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Businesses are deemed high-propensity based on characteristics associated with a high level of business formation, including detailed plans on hiring and paying employees. — Getty Images/mapodile

According to the U.S. Census Bureau's Business Formation Statistics, December 2021 applications for high-propensity businesses are up 21%+ year-over-year (YoY) on average — and some states are seeing increases exceeding 50%.

But what exactly is a high-propensity business and how is the paperwork different from a traditional business application? Here’s what it means to be a high-propensity business and how you can position your company as one.

What is a high-propensity business?

The U.S. Census Bureau defines high-propensity businesses as those that have a higher likelihood of becoming businesses with employees and payroll capabilities. Dependent on an IRS Form SS-4 submission, businesses are deemed high-propensity based on characteristics associated with a high level of business formation. High-propensity businesses include those that:

  • Define themselves as a corporate entity.
  • Indicate a plan to hire employees.
  • Have a date for providing first wages and planned wages.
  • Have been given a NAICS industry code that aligns with accommodation and food services, construction, manufacturing, retail, professional, scientific or technical services, educational services and healthcare.

To be seen as a high-propensity business, it isn’t enough to simply state your intent to hire employees. You must also prove you’re prepared to compensate them.

How to position yourself as a high-propensity business

Write a detailed business plan

Creating a thorough business plan will attract investors and allow you to demonstrate the value of your business. When you have goals written down on paper and are able to explain your company’s vision, interested investors recognize your willingness to take your new business idea seriously and can see that you’ve thought through potential challenges and come up with solutions. The most efficient business plans include:

  • Your company’s mission statement and values.
  • A thorough description of your product or service.
  • Long-term and short-term business goals.
  • Explanations of your business structure or business model.
  • A thorough financial analysis.
  • Financial projections, including how you’re planning on repaying a loan or providing a return for potential investors.
  • A detailed marketing plan.

[Read more: How to Create a Financial Forecast for Your Startup Business Plan]

Indicate you are hiring employees

When filling out your application, make sure you point out that you are actively hiring employees. This statement can be included in your business plan or listed directly on your application. It may help your business’s stance to provide job descriptions for your employees and how your business will utilize the skills of potential employees. If you’re not sure about these details yet, it’s acceptable to give general descriptions about where employees fit into your business plan.

Provide a first wages-paid date

To be seen as a high-propensity business, it isn’t enough to simply state your intent to hire employees. You must also prove you’re prepared to compensate them. It’s important to provide proof of planned wages, including when your employees will be paid and what their wages will be. Indicating a first wages-paid date on IRS Form SS-4 increases the likelihood that you’ll be seen as a high-propensity business with your intent to form employee payroll.

Clean up your credit score

Factors such as your credit score will determine if you qualify for a loan that can assist you in jumpstarting your business and being seen as a high-propensity operation. Here are a few ways to clean up your business credit score:

  • Pay your credit bills on time. Look at your payment history and determine whether you’ve missed payments as these will negatively impact your credit score.
  • Ensure public record information is accurate. If your account holds judgments, tax liens or other Uniform Commercial Code (UCC) filings, it’s important to be certain that this information is complete and precise.
  • Get a business credit card. Sign up for a business credit card to separate your business and personal expenses while boosting your credit score.
  • Add a vendor account. Vendor accounts offer a simple and unique way to build your business credit. Upon approval, simply start buying products and pay your bill on time with the vendor.

[Read more: What is Good Debt and Bad Debt for a Small Business?]

Have a NAICS industry code

A North American Industry Classification System (NAICS) Code is a self-assigned system developed by Federal Statistical Agencies for “the collection, analysis and publication of statistical data related to the US Economy.” It is your company’s responsibility to select the NAICS code that best aligns with your primary business activity. In some cases you might select multiple codes.

If you’re getting ready to submit a business application and register your new startup, our guide offers tips to help you.

CO— aims to bring you inspiration from leading respected experts. However, before making any business decision, you should consult a professional who can advise you based on your individual situation.

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Published February 18, 2022