The Benefits of Starting a Business at the End of the Year

Starting a business is one of the most popular New Year's resolutions, but nailing the timing can be a bit tricky. Should you take the leap now, while you're excited about embarking on your entrepreneurial journey, or should you be patient and wait until January?

Although most people assume that a new year is a perfect time for new beginnings, starting a business at the end of the year can offer you some key benefits. Let's have a look at the top reasons why you should get the wheels turning now instead.

Beat the bureaucracy

Starting a business may be exciting, but the paperwork certainly isn't. Before you can call yourself a legitimate business owner, you have to file documentation to your state and the federal government. This can be time-consuming all year round, let alone after the holidays. According to data from the US Business Formation Statistics (BFS), the number of business applications has been rising steadily every year and reached a whopping 3.48 million in 2019. And many of them are submitted in January!

This massive influx of applications leads not only to tedious queues but also potential delays in processing your request. So, by filing the documents when offices aren't that busy is a great way of beating the paperwork rush and avoiding bureaucratic bottlenecks.

Earn tax benefits

If you want to use your 401(k) plan to finance your new company, starting the process before the end of the year might be a good idea because that's when 401(k)s are at their peak. This is known in the industry as the "Santa Claus rally" – the tendency of stock prices to rise during the holiday period.

Also, keep in mind that most states allow you to select a future formation date when incorporating or forming an LLC. That means you can file your documents today, but generally select a date in January as the date of formation. This way, you're hitting two birds with one stone: you're avoiding the crowds, and you're making bookkeeping easier. By doing so, you also expense state and service fees in your current tax year, thus saving a bit of money.

Expand the entity portfolio

Individuals aren’t the only ones thinking about tax benefits this time of year. Some large companies and firms will set up an entity at the end of the year when they need to increase business expenses for tax purposes. Of course, those benefits need to outweigh the cost of things like filing fees, annual report filings, etc. so it's best for the business to seek tax advice from a qualified professional in your state. Companies looking to form new entities, especially in different states, should take care to designate a reliable registered agent to receive service of process. For example, many companies based in California still choose to incorporate in Delaware. That means they will need to appoint a California registered agent as well as an agent with a Delaware address. This is a common scenario this time of year so be sure to understand all the logistics.

Take advantage of holiday sales and deals.

The holiday season is the busiest shopping period of the year. Between Thanksgiving and New Year's, people are in shopping mode, and money changes hands quickly and abundantly. At this time of year, everyone is looking for gifts for themselves or their loved ones, and they're likelier to respond to marketing. Even if you are only starting a new business, you still could get more clients than opening at any other time of year. Timing is everything, so if you manage to open when shoppers are the most active, you could build up some profit by the end of the year.

In comparison, January and February may not be so great for revenue generation because shoppers are suffering from the post-holiday blues. Plus, after spending a lot of money on gifts for themselves and their families, people tend to take it easier on the shopping and even make it one of their New Year's resolutions to save more. There's even a trend called "No-Buy January," where people are trying to survive a whole month without buying anything. The exceptions are, of course, gyms, which report the highest influx of new members at the beginning of the year.

As a business owner, you can take advantage of seasonal sales too. Holidays such as Black Friday and Cyber Monday come with discounts of up to 70% on computers, electronics, and office supplies. So, why wait until January to buy everything full price when you can save money while everything is on sale?

The bottom line

Whether you want to avoid the queues at your local office, take advantage of the holiday shopping season, or enjoy some tax benefits, starting your new business at the end of the year can be a wise choice. However, remember that the right timing can vary from business to business. Ultimately, the benefits need to outweigh the cost in your case, and you still need to do market research to find out when is the perfect time to open. When in doubt, asking a qualified professional in your state can help avoid unpleasant surprises and ensure you start your venture on the right foot.

Harbor Compliance does not provide tax, financial, or legal advice. Use of our services does not create an attorney-client relationship. Harbor Compliance is not acting as your attorney and does not review information you provide to us for legal accuracy or sufficiency.

James Gilmer is a Compliance Specialist at Harbor Compliance, a leading provider of compliance solutions for companies of all types and sizes. Founded by a team of government licensing specialists and technology trailblazers, Harbor Compliance has helped more than 25,000 organizations apply for, secure, and maintain licensing across all industries. James is passionate about helping nonprofit organizations leverage compliance to enhance their fundraising and program activities and educating the sector on compliance issues.