Welcome back to the second part of my 10 step guide to organizing a business. If you missed part 1 you can read that here, and just in case you need a refresher, below are the first five steps:
#1 Decide what you want to do or sell
#2 Pick a business name
#3 Choose a structure
#4 Register your business
#5 Obtain a federal tax ID #
Before we move on to the final steps I want to reiterate that I am not a lawyer and no part of this guide should be considered legal advice. I wrote it so that new business owners can understand what to expect along the way when organizing a business.
#6 Obtain state/county ID #s – Cost may vary (usually $0)
Every state & county has different rules regarding its requirements for businesses to legally open its doors and start selling its goods or services. Depending on what you sell or the service you provide, you may need to obtain a business license, a state payroll withholding ID #, a state sales tax withholding ID #, and register with your state and/or county for business personal property filings. There may be more or less steps required by your state or county so be sure to check with your local authorities before moving forward. Additionally, if you sell food products or other regulated items (such as pharmaceuticals) you may need to obtain additional regulatory clearance before beginning business.
One item to note in particular would be a resale certificate for sales tax. If you plan to buy and sell goods then you will want to obtain one of these immediately. It will exempt your business from paying sales tax on items that you purchase to resell. An example would be if you sell DVDs, you can buy them sales tax free, and then collect sales tax from your customers, thus avoiding double-taxation. You cannot purchase supplies or other items to be used by the business with this exemption however. Depending on what you sell and where, this could prove to be a very beneficial exemption to claim.
#7 Setup a business checking account – Cost varies
At the very least, if you establish no other business banking accounts, get yourself a dedicated business checking account from a reputable bank. Try to find a bank that will best meet your needs and keep bank fees to a minimum. Banks are notorious for charging businesses fees and make loads of money doing so because most businesses never pay attention. I have worked with businesses that unnecessarily pay thousands of dollars per year in bank fees that could have easily been avoided with the help of a trusted advisor or better control over their financial records.
Something else to consider is opening a simple account at first and upgrading it later if you need to. I have found that small local banks are more than accommodating and offer just as good, if not better, service, than the larger institutions. Unless you have an exceptional relationship with the bank you choose, know that the next bank down the street will always be happy to take on your account. Don’t settle for shoddy business practices or poor service from your bank. If you play your cards right, you can possibly save thousands of dollars in bank fees over the course of a year.
#8 Decide on your accounting system – Cost varies
Before your first sale you need to decide on your accounting system. Are you going to track everything in Excel spreadsheets or on Google Sheets? Or maybe you want to have something a little more powerful like QuickBooks Online. Do your research, but make that decision and implement a system before your first sale. The last thing you want is to find yourself knee deep in a successful business with no formal system of accounting. It makes for a messy tax season and poor analysis of your business. It also commonly leads to unfavorable business practices and decision making.
On top of deciding on your accounting system, consider your level of comfort and availability with being able to keep your own books. If you’re relatively comfortable then it might make sense to do-it-yourself in the beginning days of your new business. Even if you are comfortable though, consider the trade-off of having a CPA or bookkeeper help you. A CPA will likely be more expensive but can also provide you insight that a bookkeeper may not. A CPA can also help you with your taxes and keep you compliant in other respects. A true professional will not only keep you out of trouble but also on track to reach your goals.
#9 Connect with an attorney – Cost varies
If you haven’t already done so you should seek out a legal professional that will be available at the first sign of trouble. An attorney, like any other professional, will keep you from making mistakes and will keep you out of trouble. Should you find yourself in a tough situation, they will be able to help you evaluate your options. You shouldn’t need to retain one right away, but it may be worth having a friendly introductory conversation with a few local attorneys that you can call on should issues ever arise. You are likely to get a better rate, and better service, if you take the initiative to seek out professional help before you need it. Show up after things get messy and you could find yourself at the mercy of high fees and packed calendars. You can’t plan for everything, but having a willing resource available is a great start.
A final note on legal counsel, there is usually no one-size fits all attorney. Depending on what your business offers, you may need one or several to help you. For example, an attorney that specializes in contract law may not be able to help like one that specializes in employment law. Consider this when forging relationships in the local legal community.
#10 Obtain insurance – Cost varies
YOU WILL NOT WANT TO SKIP THIS STEP! Despite whichever business structure you choose, if you or your business is negligent (even by accident), the owner(s) (you!) could be liable! Make sure you have insurance in case you ever find yourself on the wrong side of a legal dispute. There are several different kinds of insurance and all are meant to provide a different type of protection. You may not find value in life insurance for owning your own business, but if you have a store front, you might want to consider general liability to cover slip-and-falls. It could only take one uninsured incident to put you out of business and possibly bankrupt the owner(s). Seek out a local insurance agent that can help you with your needs. If you’re unsure of what you need, bounce it off your CPA or attorney for a second opinion before signing off on anything. There is such a thing as under-insured and over-insured so it may be worth the second opinion to save yourself from those pitfalls.
Final step – open your doors and start making money!!! Yes, I realize this might considered be an 11th step :)
I hope you have found this guide practical, easy to understand, and valuable. If you already own and operate a business you can always go back and fill in some of the gaps you may have left open. It’s always best practice to correct issues before they come back to haunt you.
Thanks to all my readers and supporters! Please leave any feedback in the comments section below.