I don’t know about you but I didn’t learn much about how to start a business in business school. Today social media is king – Instagram, Facebook, LinkedIn, Google, which are all great ways to promote your business, but what about the less sexy aspects of starting a business? Accounting/Legal are keystones of any successful business and sometimes overlooked. As a disclosure, I am a CPA and not an attorney. When I have legal tasks for my clients, I have one of my trusted attorneys take over since they are more knowledgeable in those areas.
During the last recession, which jobs were some of the most resilient? Accounting… because successful companies must have good CPA’s that know taxes and accounting to stay out of trouble, marketing budgets get cut way down during recessions. We can tell others that our business is booming but what do investors, stakeholders, and banks want to see? The company’s financial statements… And if the company is large or wants to grow, these interested parties want to see financial statements audited by a third-party CPA firm.
Back to starting a business… Here are some the basic starting points:
- Form your LLC through your state – The owner needs to find a name that is not used and the business owner probably wants to use the business address and not their personal address. Some states such as Alabama may require the business owner to get a license through the state and county. The business owner can do the paperwork themselves but it is strongly advised to have it done by an Attorney or CPA.
- Obtain your Employer Identification Number (EIN) – through the federal government (IRS) – This is kind of like the social security number for your business. The business owner needs to have this number handy when filing taxes, getting a business checking account, etc.
- Get a business checking account – Using your EIN from #2 above, the business owner can get a business checking account. Business bank account transactions need to be separate from personal bank account transactions. If the business owner does not get a business checking account, your LLC protection status can be compromised and creditors can come after your personal assets. This referred to as “Piercing the Corporate Veil”. Corporate Veil sounds like an 80’s heavy metal band, doesn’t it?
- File the S Corp Designation – If the business owner has a LLC and does not file the S Corp designation to become a “LLC with the S Corp designation”, the business owner is going to pay unnecessary taxes. Every tax return we have completed in which the company had the S Corp designation paid significantly less in taxes than the company that was a straight LLC. But hey, if you want to throw away money let it rip.
- Get business insurance – Shit happens…. Protect yourself, your family, and your business. Remember when McDonalds got sued for the coffee being too hot?
- Get accounting software and link it to our business checking account. – I love excel, especially using all the short cuts, but using excel for your accounting is very inefficient. For clients, we use a lot of QuickBooks Online but also use FINSYNC (Atlanta based) which has better job costing, payroll, time sheets, and more professional charts of accounts. Plus, the customer service is a lot better. These accounting programs are around the same price. These programs link the business bank accounts to the accounting software so that every time business checks or bank transactions are made, the transactions automatically import into your accounting records. This is a must and saves a lot of time/money!
Other Considerations
- Have an attorney draft an operating agreement
- Create financial projections for your income statement/balance sheet – The business owner should have something to shoot for, right? We recently met with a business owner and gave him advice to capitalize his start-up costs as he won’t need those expenses against his taxes until later years
- Marketing plan – who do we want to do business with? I thoroughly enjoy marketing, but see a marketing professional instead…