Business Resource Center
A new venture, also called a startup, is typically pursued when you have an idea that can be turned into a business. Many discover a customer base that be served better by analyzing demographic changes, while others may see a new market open up as a result of technological changes. Some decide to start their own business for its many advantages, such as making an idea come to life, growing a company from the ground up, or simply because they want to be their own boss. One attraction of a startup is that you are in control of every aspect of your business including, day-to-day operations, marketing, website, and paying bills and accounting. You will be able to provide your product or service the way you think it should be provided, from start to finish.
Being a founder is not without its headaches. It is a lot of stress, worry, and work to build a customer base, market the new business, hire employees, and establish cash flow. Some people like the challenge. This is why it is important to engage in self-reflection before deciding to start your own company. Some people do not have the disposition to start from scratch and to set everything up from square one. It really depends on your personality and work-type preferences.
A degree in business is not required to be a successful entrepreneur, but it is strongly recommended that you first do research and take advantage of local and federal resources to increase your understanding about how businesses operate in the United States and in New Mexico. It is a good idea to begin familiarizing yourself with basic business concepts and with the vernacular of your industry. The federal government’s Small Business Administration Learning Center is a great resource to get started. Seminars and workshops are offered through the NMSBDC network and WESST offices throughout New Mexico. Technology Ventures Corporation (TVC) also has free resources available to entrepreneurs.
Startups in the state may consider involvement with Startup New Mexico (part of the Startup America Partnership) or the New Mexico Technology Council (NMTC). Entrepreneurs can benefit from advice volunteered by mentors with small business experience (SCORE) and various online business magazines available on the Internet (i.e. Entrepreneur, Inc., Fast Company). Startup Weekend is another valuable experience in which entrepreneurs can participate. Santa Fe, Albuquerque, and Las Cruces have all hosted the event. Attending business networking events in your area, such as Taos Entrepreneurial Network (TEN), can help you build supportive relationships and a network that will strengthen your business.
You may have decided that you don’t want to build a business, but you still have the desire to own one. There are other options for you. You can look into purchasing an existing business or becoming a franchisee. See the BRC's Buying an Existing Business or Franchising for more information.
Before you begin asking for funds to start your business, you will need to structure your business. This will become strikingly apparent as you start writing your business plan, but if you need a simple step-by-step guide for the structuring process, the New Mexico Small Business Development Center in Santa Fe has posted a checklist called Basic Steps to Starting a Business. You may have to modify the checklist to relate to your specific business type, but the checklist provides the basic steps needed to structure your venture. Below we will highlight some of the steps that require a little more effort than simply filling out a form.
It may seem easy to choose a business name, but often your idea for a name is not as unique as you may think. You will find that many of the names you think of will already be taken by other businesses, and some may even be trademarked. You will want to do a search of the business name you decide on so you do not end up infringing on a trademark. The New Mexico Office of the Secretary of State’s website has such a search bar. You can also register the business name and, if necessary, trademarks with the federal government from this website. You should also perform a national name search by visiting the United States Patent and Trademark Office.
If you are still having difficulty coming up with a name, you can check out online business name generators to discover a creative and unique business name. The homepage of Name Thingy flashes two alternating and juxtaposed words. When you click “options,” you can customize the descriptive nature of the words. The site also lets you know if a domain name (for websites) is available for the corresponding name. Panabee asks the user to write two words explaining the business and then it generates unique business names using different techniques. This site also provides availability information for website domain names.
The type of legal structure you choose depends on the type of business you want to create. For example, if you have one or more partner, you will not want to register as a sole proprietorship. If you are a startup without any money, you will most likely want to file as an LLC rather than a Corporation. As your business grows, you will most likely want to change the legal status of your company from an LLC to a Corporation. The legal identity of your business will determine how you pay taxes, the amount and type of paperwork you will be required to fill out and file, the personal liability for which you will be responsible, and your ability to raise money. We will detail below the legal identities a business can assume. When you have chosen the appropriate legal identity of your business, you will register it with the New Mexico Office of the Secretary of State.
A sole proprietorship indicates that you are the business. There is no need for legal paperwork to establish a sole proprietorship as you and the business are one and the same. However, states have different requirements when it comes to licenses and permits, so it is important to check that you are not in violation of these. New Mexico does not have any special requirements for sole proprietorships. This legal identity is most appropriate for businesses that have extremely low risk, because if something happens to the business, you the owner, are completely liable for all of the risk. Most freelance workers consider themselves sole proprietors.
