3 Things You Can’t Forget to Do When Starting a Small Business

As an entrepreneurial small business owner, you’ve likely got enough passion and creativity to sustain ten businesses. And if that were all that was needed to start a successful small business—you’d be set! But unfortunately, enthusiasm can only get you so far when an alarming 82% of small businesses fail from poor cash flow. Truly, it’s managing those pesky finances that’s the tricky part. And if you don’t want yours to be part of that statistic, you’ll need to effectively manage your money.  

Before you panic, know that it’s totally possible for you to build a positive financial foundation for your business without a lick of formal training. We’ve started with the top of your to-do list: the first three things you absolutely can’t forget to do when starting your small business.  

1. Pick your business structure.  

Before you bring any cash into the mix for your small business, you must carefully consider which business structure best fits your needs. Each of these structures offers different levels of personal protection, tax benefits, and financial advantages. We’ll briefly cover the most popular ones…but check out our previous article on choosing the best business structure for your small business for more in-depth information.  

• Sole Proprietorship: You’ll file taxes for your business under your own name, and will be held personally liable for any legal actions taken against your business. This structure offers no taxation benefits, but it’s incredibly simple to set up and maintain. If you’re just starting out and have a relatively small customer base with low risk for being sued, this might be a good structure to begin with!   
• Partnership: Partnerships are very similar to sole proprietorships. The only difference is that you’ve got more people in on the party! If your business is owned by more than one person and lacks formal organization, this could be a good option. Once again, there’s no taxation benefits or personal liability protection. If those things aren’t yet necessary for your new business, you may want to go this route.   
• Limited Liability Company (LLC): If you’re looking for a formal legal business structure, your simplest bet is an LLC. This structure does offer tax benefits, and will protect your personal assets in case your business suffers a loss or legal action is taken against you.
•  Corporations: A corporation, also a formal legal business structure, is more complex to maintain than an LLC…but it’s the only way to go if you’re looking to attract outside investors. This structure transfers ownership of your business to shareholders. You’ve probably heard of the hefty Fortune 500 C corp model, but for smaller businesses, electing to become an S corp offers the liability protection of C corps while maintaining the tax benefits of a proprietorship. Should you need to carry a significant profit from year to year, you’ll want to form a corporation. If you’re reinvesting most of your profits into your business…better to go the LLC route to avoid those high corporate taxes!  

2. Open a separate business account.  

So you’ve got your business structure sorted out…check! Next up on the list? Open up that separate business account. If you skip this step, things could get messy (to say the least).   

It’s going to be a heck of a lot easier to avoid commingling your expenses when you keep your personal and business accounts separate. If you have an LLC, C, or S corporation and your business goes bankrupt, you have a “corporate veil” of protection and are not held personally liable for any debt.   

But if you’re getting careless and commingling expenses, you’re putting all of your personal assets on the line. (This one’s an especially ruinous financial mistake to make, so check out our previous blog post on commingling for everything you need to know!)   

It’s not all about avoiding commingling, though! When you’ve got an account that’s solely dedicated to your small business, you’ll be able to better protect your personal assets, give other company members easy access to company funds, and will appear more professional to customers and vendors. Checks from “Fancy Business, LLC” are undeniably more official than those from “Joe Schmo.”  

3. Hire an accountant.  

Taking care of your finances yourself can save you some cash at first, but messing up tax documentation can be an extremely costly mistake. Without professional help, you could be under/overpaying on your taxes (yikes!) or missing out on the deductions you’re entitled to.  

In addition to helping you prepare for tax season, an experienced CPA will look at the big picture of your financial wellbeing. They might offer their expertise to:  

• Point out potential issues or opportunities for growth 
• Keep an eye on any gains or losses 
• Prepare reports in the event of an audit 
• Help you apply for financing  

And if we’re going to talk about accountants, we might as well cover bookkeepers! If you find your records starting to pile up, it may be time to look into hiring a professional. They’ll help you stay on top of the day-to-day financial matters of your small business, including but not limited to:  

• Collecting unpaid debt 
• Utilizing accounting software to ensure all records are up to date 
• Keeping track of any receipts 
• Managing payroll  

For tips on finding the perfect accountant and bookkeeper for your business and budget, check out our recent blog posts! Trust us, it’s simpler and far less costly than you may think…and well worth the effort.  

Feel a little overwhelmed? You don’t have to do this alone! To relieve some stress, contact KYN today. We offer expert accounting and bookkeeping services and are here to assist with both day-to-day activities and long-term financial planning. Wherever you’re at in your process, we’re at the ready to ensure your small business success!