Sales & Use Tax Number with the North Carolina Department of Revenue.

Occupational Licenses: Some occupations and professions, such as commercial fishermen, firearms trainers, fur dealers, barbers, and others, must be licensed by their respective boards before operating legally in North Carolina.

Business Name Registration: If you are a sole proprietorship or general partnership in North Carolina and doing business under your full first and last name, John Smith, for example, there is no filing, but if the business will operate under a fictitious business name or DBA (Doing Business As) like John Smith’s Handyman Service, Mr. Handyman, etc., you will need to file for a Certificate of Assumed Business Name Registration, with the County Register of Deeds office in the county where the business is located. The business name must be different and available names can be searched at the County Register of Deeds office.

Zoning: Before starting to operate a business (even if it’s home-based), be sure to check local zoning regulations before starting to operate out of a location.

Related: What business licenses and permits are needed in North Carolina?

In North Carolina, as in any other state, maintaining a clear distinction between business and personal finances is crucial for the following reasons:

Legal protection: If you have established a limited liability company (LLC) or a corporation, separating your business and personal funds is essential to maintain the legal protection provided by these business structures. By keeping your funds separate, you avoid the issue of “comingling funds” and can protect your personal assets from any potential legal liabilities related to your business.

Simplified tax management: Separating your business and personal finances makes it easier to track business-related income and expenses. This simplification can help you when preparing financial statements and filing taxes, ensuring that you accurately report your income and deductions.

Professionalism: Maintaining separate accounts for your business creates a more professional image for clients, vendors, and financial institutions. It also ensures that you handle business transactions using a dedicated account, which can help build your business credit.

Easier budgeting and financial planning: Separating your business and personal funds allows you to create a clear budget for your business, making it easier to plan for future expenses, manage cash flow, and make informed financial decisions.

Audit protection: In case of an audit by the IRS or state tax authorities, having separate accounts for your business and personal funds can help demonstrate that you are maintaining a clear distinction between the two. This separation can make the audit process smoother and help avoid potential penalties or fines.

Accurate financial analysis: Separating your business and personal funds enables you to assess the financial health of your business accurately. With a clear understanding of your business’s financial position, you can make better decisions to grow and improve your operations.

Obtaining the funds to start a small business can be a stressful experience.

Not only are there unfamiliar terms like collateral, equity, assets, liabilities, and others, but there are several sources of funding with different rules, processes, and costs. Given the number of choices, it’s important to understand the various funding options available for new businesses.

One of the most common methods of financing a business is by using personal funds. This could include savings, investments, or other financial resources. It is important to consider how much money you are willing to invest in your business before making any decisions.

Another option for businesses in North Carolina is traditional bank loans. These loans typically require a personal investment of 15%-25%, sufficient collateral, and pretty strict repayment terms and conditions.

The Small Business Administration (SBA) also offers loan guarantees for businesses in North Carolina. This program helps small businesses secure financing from traditional lenders by providing a government-backed guarantee on the loan amount.

In addition, microloan programs are available through organizations such as Carolina Small Business Development Fund that provide small loans with fewer restrictions and flexible repayment terms to help entrepreneurs start their businesses.

Finally, investors can also be a great source of funding for businesses in North Carolina. Investors may provide capital in exchange for equity or debt securities or offer guidance and advice on running the business in exchange for a share of profits or an equity stake in the company.

Related: Understanding the different types of business funding

As we are winding down our steps, you now may be wondering what steps you need to take to hire your first employee. The process of hiring an employee can be complex and overwhelming, but with the right preparation, it can be made much simpler.

First, you will need to register as an employer with the Internal Revenue Service and the state of North Carolina. This will allow you to legally hire employees and pay them wages. You should also establish a basic payroll structure so that you know how much to pay each employee and how often they should be paid. Once this is done, it’s important to understand both state and federal labor laws so that you can properly manage your employees.

Employers are also responsible for reporting new hires, verifying employees are eligible to work in the U.S., income tax withholding, unemployment insurance, unemployment taxes, and payroll withholding taxes, including Social Security and Medicare.

Related: Steps to hiring your first employee in North Carolina

Another important step for small business owners in North Carolina is understanding the importance of having the right insurance coverage. Without it, they could be exposed to a variety of risks that could have devastating financial consequences. From property damage to liability claims, having the right insurance can help protect the owners, the business, and its assets.

Most types of business insurance are optional, except for workers’ compensation insurance in most states. In North Carolina, the state’s Workers’ Compensation Act requires that all businesses that employ three or more employees, obtain coverage. This coverage provides financial assistance to employees who are injured or become ill due to work-related activities.

Even if insurance isn’t required, and there is a fire, theft, or personal injury lawsuit, the business owner may have to pay out-of-pocket damages and legal fees. Home-based businesses and side-businesses may want to consider business insurance, too, as personal home and vehicle policies may not cover a business-related loss.

Related: Types of insurance your business may need

The last step in our checklist is tracking income and expenses. There are specific federal and state requirements regarding how businesses must handle their finances. For example, businesses must maintain accurate records of all transactions and keep them for at least three years after the end of the tax year in which they occurred.

To keep your financial records up-to-date and accurate, develop a consistent routine for entering financial transactions by reconciling your bank accounts regularly, either daily or weekly. To stay organized, consider the following methods:

Paper filing system: Establish a well-organized paper filing system by creating separate folders or binders for each type of financial record (e.g., sales receipts, accounts payable, and accounts receivable) and labeling them clearly.

Digital filing system: Create a digital filing system using a spreadsheet and cloud storage services like Google Drive, Dropbox, or Microsoft OneDrive to store and organize electronic copies of your financial records. Ensure that your digital files are backed up regularly and protected with strong security measures.

Accounting software: Utilize accounting software, such as QuickBooks, Xero, or FreshBooks, to automate your bookkeeping process. These tools can help you track income and expenses, generate financial reports, and manage invoicing and payroll.

Outsourcing bookkeeping: If you lack the time or expertise to manage your bookkeeping effectively, consider outsourcing the process to a professional bookkeeper or accounting firm. This can help you focus on your core business operations while ensuring that your financial records are accurate and well-organized.

Related: Setting up accounting for a business