In a previous post I wrote about how to get started on building a business. My main point was this: nothing else matters until you have a product to sell and customers to sell to. In my last post I wrote about how to stay on the government’s good side as you start selling your product.
In this post I’ll briefly describe the 3 other important details to take care of as you start a business. The timing depends on the nature and complexity of your business, but most of these details don't matter much until you actually start selling a product.
1. Set up business bank accounts
This is a must! Your bookkeeping will be a nightmare if you pay expenses from and receive payments into your personal bank account. This is called co-mingling funds, and it’s never a good idea.
Co-mingling funds will make it difficult to figure out how much money your business is making, and your tax return will be difficult to prepare after the end of the year.
Setting up a business bank account is easy, and your bank will tell you what documents they require.
I recommend setting up both checking and savings accounts. The savings account is where you regularly transfer estimated taxes so you’re not tempted to use the funds elsewhere.
2. Set up an accounting system
An accounting system is a way of tracking revenue coming in and expenses going out. As often as is helpful, and at least monthly, you need to look carefully at your net income (revenue minus expenses).
An accounting system does not have to be complicated. For simple businesses, an Excel spreadsheet or even a notebook might be sufficient.
However, I recommend online accounting software for most businesses. Software like FreshBooks, Xero, and Quickbooks Online are inexpensive and easy for non-accountants to use. They will connect to your bank account and automatically download transactions. You can also enter your vendor bills and payments to keep track of what you owe (payables) and invoice customers and record payments to keep track of what you are owed (receivables). You can run reports to track your business performance.
Setting up an accounting system and keeping it up to date daily or weekly is easy. Trying to do all your bookkeeping for the year at tax time is not so easy (and doesn’t give you critical information you need to make good business decisions).
3. Make sure you are adequately insured
In your personal life, you should carry several types of insurance: life, homeowner/renter, health, and auto for example.
Your business life adds additional insurance requirements. Needs vary by business type, but here are some possibilities to get you thinking:
Auto. Obviously a vehicle owned by your business needs to be insured, but check with your auto insurance provider if you use your personal vehicle for your business. You may need to adjust your policy.
Property. If you rent space for your business, you’ll need tenant insurance for liability and belongings. If you work out of your home, check with your home insurance provider to see if that affects your policy.
General and product liability. These are often bundled into the same policy, but make sure you have both. General liability insurance covers a wide range of potential claims against your business. Product liability is important because anyone who sells a product can be liable for defects, even resellers.
Professional liability. This is also known as errors and omissions insurance and is applicable to some professions, such as accountants, attorneys, doctors, and financial advisors.
This is just a sampling of the common types of business insurance. You should do some research to make sure you are adequately covered, and an insurance broker would be happy to help as well. This page on the SBA website is a good place to start.
Final thoughts
My goal is to focus you on the most important tasks required to get a business going (besides products and customers). Hopefully this puts your mind at ease by making the administrative requirements seem less intimidating.
Question: What are other important details to address when starting a business?