So you’ve made the leap- left the nine-to-five and bosses behind for a chance at complete creative and financial freedom. You have product and service ideas abounds, but now what?
Let’s start at the very beginning, where even just a little foresight in the early stages of your new company will save you countless hours and dollars down the road. What are those important foundations to lay for your growth?
Business Entity Type.
Everyone needs to be a corporation so you can launch your IPO next week, right? We wish, but more often than not it isn’t the best option for small businesses. There are many items that play into this decision, and I will of course add a disclaimer that a quick conversation with a business attorney will often times be worth its weight in gold.
What are your growth plans? Do you intend to add additional business partners down the road? Do you want to sell your company as soon as it becomes established? Limited Liability Companies are trending to be the easiest solution for formation right now, and offers tax flexibility in being able to be treated as a Schedule C sole proprietorship, a partnership, or even as a Subchapter S Corporation. Incorporating your business offers unique ownership opportunities, including equity benefits for future employees, ease of bringing on new investors, and tax savings when the business is sold. The corporate downside is double taxation; however, electing to be an S Corporation offers some relief.
Try to look at the big picture. Think about the future, think about growth, and consult with a professional to choose an entity that best fits.
The greatest single planning and cost savings measure you can take is to maintain an accurate set of books. Technology today provides for easy, affordable access to powerful accounting systems over the internet. This includes QuickBooks, FreshBooks, Xero, Wave, and Zoho Books just to name a few. Affordable and all encompassing, offering everything from invoicing to payroll solutions.
Having clean, up to date books is a live report card for your business. It’s paramount to every decision you make, and therefore should be accurate. Your financial data, over time, will provide historical trends, forecasting, and indicators to help guide your business plans. Which product line is selling best? Which client group continually pays in a timely manner? What expenses are growing disproportionately? Every revenue and expense can be measured on a variety of metrics to help increase your profitability.
Another benefit of clean books that is often overlooked comes in April of each year. Your tax accountant is going to comb through your general ledger, making adjustments as needed to correct bookkeeping errors. This time spent in your books are dollars flying out the door. Hourly fees billed can be greatly reduced by having books that are ready for this tax preparation. If you have an expense or other item that you don’t know how to enter seek out the answer from a professional, don’t let the unknowns pile up to be dealt with later.