TABLE OF CONTENTS
- HOW DOES YOUR BUSINESS CHECK OUT?
- BEFORE YOU START A BUSINESS
- BUSINESS SETUP: MAKE IT LEGAL
- BUSINESS SETUP: ACCOUNTING AND BOOKKEEPING
- CONCLUSION: THE END OF THE LIST
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How to Start a Business in a Recession
HOW DOES YOUR BUSINESS CHECK OUT?
So you want to follow an entrepreneurial path and start your own business, maybe even a virtual business?. Chart your course and man your own ship. Congratulations! (And enough of the journey metaphors.)
SBA data shows that there are more than 30 million small businesses in the U.S., which employ 47.5% of the state’s private workforce.
To turn your pipe dream into a real, thriving business, you’ll have to roll up the sleeves and work hard to kickstart it. Just deciding to start is half the battle. Once you’ve made that choice, this guide provides comprehensive checklists to ensure you keep moving.
How To Use This Guide
This guide is meant for first time entrepreneurs and seasoned business owners alike. Reading through the sections will show you the steps required to reach the goal of running a successful business.
In the beginning, you’ll have to make some important decisions, and this guide will help anticipate those. Each section provides an overview of topics you’ll need to explore as a business owner, from the types of services and products you create, to the business-ownership and tax structures you must choose.
Once you have a high-level view of the choices in front of you, you can then dive into additional information and support to set up your new business.
BEFORE YOU START A BUSINESS
Before launching a business, what you most need to do is think, visualize and plan. Realize that these initial blueprints will probably change at least once, if not several times, and that’s okay.
You have many important matters to consider, from accounting to legal issues to workforce decisions. How you handle these will largely be determined by the early decisions you make about your business: what is it, what it sells, why, and to whom.
The steps you will take to launch a new business depend on the type of business you want. That’s really step one. So grab a yellow legal pad and sharpen your pencils. We’ve got thinking to do.
Do You Have An Entrepreneurial Mind?
Before we even get into the types of business best suited to entrepreneurs, it’s important to ask this question: Do you have what it takes to run your own business?
We’re not talking about book smarts and Ivy League degrees here (although those things are great), nor wads of the green stuff to back your plan. The question is, do you have sheer determination, commitment and grit?
The most successful business owners all share some special qualities. These entrepreneurs:
- Expect to fail along the way
- Are committed to making it work
- Are willing to work hard
- Regularly attend networking events and meet-ups and form strong referral communities
- Are nimble and able to change quickly according to market demands
- Before you even lift your foot to take the next step (which might involve plunking down some cash or groveling for it from investors), take the time to ask yourself these ten questions.
Do I Have an Entrepreneurial Mind?
- Am I somewhat adventurous as a person and okay taking risks? (Sure, you can call them calculated risks if you want.)
- Do I possess the resilience to accept failure if one idea doesn’t pan out?
- Can I quickly dust myself off and move on?
- Do I have more ideas than I can actually attend to and produce right now?
- Can I build a peer network and talk with them openly about money, business and professional issues?
- Am I comfortable marketing my products and services to people, in person?
- Am I comfortable doing this online?
- Do I have the discipline to do the hard word that gets a new business off the ground?
- How are my organizational skills? Can I manage my own time and schedule? Can I track my progress, rates and accounts in an organized way?
- Do I have enough faith in my own abilities to be successful at running my own business? Hint: If you do not believe in yourself and your abilities, it will be even harder to convince potential clients and investors to support you.
What Kind Of Business Are You?
In America, there are several options to choose from when considering what kind of business you want to be. In the most basic sense of the word, business is defined by the Merriam-Webster Dictionary as the activity of making, buying or selling goods, or providing services in exchange for money.
When choosing what type of business to launch, you must know what product or service you will create and sell. Ultimately, the question is: who is your customer and how will you make money?
Here’s a look at common types of businesses in the U.S. Whatever you choose, home-based or tech startup, each has its own set of steps to get launched.
