What Initial Things Should I Consider When Starting A New Business?Jul 14, 2021
This is the first post in our "Starting a Business Series". This series stemmed from a conversation I had a bit ago with a brand new business owner. They were completely lost and no idea where to start.
That got me thinking that we should do a series on this specific topic so I ran it past everyone in our Free Facebook Group and with overwhelming support, everyone wanted it. So here we are!
Today we want to set the groundwork and discuss some of the initial things you should be considering when starting or thinking of starting a new business.
What Stage Am I At In The Business?
Before we get too deep you will want to understand what stage you are at in the business. Is this just a dream or are we starting to research and plan the opening of a fully functioning business? I'll give two examples that are in much different "stages".
- Example 1: I want to create some sort of new golf tool and become a multi-millionaire.
- Example 2: I got out of law school 4 years ago and have been working for a local attorney for the past 3 years and starting the process to open my own personal injury firm.
If you are in example 1 you have a lot of work to do before you are actually creating a small business. You just have a very vague idea with no plan on how to get there yet.
Now, if you are in example 2 and you are starting the research and getting ready to go. Along this entire process you will want to ensure you are tracking all costs related to your research and creation of your business. Check out our Blog and Podcast Episode on Start-Up Costs, as we focused on this specific topic.
How Should I Organize My Business?
This is often one of the first questions people ask or should be asking. It is something we ideally setup correctly from the beginning. Options include:
- Sole Proprietorship
- S Corporation
- C Corporation
- or some variance of the above
We are going to be bringing an attorney on in a future episode to talk specifically about this.
What Do I Need To Know About Tax, From A Basic Level?
Many individuals that have not owned a business before have no idea what they pay taxes on. They have always had taxes withdrawn from their paychecks and this is entirely new to them.
This is also a huge problem we see with brand new business owners. They come to us and made money in business but did not save anything for taxes. Now we go to file their tax return and an amount is owed that they do not have. This then starts to spiral into future years where they are constantly playing catchup.
Lets break this down very simple to start so that you can be better prepared.
- Revenue / Sales / Income: This is money that is incoming to your business from customers or clients. If you sell a service and get paid, that would be reported here.
- If you contribute money into the business for startup capital, that would not be considered income. That is simply an owners contribution.
- Expenses: These are business related expenses that help offset your income. Check out our Podcast on what you can deduct along with our ebook The Ultimate List of Business Deductions for ideas on this.
- Profit: This is your Sales minus your Expenses. This is what you eventually get taxed on. You take all the incoming money from clients and customers, you offset that with your business related spending and expenses and the remaining part left over is your profit which is what you will ultimately be taxed on.
Now, the next question that is constantly asked is:
How Much Should I Put Away For Taxes?
There is no general answer to this question. Everyone's situation is different and there is no blanket statement I can make that is always 100% accurate. With that being said, everybody still wants a number so what I normally tell people is:
Rough Number: Put 30% of Your Profit Aside for Taxes
You might owe less than that, you might owe more than that BUT you are at least in a rough range. Now the perfect thing to do would be to have your accountant run some estimates for you so you know exactly but for those starting out that might not be feasible yet so just use this as a very rough guideline.
What Other Things Should I Be Paying Attention To From The Start?
Alright, so we know some of the basics about taxes lets finish this one up with some other hot items that you should be focusing on right here in the beginning.
- Separate Bank Account
- Have a separate bank account (and credit card, if applicable) specifically for your business. This is important even for you sole proprietors. Regardless of your business setup, this is vital. If you are unable to get a credit card under your business name, make sure you dedicate one personal card strictly for business use only and use the payments to it as a reimbursement.
- Track everything prior to opening that account so you have a full record of what you need to include in your records for expenses that are on your personal account.
- No Commingling
- No personal expenses on the business bank or credit card account. In the rare occasion that you accidentally put a personal expense on the business account, record it as an owners draw or reimburse the business for it. If you accidentally have business expenses on your personal account, create a spreadsheet of them so you have record for it when doing year-end tax filings.
- Keep Your Receipts
- Store them in a file in your office or take a picture of them and save them in the cloud. This is vitally important in the event of an audit. On each receipt write on it: who, what, where, when, why, and how much. Not only does this help backup the business purpose but it also reminds you in case you forget down the road.
- Ditch the Cash
- Cash is hard to track and prove. In the rare event cash is your only payment option, be sure to get a receipt so you can properly document the business expense.
- Start Your Bookkeeping From The Very Beginning
- We are going to do an entire episode on the bookkeeping piece but in the meantime if you need some reading or listening material we did a DEEP dive into bookkeeping last year on our Podcast and Blog.
Finally, I highly recommend you sign-up for our Tax Minimization Program (w/ Stress-Free Bookkeeping Training) as not only will you get a bunch of in depth training, templates, group coaching but you also have unlimited access to our team for general tax and accounting questions. How sweet would it be to have an accounting professional by your side for those questions that pop up in this crazy journey of being a business owner?
That's all we have for this initial part of the series. If you have questions, please email them over to us as we will be incorporating those into other episodes in the series and then at the end we will have a total Q&A episode to include any of those miscellaneous ones as well.
The Time Is NOW To Start Paying Less In Taxes. Join Our Tax Minimization Program (w/ Stress Free Bookkeeping Training)!
What you'll get:
- Library of Tax Strategies, Implementation Guides, Videos, Downloads, etc.
- Stress Free Bookkeeping Training Program
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