OK, you have come up with a great idea for a business you are passionate about and you think is a great idea. But you really have no idea what you do and don’t need to start one. Here is my list of the5 Don’ts and 5 Do’s to Starting a Business (though you may need some of the don’ts in the future). I’m focused here on small business as there is rarely a business at its outset that is ready to immediately be a publicly traded C-Corp with all the bells and whistles. Here we goooooo…
My 5 Don’ts to Starting a Business
- An office- you can start a business out of your home (garage like some famous companies even) and not have that expense at the outset. Another advantage is if you designate a work-only area of the house, you often can take a reasonable amount of your house expenses as a tax deduction. Depending on your business this will usually be things like electricity, water, garbage, internet, cable, phone, cell phone, paper, pens, etc. that you actually use in your business. [Remember that you can only take off the portion you actually use for your business]
- Formal business plan- I believe every business needs a formal business plan to take their business to the next level, but sometimes starting the business and seeing what types of items your need or things you do in your business might change with a little experimentation. These are really needed more when you need loans or investors, if you are able to capitalize the business yourself at the start, you have time to work on creating this formal plan. [I would advise a quick rough plan before you start to kind of be a guide]
- Formal business structure- You can start off as a sole proprietor and not have to register your name or do formal paperwork like partnership agreements, Articles of Organization, or Articles of Incorporation (or bylaws and rules and regulations, etc.) [You can always elect to move into another structure when you take on other owners or need the more formal LLC or Corporation.]
- Loans- Often you can start on a shoestring budget and add as your make money. Try to save up money for a little while before you start the new business so you can afford to personally pay for needed equipment or inventory. Start small and use profits from each sale to put back into the business until you outgrow and need a loan to expand. [I do advise getting a business credit card if you are frugal with it, to begin building business credit to help with loan APR in the future.]
- Employees- Often you will not be able to afford employee wages at the outset or provide benefits that they may require. You can start by yourself, learn the process, and when you have grown to need employees…you will be more prepared to teach them how you want it done and know what parts you excel at and which you need to handoff. [With independent contractor sites like Fiverr and Upwork, you can hire on a job-by-job basis, as you can afford if you just can’t do something yourself.]
My 5 Do’s to Starting a Business
- Name, address, telephone number- You will need this for EVERYTHING you do- get a business account, get a credit card, receive bills, take deliveries, etc. It is a good practice to check out the secretary of state website for name availability to make sure you are not violating anyone else’s reserved name. You can start out with your home address, but I advise a PO Box as you will start getting (magically) junk mail and you might not want them having your home address. You can also use your home or cell phone (and a tax deduction) but again you may want a separate number so “the junk mail people” don’t get that number either.
- Business checking account- this will help you keep personal and business separate for easier year-end tax prep (and if Uncle Sam shows up for a dreaded audit). It is also required with more complex structures so it makes future transitions simpler. To do this first apply for an Employer ID Number with the IRS. There are 4 easy (and free) ways to do your application but beware of fake scam sites.
- Zoning, Licenses, and Permits- While you do not have to register your sole proprietorship, you do need to check with the local authorities in the city or county to see if your home is in a zone that allows your business if there are required licenses and/or permits.
- Accounting and Bookkeeping- It is important from the start to decide your accounting practice and begin to take your bookkeeping seriously. This will help you with year-end tax prep. Most people use Generally Accepted Accounting Practices, but I suggest you look into Profit First Accounting. Here is a link to the book, check it out.
- Help- if you have not set up a business before, there are a lot of pitfalls or legwork that you can be avoided by speaking with advisors prior. These would include finance, tax, and business law professionals. Even if you do not have them do the work for you, they might cheaply or freely give you advice about where to start or what to avoid setting it up. You will likely need them in the future anyway to properly upgrade your business structure, so establish a relationship now.
There are easily more than 5 Don’ts and 5 Do’s to Starting a Business I could have put into each list, but check out some of my other articles to learn more about business structures and their requirements. Good luck.