A partnership indicates that two or more people own the same business. There are two types of partnerships that are commonly used: General and Limited. In a General Partnership, each partner equally shares ownership: profits, losses, and management responsibilities as outlined in the Partnership Agreement. They share full liability for the business and pay taxes on the amount of profits they receive. In a Limited Partnership, partners share all aspects of ownership but to varying degrees. For example, one partner may share less liability and decision-making power than another. These degrees of ownership are usually determined by the percentage of investment they make into the business.
A limited liability company is a combination of a corporation and a partnership. Owners are often referred to as “members” and there can be one or more of these members. Each member is taxed according to the profits and losses earned from the business, rather than the business itself being taxed. These details, as well as many others, will be outlined in the Operating Agreement. One benefit to incorporating as an LLC is that the risk is usually limited to the entity, which protects personal assets.
A corporation is an independent entity that pays taxes and absorbs all risks associated with operations. Corporations are subject to double taxation, which means that it pays income tax on profits and tax on dividends distributed to shareholders. Shareholders are known to own percentages of the corporation according to the number of shares they have purchased. This legal structure is not usually suited to small or startup companies. It is an expensive and cumbersome process that requires expert legal assistance.
There are two main differences that define S-Corporations from C-Corporations. The first is that in an S-Corporation, profits and losses are passed through to shareholders for federal tax purposes, avoiding double taxation. Additionally, S-Corporations are restricted to no more than 100 shareholders, whereas C-Corporations are allowed to have an unlimited number. Just as with C-Corporations, filing this legal status is complex and you should seek out expert legal advice.
Registering and licensing your business varies according to the ordinances of the county or municipality in which you are operating. In New Mexico, this is typically accomplished at the county clerk’s office, but not always. For example in Albuquerque, a business license is under the purview of the Planning Department. Also, if you are operating within multiple communities across New Mexico, you will need to register your business in each of those communities. A simple Internet search for keyword “business registration + {your community name}” should yield the appropriate entity in your community.
It is also a good idea to contact your county/municipality Planning and Zoning Department (the actual name of this department may vary by community) to find out rules, regulations, or restrictions that may apply to your commercial operation. Zoning issues are specific to each community and can affect where you are allowed to open your business. You should do this before signing a lease or purchasing property so you know your business can operate at that location. Refer to this list from the Regulation and Licensing Department to determine if you need a special license or permit (i.e. barbers, alcohol servers, etc). Online applications are also available for your convenience.
If you feel your business is being unfairly treated or is encountering unnecessary bureaucratic barriers, please contact the NMEDD’s Office of Business Advocacy (OBA) for assistance. The OBA’s mission is to “Help companies navigate state government by providing assistance with regulatory, intergovernmental and public policy issues adversely affecting businesses in New Mexico.”
In order to receive your Federal Employer Identification Number (EIN), which is used to identify your business entity, you will register with the IRS free of charge.
CRS stands for Combined Reporting System, which is used by the State of New Mexico to determine and track tax payments from businesses in the state. Obtaining a CRS number is easy and free on the Taxation and Revenue Department website. Rather than collect sales tax, New Mexico collects Gross Receipts Tax (GRT), which is reported on the CRS form. For more details on GRT and other New Mexico tax policies, click the Tax Policy tab in the navigation bar to the right of this page.
There are many rules and regulations that need to be followed before you open for business. You will have to think about those relating to hiring, safety, and public health just to name a few. Below we will highlight some of the major aspects of owning your own business that fall under regulatory authority.
First-time employers may not realize that the process of hiring, firing, and rehiring can be extremely costly. As an employer you should be selective in whom you choose as employees. You want them to have the passion that is required to not only care about their job, but also to love it in such a way that they remain loyal to you for many years. This will decrease turnover and save you in loss of productivity when an employee leaves or is fired. It will also decrease the amount of money required to train new employees.
