By Kirsten Adshead/motherbility
The more you look like a business, the more people will treat you like one.
The more you act like a business from the beginning, the easier your life will be down the road.
So what do you need to get started right? These five things should do it.
Motherbility will be tackling each of these in separate articles. But here’s a quick overview of how to start smart:
Form an LLC — For the why’s and how’s on this, check out motherbility’s How-To Form an LLC.
But the bottom line is forming an LLC is quick, relatively inexpensive and the best thing you can do now to protect your personal assets.
Sometimes, an S corp or a C corp might be a better option. For most small businesses, however, an LLC is the simplest and least-burdensome options.
On motherbility: Protect yourself with an LLC. It’s easy. Here’s how.
Also on motherbility: Do you need a federal tax ID number, and how do you get one?
Create a record-keeping system — Pop quiz: At tax time, would you rather be, a.) the human embodiment of zen or, b.) a frenzied, frazzled ball of stress?
Make it easy on yourself and keep records properly from the start.
It doesn’t have to be fancy. You’ll want some envelopes and/or folders for receipts and bills, a place to put them and a way to input them into your computer. You probably don’t need QuickBooks. A spreadsheet is just fine.
The more complete your record-keeping system is now, however, the easier your life will be later on. An envelope stuffed with receipts? Better than nothing. Twelve folders in which you file your receipts by month? Even better.
Still to come from motherbility: What filing method does an accountant suggest to make tax time a snap? What are some tips and resources for easing the burden of record-keeping?
Separate your business and personal finances — If you choose to form an S corp or C corp, you need to keep separate accounts because your business is considered a separate entity.
But even if you’re an LLC, keeping a separate business account and a credit card that you only use for business transactions is a good idea.
“If you co-mingle your business and personal transactions, you can lose the liability protection offered by your LLC,” said Anne Smith, director of the Law & Entrepreneurship Clinic at the University of Wisconsin-Madison. “For many people, the liability protection is the reason they choose to incorporate. With the protection, someone suing you cannot get at your personal assets. Once you lose that protection, both your business and personal assets are at stake.”
Keeping a separate business account may be crucial if you’re hoping to get some investment money down the road.
Also, just practically speaking, you’re going to have to figure out your business expenses at tax time. If those are paid out of a separate account, you won’t have to go digging through your personal checking and savings accounts to figure out which transactions were business-related.
Opening a separate account is a hassle. But it’s worth the effort.
Still to come from motherbility — How do you apply for a business account? What questions do you need to ask a potential banker or credit union to make that that entity is best for your business?
Find an accountant — You may not need to actually use an accountant right away. But you’ll want to find one now so you have one at the ready later on.
At some point, you’re going to have a question: “Is that expense deductible?” “My business is growing; should I become an S corp?” “I’m considering hiring someone an employee: What does that do to my taxes?”
When those questions come up — and they’ll arrive faster than you think — you’ll want to have a professional you can ask. It’ll be easier then if you find one now.
Still to come from motherbility — How to find an accountant who fits with you and your business, what’ll it cost you, and what questions do you ask?
Find a lawyer, too — This is similar to an accountant in that you might not need a lawyer right away, but you’ll want one handy when something comes up.
You might want a lawyer upfront to set up contracts, copyrights and legal protections for you and your business.
You’ll almost certainly want a lawyer upfront if you’re going into business with another person, even a friend. (What happens, for instance, if your business depends on both of your skills, one of you dies or just wants out, but there are outstanding orders? Those kinds of situations should be thought through, and legally solved, at the start.)
And, as with an accountant, it’s best to find a lawyer you like and trust now, rather than when you’re in panic mode.
Still to come from motherbility — Where can small businesses inexpensive, sometimes free, legal advice? What do you need to know in order to find the right lawyer?