This is the second part of a six-part series discussing some of the challenges that affect almost all business owners at one point or another. The first part of the series was on Bringing Order to My Messy Books. Today’s topic is talking about how to set up your business properly.
It is a very exciting time when you are ready to set up a new business. However, a business that is set up improperly at the beginning can generate problems.
- Do your research
- Build a business plan
- Set up your finances
- Hire a professional to set up your business bookkeeping
Do your research
It is important to properly do your research when starting your business. You need to find out what the business licensing requirements are on a federal, state and local level. You will also want to meet with a lawyer or a tax professional to discuss which entity would be the best fit for your business looking at both the legal and financial implications. You will want to look into what paperwork will be needed to incorporate or otherwise register your business. Will there be any other additional registrations required? What requirements will there be to keep your registrations up to date? You may want to enlist legal counsel, especially if multiple partners or investors are involved in the business.
Build a business plan
A business plan should include the findings from your research. A basic business plan outlines how the company will generate revenue, what startup costs are needed, and how the ownership of the business will be structured. It should also outline projections for growth and scalability. It is important to reiterate that it may be necessary and beneficial to seek legal counsel for any operating agreements that may need to be created, partners or investors.
Set up your finances
Setting up your finances may feel a bit daunting. Here are a few tips:
- Do NOT use a personal account for business-related transactions.
- When starting a new business, always open up business accounts for depositing business income and for paying business expenses.
- If you plan to use a credit card for purchases, open up a business credit card.
- Go online and research which bank is the best fit for your business. You will want to look for things like loan and LOC rates.
- You may want to consider opening a PayPal or other merchant account if you are going to accept credit card payments from customers.
Hire a professional to set up your business bookkeeping
This may seem expensive when you are just starting out, but the initial investment of hiring a professional can save you money in the long run. Even if you estimate that you will have limited transactional activity, you want to be setting yourself up for success. We recommend using an online accounting solution, such as Xero. A professional bookkeeper will be able to get the proper structure of your accounting set up by creating a meaningful chart of accounts for your type of business, by configuring such things as the bank feeds, invoice settings, and report structure. Integrations with your accounting system with applications to handle your payroll, electronic bill payment, and expense management can really help you to be more efficient and help to promote a more professional image too. Many business owners benefit from outsourcing bookkeeping to professionals.
Be sure to check back to read our next installment of this series on Compliance Issues – What are they and how can I avoid them?