One suggested cost-saving hiring method is to employ students through internships or apprenticeships. Interns can learn directly from you on the job at little to no cost to your payroll (depending on the type of internship). This allows employers to determine whether or not the intern has the potential to be a great future employee. Certain businesses may be eligible to participate in the NMEDD’s Job Training Incentive Program (JTIP), which reimburses qualified participants up to 75% of the cost to employ an intern for up to six months. Participating in job fairs at local colleges and universities, posting job openings online via LinkedIn, and working with free job posting sites such as New Mexico’s Department of Workforce Solutions (DWS) are all potential ways to attract a qualified applicant pool.
Wages are another consideration in attracting the right kind of employee. The Department of Workforce Solutions has information about wage rates for the state to help you decide on appropriate wage levels. You can also consult the DWS workers’ compensation guidebook, when hiring. Finally, here is a list of all federal and state posters that employers are required to post in a the workplace.
Once you have found and hired your employees, there are certain legal processes you will need to follow. According to federal and state law, employers are required to register new or returning hires to the New Mexico New Hires Directory, within 20 days of the date of hire or return to work date. Setting up a withholding and unemployment tax account for each new hire is also required. Always remember you can ask for help when trying to understand all of the hiring requirements. This will lessen the likelihood of issues arising and having to pay fines for violations.
New Mexico is not a right-to-work-state.
Read through laws, guidelines, and regulations to make sure your business complies with the Americans with Disabilities Act. It is important to make sure your business is aware of each issue and can provide the appropriate accommodations.
As a small business owner, you will need to make sure you are insured in case of any accidents that happen within or around your business, or any damage caused by environmental events. As an employer, you will also be required to buy health insurance. The Small Business Development Center has compiled a list of suggestions regarding insurance policies that new business owners may want to purchase.
Before beginning operations, you will want to open a bank account for your business. It is important to keep your business and personal finances separate. There are certain ways to go about opening such an account depending on the type of business you run and what your legal identity is. The SBA provides helpful direction for opening a business bank account.
Before you open the doors for business, you should have a bookkeeping system in place. This is the most basic step in maintaining your finances and these records will determine the quality and ease of more complex accounting, financial statement preparation, and tax preparation. The information in your bookkeeping records will also aid you in business planning and decision making. You can keep these records by hiring a bookkeeper (contract or in-house), or you can purchase bookkeeping software to enable you to keep your own books more easily.
Depending on the level of complexity inherent in your business, you should be able to keep the books yourself. This will save money in terms of hiring someone else to do the job, and will give you first-hand insight into the operations and financial standing of your business. Even if you decide to hire an accountant to handle more complex financial matters, you should still consider maintaining the basic bookkeeping records yourself for these reasons.
Software programs for bookkeeping are available that make this process easier and less time consuming, such as having ready-made record keeping templates and other features. Do some research and find out if there is one that will suit your needs. It is also a good idea to have an expert evaluate your bookkeeping system periodically to ensure that you are not leaving anything out. Below are some the important transactions to record in bookkeeping as well as some common mistakes.
Keeping track of revenues and expenses will let you know how much money is being spent (and what it is being use for) and how much is flowing into your business. Journals, which detail receipts and expenses, or ledgers, which track transactions such as credits and debits are often used for recording the activity of these entries.
Record any cash spent to help keep track of expenses. This is often the reason businesses write reimbursable checks and keep petty cash around.
Tracking the movement of your inventory will aid in the prevention of theft and misplacement of items. A good practice to keep inventory costs low is to keep inventory on hand to a minimum. Elements of keeping inventory records are: dates purchased, stock numbers, purchase prices, dates sold, and sale prices. Making use of point of sale (POS) systems is a worthy investment for accurate record keeping.
Record what customers owe you (accounts receivable) and what debts you owe others (accounts payable). Elements to tracking these entries are: invoice dates, numbers, amounts, terms, dates and amounts paid or due, balances, and client information.
Once you hire your first employee, there are certain things you will need to keep track of such as withholdings, employer matching, unemployment, and worker's compensation. You will also have to keep W-4 (Withholding Allowance Certification) and the I-9 (Employment Eligibility Verification) forms. More information on keeping records for employees can be found on the IRS’ website under Employment Tax Recordkeeping document.
SOURCES: Understanding Basic Bookkeeping and Working with an Accountant found on BizFilings, Daily Recording of Business Transactions found on BizFilings, Bookkeeping Basics for Small Businesses via SBA, Top 10 Bookkeeping Mistakes Made by Small Businesses found on All Business.