Franchise Business: You may have heard this referred to as a “chain.” It’s a business model where the business owner or “franchisor” licenses trademarks and methods to an entrepreneur — the person willing to risk loss in order to make money (take note of the word “risk” in the definition. This is serious business). The franchisor owns the rights to the franchise name or trademark and sells the right to use it to a franchisee. Subway, Supercuts, 7-Eleven, Pizza Hut, and Dunkin’ Donuts ranked among the top 10 in Entrepreneur magazine’s 2014 Franchise 500.
Startup and High-Growth Business: The word “startup” has become quite familiar. In the context of business, a startup is usually technology-related with large growth potential (think Silicon Valley). The main challenge for a startup is financing. You’ll spend a lot of time and energy finding investors who will fork over money, from initial seed capital to later expansion funding.
Self-Employment Business (Independent Contractor): This business model is for sole proprietors who refer to themselves as consultants, freelancers, self-employed or independent contractors. These business owners get hired by clients to do a specific project or job. They are not employees of the business that hires them, and they pay all of their expenses, such as for materials used to complete the work. Independent contractors do not receive the same benefits, overtime and legal protections from employers as actual employees do.
Home-Based Business: Just like it sounds, this is when an owner runs a business out of a home. Remember, more than half of all small business in the U.S. are home-based. It’s also worth mentioning that several now-household brand names such as Hershey’s, Ford Motor Company and Apple Computer started out as home-based businesses. Really. The majority of home-based business are started by women, according to business specialist, Jim McConnon, and tend to employ family members. Starting from home is an easy way to ease into owning a business. You can work part-time without putting it all on the line. Often, home-based business are launched on shoestrings with budgets of less than $5,000 and zero savings, according to the Peterson Ultimate Home Office Survival Guide.
Web-Based Business: You must love the Internet to select this business model, because you’ll be glued to it. In an Internet business, the owner operates out of a website instead of a brick-and-mortar store, but attracting customers is just as crucial. Online, it’s all about site visits and getting eyeballs on the products or services for sale.
Purchasing an Existing Business: Instead of starting a business from scratch, another option is to buy an existing business. Due diligence is an absolute must if you want to explore this path. Who wants to buy a lemon? To ensure the business for sale is profitable, or even that it has real potential to become profitable, you must perform a thorough investigation. This involves uncovering any hidden problems like debts that won’t be collectable. You must study the balance sheet to understand the company’s total assets. Get guidance from an entrepreneur support group such as SCORE if considering this route.
Get Free Advice from Senior Executives
SCORE does a fabulous job coaching new business owners. Go to www.Score.org. It connects retired senior exec volunteers with new business owners.
First Question: What Kind of Business Are You?
This is one of the first decisions you have to make. It will help you determine which business-ownership structure best suits your vision. This in turn guides the tax and legal steps you must take. Don’t rush it! Ask around, think hard, research and read. Some entrepreneurs experiment with different types of businesses.
What’s Your Ownership Style?
When starting down the entrepreneurial path, you’ll encounter a variety of legal business structures. Each is formed differently, and legal and tax implications vary. Often deciding what type of business you want will drive your choice of ownership structure. For example, a self-employed independent contractor pairs nicely with a sole proprietorship structure. Sometimes, the exact fit will be less clear.
Before rushing to decide what structure is best, familiarize yourself with the options. Ask other small business owners what they chose and why. Consult free advisory centers like SCORE, the Small Business Association or your local Chamber of Commerce if deciding on your own becomes a stumbling block.
The two most common small business ownership structures are sole proprietorship and partnership. They require little paperwork to form and few hoops to jump through. Conversely, owners are personally liable, and it’s hard to borrow or raise money from outside investors.
- Sole Proprietorship
This is the easiest business-ownership structure and the route most people take. It’s a nice way to test the entrepreneur waters. Owned and run by one person, the sole proprietorship is an unincorporated business where there is no legal distinction between business and owner. The owner is responsible for business’s debts, liabilities and losses, including those incurred by employee actions. The owner also has complete control of the business and is entitled to all profits. Since owner and business are one, the owner reports business income and loss on personal tax returns. No formal action is needed to form a sole proprietorship. It’s not registered with the state like a limited liability company (LLC) and corporations. Simply by going into business for yourself, you set up a sole proprietorship and automatically gain that status.
