10 Steps to Kickstart your Government Contracting Business – Part II

Apr 1, 2024

Welcome back to our series on navigating the world of federal contracting! In Part I of this blog, we discussed crucial initial steps such as market research, business planning, and structuring your government business  Now, in Part II, we’ll pick up where we left off, exploring the remaining 5 essential steps to guide you on your journey to success in government contracting. Let’s dive in!

6. Choose your Business Name

A business name must be unique, represent your work, and be registered and protected. If you are a business about to start your work, you must pick the right name. You must choose a name that reflects your brand identity. Once you select a name, you must protect it. There are four ways to register your business name, and they serve different purposes:

  • Entity name protects you at a state level: Depending on your business structure and location, that particular state might require you to register a legal entity name. This name is how the state identifies your business, and each state may have different rules for entity names.
  • Trademark protects you at a federal level: Trademarks prevent others in the same (or similar) industry in the US from using your trademarked names.
  • Doing business As (DBA) doesn’t give legal protection, but it might be legally required: You might need to register your DBA – also called trade name, assumed name with the state, country, or city your business is located in.
  • A domain name protects your business website address: You can register your domain name if you require an online presence.

Each of these name registrations is legally independent. Most small businesses use the same name for each kind of registration.

7. Register your Business

You must register your business to make it a distinct legal entity. Registering your business will mainly be determined by the business structure and the location. You will need to file to get a Federal Tax ID. Small businesses sometimes must register with the federal government for trademark protection or tax-exempt status.

For businesses that are a Limited Liability Company (LLC), Corporation, Partnership, or Nonprofit Corporation, you must register with any state where you conduct business activities. You will be considered conducting business in a state when your business has a physical presence in the state, a significant portion of your company’s revenue comes from the state, and any of your employees work in the state. Requirements for registering in each state are different, and you will need to access their websites, understand their requirements, and get them completed.

8. Get Federal and State Tax ID Numbers

For businesses, state tax ID and federal tax ID numbers work like a personal social security number, but for your business. They let your small business pay state and federal taxes.

Getting a federal tax ID number
If your business is performing or is planning to perform any of the following tasks, you must possess a federal tax ID number:

  • Pays employees
  • Operates as a corporation or partnership
  • Files tax returns for employment, excise, or alcohol, tobacco, and firearms
  • Withholds taxes on income, other than wages, paid to a non-resident alien
  • Uses a Keogh Plan (a tax-deferred pension plan)

Your Employer Identification Number (EIN) is your federal tax ID. You will need it to pay federal taxes, hire employees, open a bank account, and apply for business licenses and permits. You can apply for an EIN using the IRS assistance tool. It will guide you through questions and ask for your name, social security number, address, and your “doing business as” (DBA) name. Your nine-digit federal tax ID becomes available immediately upon verification.

Getting a state tax ID number
As a new contractor, you will need to understand whether you first need a state tax ID and then research and understand your state’s laws regarding income taxes and employment taxes. The process for state tax ID number may vary from state to state. The need for a state tax ID number directly relates to whether your business must pay the state taxes. State tax ID can be used for other functions like protection against identity theft for sole proprietors.

9. Apply for Licenses and Permits

Most businesses need a combination of licenses and permits from federal and state agencies. Business activities regulated by a federal agency will need a federal license or permit. In the list below, there is a list of activities and issuing agencies:

The licenses and permits are needed from the state, county, or city, depending on the business activities and location. States tend to regulate a broader range of activities than the federal government. Business activities commonly regulated locally include Auctions, Construction, Dry cleaning, Farming, Plumbing, Restaurants, Retail, and Vending machines.

10. Open a Business Bank Account:

Once you start accepting or spending money as your business, you must open a business bank account. You can open a bank account once you’ve received your federal EIN. Business bank accounts come with certain perks different from personal bank accounts. Business banking offers limited personal liability protection by keeping your business funds separate from your personal funds. You can authorize employees to handle day-to-day banking tasks on behalf of the business. You can also get an option for a line of credit for the company that can be used in the event of an emergency or additional requirement of funds. Many contracts require the presence of a line of credit with banks for contractors.

To select a bank, consider the benefits and features a particular bank offers and then choose accordingly. You can consider multiple factors, like Introductory Offers, Interest Rates, Lines of Credit, Transaction Fees, and so on. Once you have selected the bank of your choice, you can open your account with documents like your Employer Identification Number (EIN), Business formation documents, Ownership agreements, and Business license.

Getting into government contracting may seem a difficult task, but with a proper plan and guidance, you can make a start on your journey and generate sustained income. Working as a government agency contractor is a smart move if you are planning to expand your business or start your business. Our Government Contracting Consulting Team at iQuasar helps many budding government contractors who want to kickstart their government contracting business by providing them with necessary guidance, assessment, market understanding, and other support related to required processes. We have experience supporting multiple new government contractors to start and grow their businesses. If you are a new business wanting to foray into this space, feel free to contact our team. 

Also Read: Government Contracting Go/No-Go Decision Guide for Small Businesses

 

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