Cofounder Easier Accounting & Real Business Owners. 20+ years of experience growing & running multiple businesses. Author & public speaker.
Starting a business is something I believe every adult should experience in their lifetime. It is a simple yet complex endeavor that will give you insight into the backbone of society and great insights into yourself.
There will be days where you win big, and many more where you feel the pressure of accountability to yourself.
You are your own boss and there is a massive amount of pride as well as responsibility in that definition.
What many individuals miss in having a successful business is how you start it in the first place. Everything matters from allocating funds and tracking expenses, to how you register your business and the person you have running your books.
Starting a business correctly will give you a platform for smooth operations and help you maintain that function as you scale to larger tax brackets.
Thinking about the now, and 10 years from your start date, is difficult for anyone because we can’t see the future or the problems around the bend.
Here are three things to keep in mind when starting your own business.
1. Get a business bank account.
While it can be easy to start doing business, bringing in capital regardless of what you are doing should be separately defined from your personal finances.
When you start to accept customers, the very first thing you need is a business account. Including the fact that this looks the best to the IRS when you file your taxes, there are more than a few reasons this is important.
You need to define what your business made and what you paid yourself along the way. Commingling personal finance and business capital can become confusing and messy down the road, making deductions and business write-offs challenging to vet.
Another great reason is to keep things organized, knowing what is coming in and going out. One of the most critical assets to a successful business in any industry is an accurate profit and loss (P&L) spreadsheet.
The organization is much more taxing when you do not have a separate business account that you have in bookkeeping.
2. Designate a credit card.
Part of separating your personal and business finances is having a business credit card. Not only does it help with separating finances, but it can also come with a number of benefits from expenses to the allocation of capital.
While simply having a designated card for your business will make bookkeeping much more simple, depending on what credit limit you are approved, it can also give you funds to grow your business if used responsibly.
With any credit card, it’s important to keep a good balance of the money you borrow to the interest it will cost you to pay it back.
If you are creative with your marketing and launch a decent product, borrowing some of that money upfront to make more money on the receiving could be a smart move. This will also be easier to track, and therefore write off, because it is your business credit line.
A third reason is when you maybe have employees that are accruing business expenses. Keeping track of how much they are spending and on what creates a dual purpose of knowing what’s going out and if it is actually business related.
3. Keep great records from day one.
Planning or forecasting an idea of what your profit will be is crucial for different tax brackets and how you list your business. Hiring a bookkeeper that has experience in your niche market will become a solid asset to you and your operation because of the options you can file your business under.
It is challenging to navigate what you initially list your business as and when to switch the listing to a business definition that better suits your needs for filing or audits.
The four listings you can choose (sole proprietor, LLC, S-corp, C-corp) will have a wide range of utilities depending on what you do. If you are not aware of all the details, however, it can be stressful on a new business or older one if you have had large growth.
When you are looking for a bookkeeper, consider it a long-term business relationship. Vetting them in what they know how to do and their process when they don’t have an answer is fundamental to running a strong business.
While the theme in young culture is to just jump in and start your own business, taking the necessary first steps can help set the right tone for your dream of entrepreneurship.
It does get confusing, and overwhelming. Mistakes will happen. This is the cost of learning, and there are three easy steps that help you to avoid unforeseen costs or the potential of closing your doors early.
Get a business bank account, have one credit/debit card dedicated to your business and hire a competent bookkeeper.
If done correctly, you will have a better foundation for rapid growth, hiring employees, paying yourself a healthy salary and living a life you see touted across many social platforms.
While there is no one way to get there, the starting point remains relative for anyone and everyone, young or old.