Partnerships are also simple, making them another commonly used business ownership structure among entrepreneurs. You aren’t obligated to file any paperwork to form a partnership. You establish one just by starting a business with another person.
Basically, a partnership is a business where ownership is shared by at least two people. It has not filed papers to become an LLC or a corporation. Similar to sole proprietorships, partnership owners pay taxes on their personal tax returns on their share of the business income. While not required legally, a legal partnership agreement is highly recommended. This outlines such things as how to change ownership (that is, add or buy out partners), divide profits and resolve conflicts.
Other business ownership structures are more complicated to establish and also more expensive. Often, a business may start as one of the options listed above, and if the owner decides things are going well and business is booming, it can move to the next level by filing paperwork and obtaining additional legal protections.
- Limited Partnership
These are typically established by one company or one person who runs the daily operations (referred to as the “general partner.”) The general partner will solicit funds and investments from others (referred to as “limited partners.”) The general partner is held liable for all business obligations and debts, whereas the limited partners are not personally liable and therefore have little say in daily decision-making and operations.
Other more complex business structures limit owners’ personal liability in court judgments against the business, as well as business obligations and debts. These types include LLCs and corporations. Generally, these are good choices for owners with significant assets to protect, for a business likely to accumulate large debts, and businesses at higher risk of being sued.
- Limited Liability Company (LLC)
Owners of the hybrid legal structure known as an LLC are referred to as “members.” The organization can be anything from one person, to two-plus teams, to two-plus corporations, to other LLCs, depending on laws of the state where it’s formed. This business structure offers limited personal liability to owners, as a corporation does, and also operational flexibility and tax efficiencies, as a partnership does. LLCs are not taxed as a separate business entity, but rather losses and profits pass through the business to LLC members. Members report the business’s losses and profits on their personal federal tax returns. The federal government does not tax LLCs, but some states might. Consult state income tax agencies to find out what applies to you.
A corporation is an independent legal and tax entity owned by shareholders. The business is considered separate from the people who run, manage and control it. The corporation itself, not the owning shareholders, is held legally liable. The benefit is limited personal liability, and shareholders’ personal assets are protected. Corporations are a more complex structure due to pricey administrative fees, as well as legal and tax requirements. Taxes on corporate profits aren’t paid through owners’ personal tax returns. Instead, the corporation itself pays taxes. Owners pay personal income tax only on money received from the company for salaries and bonuses. The corporation structure is typically the choice for large, established companies with many employees. Corporations sell ownership shares in the business through stock offerings.
You’re Not Bound to One Structure Forever
Each business structure is formed differently. When dealing with more complicated structures, it’s wise to consult a lawyer or accountant before filing paperwork. Also, you’re never bound to one structure. You might start with a simple structure and switch later to one offering more protection.
Select Your Ownership Structure
Most small businesses start as sole proprietorships or partnerships. It’s a smart way to test the waters, because no paperwork is required. Owners are liable though, and don’t receive the protections an LLC or corporation can provide.
Take Business Planning Seriously
If you haven’t noticed, most successful entrepreneurs are visionaries. The vision doesn’t have to be grandiose. Some small business owners are content simply doing what they love in the way they want to do it. That’s their vision. Some don’t mind if success comes as a drop or a tidal wave, as long as they’re doing what’s meaningful to them.
That said, business planning is an integral step to building a strong, sustainable business no matter what your vision, but contrary to what you might think, you don’t have to create a plan before hanging out your shingle.
Many business owners like to test the market waters to see what products and services will be most popular. They wait to see how it all pans out over a few months after the initial launch. Nimble, adventurous entrepreneurs won’t necessarily want to lock themselves into goals, quotas and agendas until they know what they’re dealing with in terms of market forces and demand. Either way, a business plan helps focus and propel your business to the next step.
What you do with your plan depends on the type of business you decide to start. A tech startup needing to attract seed money should complete a plan as one of its first steps. It’s required to attract the financing you need to get the business up and running. Investors want to know how you expect to make money, what are the goals, and what are your milestones.
