In this article, you will learn how to create a software development company. You’ll have everything from step-by-step guides on what to do, the legal things you need to take into consideration, and even some quick tips on how to start the process.
Now that we’ve got all of the basics out of the way, it’s time for us to get into what steps are necessary for getting your company up and running. Each one is going be broken down into its own section so there’s no confusion or missing information about any particular topic.
Step One: Choosing A Name
So you’ve decided that the software development company is the one for you. Now what? First things first; you need a name. This is probably the hardest step in the entire process. You basically have to take your entire business and reduce it down into three words or less, and make them catchy at that. Something like, “Software Solutions” isn’t very catchy, but something like “Software Nation Corporation” will definitely stick to your potential clients’ minds for a long time.
So how do you pick a good name? The best way is to roll with your gut. Don’t over think it. Don’t analyze the name for days on end and run yourself in circles. Just sit down for 15 minutes and write down anything that comes to mind when you think about your software development company. Then take all of those names and throw them into a hat, and choose one at random. It might not be the perfect name, but chances are it will get the point across – something like 10% of the time. Just take your chances, and keep working on it.
Step Two: Company Formation
So you picked a name and you’re ready to go. Now what? Well, first things first; you need to have a “certificate of authority” (C.O.A.) from the state in which your company is located. This will be needed so that state government agencies can pay their taxes, file their paperwork with the state, and so on. The easiest way to get this is by first getting a C.O.A. from the Secretary of State’s office in the state in which you want to be registered as a corporation.
Start at the state or county level and fill out their legal form, then go on to the Secretary of State’s office in that state. Your C.O.A. will usually take about 5 days, but I’ve found some companies only have to wait a week or two for their C.O.A. to be processed.
Once you receive your C.O.A., you can then set up a corporation in that state within your state’s Incorporations Office, provided your company is “legal”. This is basically the same as if you were creating a limited liability company (LLC) back in the U.S., except the LLCs have to be recognized by the government – whereas a corporation isn’t required to get governmental recognition.
Step Three: Setting Up Shop Office Space
Unless your going to start a software development company from out of your home or apartment, you’re going to need an office space. This can be done a lot of different ways depending on where you live, but it is almost always going to be more expensive than you expect. Something as simple as renting a room for $250-300 per month won’t cut it; you’ll need something that is at least 1000 sq ft., and will most likely want something that is 2000 sq ft. or so. The more space you get, the more money you’ll spend, but the less cramped and unorganized you’ll be.
Step Four: Get Yourself Some Employees
This is where most people fail when they start their own software development company. They will spend a lot of time and effort working on their business plan, creating their website, and doing all of the other things that they need to do to get their business up and running – but they’ll forgo hiring employees.
This is a big mistake, as you can’t run a profitable software development company as the only one who works there. You may have the best software in the world, but if you’re not marketing it well and you don’t have employees to help build your company and grow it, then your company will fail. Having employees doesn’t just give you more time to work on the business itself, it gives you someone to train that can eventually take over for you.
So if you’re going to start a software development company, get yourself a few people.
Step Five: Get Your Company Paying Taxes
This is usually the biggest problem of all, and it’s one that most people don’t think about until it’s too late. We’ve already discussed this with Step Three; you need to have your company registered in that state. That’s step one.
Now that you’ve registered your company, you need to pay taxes. The most important of these is the corporate income tax, and the easiest way to do so is through federal withholding. There are different options for this, as you can either use a direct deposit from a checking account or a pre-tax payroll deduction system like an employee benefit plan (EBP).
Pre-tax payroll deduction systems are good if you don’t have a high enough income to be required to file quarterly tax forms, but with the current economy you’re much better off going with direct deposit if you use this type of system. This is because using EBS can be very expensive; it takes about $500-$1000 or more per year per employee to use this type of system, and they can cost as much as several hundred dollars for each direct deposit check that you send to the state. Unless you’re making over $250k dollars or so, you can likely find better options that don’t require you to pay for the system.
So if you’re going to start a software development company, make sure your company is paying any taxes that are required.
If you have any more questions about starting a software development company, please leave us a comment below. We’ll hopefully be able to answer them!