Today's post is a guest entry from Melantha K. Paige, President and Managing Partner of Paige Consulting Services, LLC (PCS, LLC). I had the pleasure of meeting Melantha at the last Chasing Joy Brunch & Learn last August in Philadelphia. We happened to sit next to each other and shared a great deal about our efforts to give our all to our "day jobs" while pursuing our passions on the side. In Melantha's case, it is helping individuals and small businesses achieve their financial goals. Drawing from her many years of experience, including five years of providing tax, audit, financial planning, financial literacy and other services through PCS, LLC, she graciously agreed to provide a bit of insight into what budding entrepreneurs - like my readers! - should be thinking about as they prepare to launch their own enterprises. Be sure to read to the end of the article...you just might find a special discount code for Curvy CEO readers for PCS, LLC services!
It’s Monday morning and you’re on your way to begin yet another week at your boring day job. You’ve considered starting a business for a very long time. You’ve developed a business plan and have even made a few “sales”. You believe that you have the perfect product, service, or niche idea that you’re sure is going to be the next big thing, but you’re confused as to how to get started. Or, maybe you’ve gotten started but are unsure of whether you’re on the right track. Should you hire an accountant? Should you incorporate as a separate legal entity? What about taxes?
After years of working with small business owners and being a small business owner myself, I’ve come up with the top 5 things you should consider when planning to start a new business.
1. Create a separate legal entity.
One of the biggest mistakes that small business owners make is failing to establish their business as a separate legal entity. The creation of a separate legal entity is paramount to ensuring that the business is able to sustain itself separately from the owners. It’s also a sure-fire way to reduce the personal risks to the owner associated with any legal action taken against the business. Depending upon the type of organization that is chosen, the owner will not be personally responsible for the liabilities of the organization. The business is able to establish its own assets and incur its own liabilities separate from the owners. In laymen’s terms, the owner's personal assets are not at risk if the business is sued or files for bankruptcy. The selection of a separate legal entity also has an impact on the taxes for both the business and the owners. There are several entities that one can choose from and it’s important that you choose the legal entity that is appropriate for the business that you are establishing. You should consult with an accountant or legal counsel to determine which entity type is best for you. You can also go to your state government’s website to review the rules for establishing a legal entity in your jurisdiction.
2. Do not commingle (business and personal) assets.
Whether you choose a separate legal entity or not, I always advise
small business owners to keep business and personal records separate. This means that all business revenues and expenses should be transacted in one account and personal expenses of the business owner should be transacted in a separate account. This is important because at tax time your business expenses will be used to justify certain write-offs associated with the business. If you are unable to determine which expenses are business versus personal it’s quite possible that you will not be eligible to deduct any expenses. Also, in the event of an audit by the IRS, expenses that are thought to be personal in nature will be disallowed resulting in potential fines, penalties, interest and additional taxes due. Aside from the tax implications, the separation of business and personal expenses will allow the creation of meaningful financial reports, which will allow you to better understand how your business is performing.
3. Don't be afraid to outsource.
At the onset of starting a new business, many small business owners choose to “do it all.” This is totally understandable considering that in the early stages of a small business, access to “capital” is usually limited. While I am a proponent of doing it yourself when it makes sense, I always advise my clients to outsource when appropriate. So, for example, if you know that you’re not skilled in accounting and don’t understand how to choose a method of accounting, accounting software, MS Excel, debits or credits, then it would make sense to hire an accountant. There are plenty of low cost options for a wide array of business support services that can be researched online. You can even research “how to” videos via YouTube and other online sources. The risk of doing it all is that key functions will be done incorrectly and that your business will be adversely affected. You will have also spent precious time struggling – time that could’ve been used to improve your products and services.
4. Don't forget to secure the necessary licenses, permits, and insurance!
As part of the establishment of your business, you should confirm any licenses that are required at the federal, state, and local level. Many states require sales tax licenses and other licenses and permits for businesses that sell retail goods and services. There are also vocational-related licenses and environmental requirements that must be considered. If you have employees you will need to ensure that you have a process to ensure that you are following federal, state and local laws regarding payroll taxes and employment law.
Insurance is also very important to the maintenance of a successful business. Determine which business property requires insurance and contact a broker for an insurance quote. Obtain liability insurance on vehicles used in your business, including personal cars of employees used for business. Obtain liability insurance for your premises if customers or clients will be visiting. Obtain product liability insurance if you will manufacture hazardous products. If you will be working from your home, make sure your homeowner's insurance covers damage to or theft of your business assets as well as liability for business-related injuries. Consider health and disability insurance for yourself and your employees.
5. Do NOT ignore taxes; be sure to file annually.
Every year - without fail - I meet a new client who is frantic because he or she has received a letter from the IRS or they’re afraid that the IRS will be reaching out to them due to years of unfiled tax returns. I can’t stress enough the importance of filing tax returns every year, regardless of whether you think you’re going to owe the government money. Failing to file tax returns puts your business at risk and can result in hefty fines, penalties, interest and additional taxes due. In addition to end of the year tax returns, small business owners have to consider additional taxes that must be paid throughout the year. For example, payroll taxes, quarterly taxes, sales taxes, and other state and local taxes. You should research your state and local tax authority website for required tax returns for business owners in your area. As I stated above it’s important to know when to outsource. So if you don’t understand taxes, hire an accountant/tax preparer or visit the IRS website for low-cost or free options for tax preparation services. Ideally, the person that you’re using an as accountant should be able to assist you in the gathering of key financial records that will be used to prepare your tax returns.
Well, there you have it! Sounds like good advice to me! If you are interested in engaging PCS,LLC for your tax, book-keeping, or other services, they are offering a 20% discount for new clients that use the code "curvyceo"!
[tweetthis]Hey small biz owners - need tax help? New clients get 20% off w/code "curvyceo" from @PaigeConsulting[/tweetthis]
Be sure to contact Melantha and the PCS, LLC team online at www.paige-consulting-services-llc.com or by phone (484.857.7052). You can also connect via Facebook and Twitter.