Business planning in general must include some market research. At a minimum, find out who are your customers and your top competitors, and what’s the market demand for what you’re selling.
What’s in a Business Plan?
A business plan is basically a document that puts in writing what your business is and how you will run and grow it. Find sample business plans online by searching “business plan; sample” or “business plan; template.” A plan generally includes the following sections:
- Title page
- Executive summary
- Business description
- Market strategies
- Competitive analysis
- Design and development
- Operations and management
- Financial plan
Do You Need A Business Plan?
Creating a business plan might not be priority for all business owners. For tech startups though, it’s required early in the game in order to attract investors.
A sample business plan template
Build A Network For Advice And Support
Business owners make things tougher on themselves by not searching out backup support and advice. In other words — networking. Try these techniques to line up a support group to guide your venture into uncharted entrepreneur territory.
Build A Peer Network. Look online for meetups for small business owners in your area. Find others who are exploring the entrepreneurial mindset. Meet for coffee, tea, drinks or whatever. Try “work-together” time windows in an office or coffee shop. You work independently, but in the same space. Bounce ideas around with peers for a tried and true creativity booster. When you’re looking for a new web designer or distributer or just buying office supplies, consult your network about their experience — how it went, what they paid and where to find discounts. Your peer network helps you work smarter, and also, most entrepreneurs just enjoy a bit of camaraderie now and then.
Learn New Skills. Take courses at business schools or attend local seminars to meet like-minded peers who are starting businesses. You can also connect with professors and alumni networks to find insight and advice.
Attend Industry Events. Whatever your product or service, there is probably an association or trade group dedicated to it. Attend a conference, join a chapter, volunteer for a committee. Get involved with colleagues in your field, and network, network, network.
Visit Your Local Library. While some of us neglect these bastions of resources, libraries and librarians can be helpful in researching answers to your commerce questions. Look online for business-related libraries near you, too. New York City has the Science, Industry and Business Library (SIBL) with free seminars on everything from marketing to bookkeeping. Type “business library” into search to find resources near you.
Start an Accountability Club. Meet a few friends at a conference. Set up a Google Hangout. Skype chat each week or month. It’s called an Accountability Club, where members share what they’re working on, how it’s going and three goals they want to accomplish by the next call. With the right group, these can be wildly successful. It’s that extra dollop of encouragement and accountability that push you to go the extra mile.
Find a Mentor. Sometimes alumni groups, business-owner support groups and trade associations can help you find a mentor. Some conferences offer mentoring sessions with senior-level pros as part of their events. You can always search LinkedIn for role models, then contact that person to see if she or he will mentor you. Having a mentor can mean the difference between flourishing or just getting by for many small-business owners.
Research Loan Opportunities. Ask around the library, your groups and your entrepreneur friends about grants and loans for business owners. Consult the Small Business Association website for a listing of business-owner loans you may quality for. Also look for groups designed to support small business, such as SCORE, which provides free business advice from retired senior executives. Their website also offers resources for finding loans. If you qualify for any special designations, such as female-owned or minority-owned businesses, there are also resources that specifically support you. Look for related associations and groups online.
Research Loan Opportunities
There’s a lot of support money out there that could be yours! You’ll never know until you block out a few hours to go to the library or search online to see what you qualify for and apply. Start by going to SBA.gov.
Connect Early On With Peers
Establish a network in the early stages of your business. Connect with others who are starting businesses. You’ll likely be facing the same questions at the same time and, as you know, two heads (or more) are better than one.
Resources To Get You Started
As an entrepreneur, never be afraid to ask a “dumb” question. There is no such thing. Get your questions together and ask confidently.
Start with some of these groups
- Small Business Administration
- SCORE (for the Life of Your Business)
- “How to Write a Business Plan” Forbes Magazine
- “Guide to Writing a Business Plan” Entrepreneur Magazine
BUSINESS SETUP: MAKE IT LEGAL
If you’re starting a new business, have you thought about who you’d call regarding legal questions, tax matters and accounting problems? You really should figure this one out before you need the help.
The answer might be as simple as finding friends in related businesses who agree to give you free advice. Maybe you get referrals from other business owners or industry organizations.
