How to Exercise Due Diligence
What is due diligence and why is it important?
Starting a business is fun and liberating, but in order to stay in the good graces of the law, you must exercise due diligence. Due diligence is the action you must take to comply with legal requirements. The exact steps you’ll need to take in order to establish your business are heavily dependent upon where you live and what you intend to do.
Since I am a U.S. citizen and this series is about starting a home business online, it’s safe to say the majority of this post will not apply to you if you’re opening a restaurant in Thailand, for example. But no matter where you live, do keep in mind the fact that I am not an attorney, this is not legal advice, and you should consult with a lawyer and other authorities in your locale to determine exactly what you need to do to make your business legal. Got it? You can read the rest of my disclaimer here.
Now that we’ve covered that, the following is an example due diligence checklist for launching an online home business legally.
“Running afoul of the law can be expensive and life-changing in the worst way, so take care when establishing your business to stay compliant with all the rules that apply to you. ”
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What’s In A Name?
Your business name is one of the ways you communicate your brand to your audience. In many ways, the name you choose represents your brand’s reputation. It’s important to choose a name that creates a positive mental association with your business.
Take the popular footwear company Nike. Nike is the name of the Grecian goddess of victory. Nike is a household brand that is known for sponsoring the world’s elite athletes. This prestigious image creates has a psychological affect on Nike’s audience. The association with excellence triggers customers to buy their products.
When you’re choosing a name for your business, you have to consider whether it’s better to pick a name that immediately signals what your company is about or whether you want to put in the work to create associations with an original name.
Example 1: Business Names that Signal the Business Type
Brand: Best Real Estate Writer
Business type: This person is a freelance writer who exclusively writes about real estate
Brand: Pho Real
Business type: This restaurant serves the tasty Vietnamese dish Pho
Example 2: Business Names that Do Not Signal the Business Type
Business type: Swedish furniture store with global locations. The name comes from the initials of the founder and the place where he grew up.
Brand: Taingled Web
Business type: Freelance writing by Yours Truly. I chose this name because I was originally going to offer web design, but decided to write, instead. My name is Tiffany A Ingle…T A Ingle…TAINGLE…and “taingled” was my cutesy attempt to communicate “Websites styled by TAINGLE.” The downside is most people associate “tangled web” with deception, so I’ll be rebranding that arm of my business one of these days.
A third option is simply to use your name for your business if it’s available for professional use.
So how do you discover if your name, or any name, is available to be used by your business? You do a search with the United States Patent and Trademark Office and with your local Secretary of State.
If the name you want to use is being used by someone else, pick another name. This could be as easy as changing a spelling or adding or subtracting words. However, if the name is Trademarked, think again. Go with something completely different, or you could end up being sued for all your worth.
Claim Your Virtual Real Estate
Once you’ve determined you can use a particular name, do a search for the domain you want. A domain is the address people use to find you online. The address you use to get to the main page of my site is www.savvymochamama.com It’s best to select a domain that ends in .com because it is a more authoritative extension in the eyes of search engines. If you want your site to actually be found, the .com extension will improve the odds.
I like to search for and buy my domain names via Namecheap. This company was recommended to me by one of my business mentors years ago and I’ve been happy with them ever since. The prices are good and the support is great! I own a number of domain names for sites I plan to build in the future.
Once you’ve found an available name for your website address, buy it and hold on to it for when you’re ready to build your site.
The next thing you want to secure is your social media names. It’s important to use the same name across all platforms, if you can, or very similar names.
I had a blog a few years ago called Pearls of Wisdom. I had a hard time building up a social media presence for it because the name and all the variations I was interested in using were already in use! I couldn’t even get the domain name for it, so I was stuck with pearlsofwisdom.bloggingplatform.com.
Eventually, I closed that blog down, not only because of the problems with securing the digital spaces I wanted, but due to facing the realities of Network Marketing and MLMS. I was selling someone else’s product and I no longer wanted any part of it. I considered pivoting and turning my blog into my own brand, but since I hadn’t gone about building a blog the right way, I scrapped it and started over again.
Take a lesson from me and secure your domain name and social media accounts ahead of your launch!
Depending on your business model, you may need to pursue incorporation. Incorporation is a term that refers to the proper legal structure of your small business. The legal structure you initially choose may not be the structure you keep as your business grows. Whether you begin as a sole proprietor or decide to form an S-Corp out of the gate, you need to be aware of how incorporation affects your personal liability, your taxes, and more. For more information on choosing a business structure, consult an attorney or the Small Business Administration.
As a stay at home mom, you may be able to begin as a sole proprietor. It’s one of the simplest business structures to begin with and there isn’t much you need to do in order to get started. One thing you need to have as a small business owner is an Employer Identification Number or EIN. This is a number you get for free from the IRS to use for formal business activities such as obtaining a business license or opening a business bank account. You can apply for an EIN here.
Finally, you may need a license to operate your business. The rules vary by state, county, and city, so contact your local Secretary of State to find out what licenses you need to have, if any, to get your business up and running.
It’s important to keep your business funds separate from your personal funds if you want to stay out of hot water with Uncle Sam. Use the EIN you’ve received from the IRS to open business checking and credit accounts.
Having accounts specifically for your business is just the beginning of setting a foundation for proper financial management in your business.
Good accounting is a must in order to gauge the financial health of your business and to meet your fiscal responsibilities. That’s right, you can’t forget that all-important “T” word…
Taxes! A word that may have previously sent shudders down your spine, but one that you may come to love once you are turning a profit. If you’re making money in your business, you’ve got to pay taxes on it. Rather than seeing this as the government reaching into your pockets, change your perspective: you’re finally in a position where you’re making enough money that you’re expected to GIVE rather than wait for money to be given to you. That’s a definite indicator that you’re doing something right!
You may be required to pay taxes quarterly for your business. If you are, don’t panic! Set aside at least 25% of the money you earn so you can pay your fair share when the time comes. If your business is required to file annually, save enough money throughout the year and make sure to file by the due date established for your business entity type. And since you’re a bigshot business woman now, remember to hire an accountant to ensure your taxes are done right.
Even though you’re running an online business, you do need a physical address to use. Various laws governing email marketing and website registration require you to have a physical address on file. You do NOT want to ignore that requirement, nor do you want to give out your actual address. You can comply with this requirement by renting out a P.O. Box. Some email marketing software companies such as Convertkit will allow you to temporarily use one of their physical addresses in lieu of yours.
Likewise, you may need a phone number to operate your business. Some options you can explore include inexpensive, pay as you go cellular service, a Google Voice number, Skype, or Burner App.
If you’ve got a really unique business idea or intellectual property that needs protection, safeguard yourself with patents and trademarks as needed.
The Final Word
Running afoul of the law can be expensive and life-changing in the worst way, so take care when establishing your business to stay compliant with all the rules that apply to you. Ignorance is never an excuse, but you aren’t expected to be an expert in commerce. Seek help from an attorney, your local chamber of commerce, and small business associations to fill in your knowledge gaps.