Start Your Business Off the Right Way

Before you open a business checking account, before you set up an LLC, before you buy yourself business cards and other non-essential marketing materials, make sure you have a product or service that is viable. i.e., go generate that first dollar of revenue.

• Key point: Don't waste time and money on these administrative tasks before you have actually made a sale.

• Key point: As a business owner, your primary objective is to generate revenue.

TAKEAWAY - Revenue is the oxygen your business needs to survive. Focus on this first.

Caveat: check the guidelines for your local city and state business authorities to see if you need a specific license, tax permit, etc., for your specific product or service.

As your business starts to gather some momentum and the revenue is coming in, it's time to start getting organized.

• Set up the proper entity for your business

  • A Sole Proprietorship is the default entity when you are a one-person show and not incorporated with your Secretary of State. In this scenario, there is no difference between you personally and the business which can be risky from a legal perspective as you would be personally responsible for the liabilities of the business.

  • You can take your business up a notch by setting up a Limited Liability Company (LLC) which can help protect your personal assets from the operations of the business and ensure its liabilities are that of the LLC and not the owner. Additionally, establishing an LLC can help elevate your company brand as well as provide flexibility to eventually covert the LLC to a more tax-efficient structure (e.g., S-Corp). Other considerations in this area include:

    • Establish a business address. Even if you don't have a physical office location, you can work with a Registered Agent or a Digital Mailbox service to set one up. The goal here is to build on the legitimacy of the business and help create a line in the sand between you and your business, i.e., Corporate Veil.

    • After you have set up a proper entity structure, you should apply for an Employer Identification Number (EIN) with the IRS. This is basically the Social Security number for the business, it's the specific number that the IRS will identify your business by, and will be needed when filing your business tax return, paying employees and contractors, business banking, etc.

• Open up a business checking account

  • Having a separate checking account for the business is the key to ensuring you establish and maintain a clear financial picture of the business. It's understandable that some initial startup expenses might get charged with a personal checking or credit card account, and that is easy enough to identify and fix, but having a separate bank account for the business early on will limit bookkeeping headaches and make tax prep and planning more seamless.

  • Ideally, a separate bank account in the name of the business is what you want but in the early stages it's okay to even open another personal checking account that you will use just for business-only activities.

    • Imagine getting to the end of the year and you've actually generated some decent revenue, but you don't know what your net profit is on that revenue if you can't identify what you've spent in the process.

• Sign up for an Accounting Software Solution

  • Accounting software like QuickBooks offers affordable account subscriptions.

  • Connect your business checking account or credit card so you can begin building your financial reporting infrastructure. As you receive payments from customers and pay for expenses, the accounting software will be able to categorize your transactions and before you know you will have financial statements for your business.

  • You can also leverage the accounting software implement other solutions such as payroll, vendor payments, customer invoicing, etc.

As you start to implement these initial steps, you will eventually see a real business coming together and will be better prepared to take on big opportunities that will grow your business.