Some basic issues you can research and decide yourself. For other matters, such as lawsuits, you absolutely need a ready, reliable contact.
Legal Support: Don’t Wait Until You Need It
Entrepreneurs tend to be intrepid by nature. Maybe too intrepid. Some recklessly avoid talk of legal matters and the need for legal support. Legal nitty-gritty evokes dread in many small business owners because it can be downright overwhelming, not to mention confusing (and dare we say, boring?)
While new business owners may feel they don’t need legal protections, having them in place can go far in preventing blunders or worse. Perhaps the best way to approach legal matters related to starting a business is not to ignore them, but tackle it head on. Don’t be afraid to ask for professional advice when something is beyond your grasp, such as dealing with a lawsuit.
Who will you consult if legal problems come up?
It’s critical to have a legal pro you can reach out to for guidance who won’t charge you for every moment spent on the phone. Are there any attorney friends or acquaintances who may be open to receiving the periodic call from you? You may feel confident enough to research some matters on your own, but be prepared for the unexpected, complex matters that can arise. It’s not a good idea to look for legal counsel when you’re in the middle of a crisis. It’s far better to have an understanding already established with a friend or contact.
Why you should set up a separate business bank account?
Using a personal banking account for your business may affect your personal liability. It’s best to open a separate banking account for your business.
Do you need a legal business plan?
You can pay a monthly fee to a company such as Legal Zoom and have a lawyer on call for advice. Paying this small fee could save you a lot of money in the long run. That may be enough of a legal plan, but still, make a connection before you need it.
Decide on your business-ownership structure
You might feel confident making this decision on your own, especially if you’re considering a simple structure such as a sole proprietorship or a partnership. However, it’s never a bad idea to seek legal advice when deciding between an LLC or incorporating. There might be a problem or advantage with one approach you hadn’t considered.
Complete licensing requirements
Licensing requirements vary according to the business structure you select, as well as the city and state the business operates in. If you can get some professional advice about licensing, take it.
The advice here is simple: Get business transactions and agreements in writing. Written agreements should be clear, specific and signed by all parties involved. Time spent understanding contract basics will only make you a better business owner, and one who is less likely to be exploited. Develop your knowledge by taking a course, consulting a mentor, or seeking legal counseling through a group such as SCORE or the Small Business Association.
Before hiring your first employee, you should understand the difference between a contractor, a part-time employee and a full-time employee and the legal ramifications that go along with each hiring. If you ignore this, you could face some serious consequences.
Ask for Referrals
If you’ve got a peer network or a mentor, ask for a good referral who could handle legal questions at a reasonable rate.
Cover Yourself Legally
Come up with a plan for whom you will contact if you need legal advice. You might want to consult an advisor for questions like where should you register your LLC or corporation ,or how to create a contract. You don’t want to be tearing through the Yellow Pages when an emergency strikes. Be prepared with a number and name to call.
Make It Official: Time For Business Registration
You won’t know the steps needed to register your company until after you decide the structure of your legal business entity. Even after selecting your ownership model, registering your business won’t be as simple as filling out a form at the local DMV office. Business registration has its own checklist of steps. Tackle one at a time at a pace that makes sense for you.
Generally speaking, most businesses need some form of license or permit to legally operate. Licensing and permit registration requirements vary according to:
- The type of structure you choose
- The type of business you own
- The state you operate in
- Government rules
Note that sole proprietors are not required to register their businesses with the state, unless the business is under a name different from the owner’s. In that case, you need to either formally file the trade name or what’s called a “doing business as” (DBA) name with your state.
Corporations, LLCs and partnerships are required to register with the state. Business usually need to be registered at the following levels:
Handy Registration Tool
The U.S. government offers a cool interactive tool called “Permit Me.” Business owners can see all of the licenses, permits and registrations required for their type of business in their state.
Identify Registration Requirements
Once you know your type of business and your business-ownership model, you can identify the specific steps to take to make your business legally legit.
Get Some Legal Resources
Ask around your networks to identify an attorney who may be willing to work out an arrangement that fits your budget.
Consider hiring a firm like LegalZoom, which offers on-call legal advice and services for a monthly fee.
Consult the library, a mentor, associations and business-advisory groups or the Chamber of Commerce to find an attorney who is versed in small business matters.
How To Hire Employees
Keep in mind that most businesses start with the simplest ownership structures, meaning sole proprietorship or partnership. At this early stage, hiring employees may not be at the top of your “getting started” list.
Hiring and managing employees (and all the related onboarding paperwork and recordkeeping) requires an extra dollop of organization and tracking. It’s not something a new business owner can usually dedicate energies to in the hectic initial launch of a new enterprise. Plus, many new business don’t make enough profit to warrant hiring additional talent from the get-go.
That said, it’s good to have a general understanding of what to expect when you do get to the point of hiring help. The day could come when your thriving business needs a few hired guns to keep your clients happy — and keep you sane.
Follow these steps when you’re ready to bring on your first employee:
- Get an Employer Identification Number (EIN)
- Set up record keeping
- Set up records for withholding taxes (federal income tax withholding, federal wage and tax statement, state taxes)
- Verify employee’s eligibility to work in the U.S.
- Register with state new hiring reporting program
- Get workers’ compensation insurance
- Post required notices
- File taxes
Go to the Source
IRS.gov is your friend and can provide detailed information on how to complete each hiring step and employer record keeping.
Most entrepreneurs will agree, when it’s time to hire, referrals come highly recommended. Going with a proven star who has performed well for colleagues is a win-win.
BUSINESS SETUP: ACCOUNTING AND BOOKKEEPING
Good, clear records are critical to keep all the financial aspects of your company straight and organized. The sooner you set up methods and systems that work for you — and that you will diligently update — the better. You don’t want to call out the search party to find files and records if you ever have to reconstruct transactions for an audit or lawsuit.
Taxes And The IRS
How your business pays taxes depends on the type of business structure you choose. This section covers tax topics you’ll need to understand, no matter what kind of business you own.
In terms of taxes, if there’s any way you can swing it, an accountant’s services will be a worthwhile investment. This may be as simple as talking with a willing accountant friend, or it may mean actually hiring a tax accountant who is familiar with small business needs.
Things like small-business deductions can be complicated, at least the first time. An accountant familiar with small business can help you track and organize your expenses and receipts throughout the year to make tax time less of a headache.
Register with the IRS for a Federal Tax ID
It’s not required that every business have an Employer Identification Number (EIN), but partnerships, corporations and any business that has employees need this.You can apply for an EIN online. If the EIN isn’t required for your business structure, you can simply use your social security number in financial matters related to your business.
Register with State Tax or Revenue Office
Each locality has its own laws, so contact your local Chamber of Commerce to find out what applies to your business in your state. Generally, businesses must register with a state’s revenue office. A business might also need to apply for a tax permit. For example, a sales tax permit allows you to collect sales tax from customers. A business owner also needs to comply with state income tax and employment laws.
Pay Estimated Taxes
Many entrepreneurs don’t realize until it’s too late that any business that expects to be paying more than $1,000 in taxes is required to pay quarterly estimated federal and state tax installments. Estimated taxes, which aren’t subject to withholdings, are paid April 15, June 15, September 15 and January 15. Ideally, paying these regularly can avoid a paralyzing cash-flow problem each April. Business owners can figure out how much to send each quarter by looking at a tax return from the previous year. Business expenses are deducted from your base income when you calculate your tax estimate. A new business with no tax history can use bookkeeping to gauge the proper amounts. Most accountants will tell you it’s better to overpay quarterly taxes than to underpay. That way you’ll get money back on tax day instead of having to cough up more.
What’s Your Tax Liability?
The business structure that you choose will determine your tax liability. That’s easy, right?
Free Tax Help
Often, libraries can offer free tax assistance. Check with your local library to see if this service is available.
Pro Tip: Find An Accountant
Run a business long enough, and you’ll eventually need professional accounting advice, probably sooner rather than later. Start thinking about it now. Is there an accounting friend you can form an understanding with? Can you ask a business advisory center or group for a referral?
Accounting Basics: Records And Bookkeeping
No checklist for starting your own business can fail to discuss accounting. Don’t be one of those small business owners who adopts bookkeeping practices late in the game. This creates complications later if you have to refer to early records and can’t find them, or worse, never created them in the first place. When starting out, it’s best to put some sort of accounting and bookkeeping plan in place.
Again, similar to legal and tax matters, it’s wise to have an accountant or bookkeeping professional on your side. It can save you countless hours of scratching your head. When you know you don’t have to worry about accounting, you can focus on what you do best: Running your business and bringing in more revenue.
Perhaps for occasional calls you can enlist an accountant acquaintance familiar with small business. You can consult a small-business advisory service or your Chamber of Commerce or library to find an accountant. Business libraries and schools often offer basic accounting and bookkeeping classes, which are highly recommended for budding entrepreneurs.
Set Up a Bookkeeping System
Bookkeeping helps you manage your business better and also lets the IRS assess your business. Without sound bookkeeping practices put in place, a business is at risk of not only cash flow problems, but also to legal threats.
However you decide to manage your books, go with a system that works for you. That’s the most important thing. If you’re more likely to update an Excel spreadsheet than a pen-to-paper ledger book, or vice versa, select your method based on what you know about yourself. Generally speaking, when setting up an initial bookkeeping system, here are things you want to keep “on the books.”
Write down in one designated place the money spent on the business. After six months to a year, you’ll have a clear understanding of what your business expenses are and how much they add up to month over month.You can document this with petty cash records or by paying bills with checks.
Accounts Receivable and Payable
Track what clients owe you and what debts the business owes. Whether written in pen on file folders or tracked in a spreadsheet, keep clear records of invoice numbers, dates issued or received, client notes, amounts paid and amounts due.
When you buy something for the business, track what it is, date purchased, how much it cost, stock numbers, etc. This gives you an understanding of how much money you need to spend to stay stocked. You can also better monitor what you have in stock to avoid loss through theft or damage.
Expenses and Revenues
You want to track what money is coming in and what money is going out. Consider a journal or a spreadsheet (or even an app), whatever method works for you. You can find ledgers at office-supply stores. Use these to track transactions such as debits and credits in an organized fashion.
If and when you hire employees, you’ll need to file and pay payroll taxes. Business owners are required to keep records on withholding, unemployment, worker’s compensation and employer matching. Don’t forget.
Start Tracking Early and Often
No matter how you start, even if it’s tracking expenditures in a student notebook, start logging money in and money out as soon as you open for business. These numbers are valuable intel about your business.
Accounting Resources You Can Count On
The IRS offers excellent online resources to help you set up a solid bookkeeping system. Check out the “Employment Tax Recordkeeping” page in particular. The Department of Labor also offers a comprehensive recordkeeping checklist here.
It’s also worth looking into apps that can help you manage accounting and bookkeeping online. Here are a few to consider:
A free starting point for business and personal use.
Easy Books (Free)
Easy Books is another free app that makes a great starting point.
Kashoo lets you track expenses, take pictures of your receipts, send invoices and more.
Shoeboxed allows you to easily track and manage business expenses and receipts.
QuickBooks is one of the most widely used platforms out there to handle all your bookkeeping and tax preparation.
CONCLUSION: THE END OF THE LIST
As you can see, there are a lot of things to consider when starting a business. But here’s the thing: The best time investments you make initially will be focused on defining your business and your vision. Give serious thought to what you are making or offering, to whom, why is it needed now, and how much it’s worth. It all starts there.
Getting a business properly set up means working through multiple task lists. Now, thanks to this guide, you have a high-level view of the issues you can expect, and you have a strategy to tackle each one by one.
Entrepreneurs assume their businesses will constantly evolve as they move beyond its launch. You too should expect constant change and even some failures and mistakes.
Don’t expect to have everything all tied up in neat little bows the first day you open for business. Rather, plan to methodically develop your business in all key areas little by little, prioritizing by what is needed. For example, you won’t know anything about what taxes you’ll owe until you know what business-ownership structure your business will have.
The bottom line is: You can do this, if you want to. Take it step by step, question by question, and soon enough you’ll have a full-fledged business alive and growing. Good luck!