Starting a new business can be a thrilling experience. There’s the freedom of being your own boss and the hope (and expectation) that you’ll be a stellar success with a bright future. You’ve chosen your new business name, picked out your premises, ordered your business cards and set up your website, but have you set your business up with a firm financial foundation? Read on to find out.
Consult with an Accountant
Spending an hour or two with a CPA is a very good idea. You should get your accountant to look over your business plan and cash flow projection, find out which taxes you’ll have to pay and when, as well as which deductions you can claim. Being made aware of all of your deductible expenses can save you a great deal of money and will often more than cover the cost of your accountant’s advice.
Make Sure You Have Licenses, Permits and Insurance
The last thing that you need when you’re just getting started is a big fine from the city or state because you don’t have your permissions and your public liability cover in place.
Head over to your city and state websites and find out what you need to do in terms of licenses and liability cover. You can find the links to your state government website at the U.S. Small Business Administration. Alternatively, hire a lawyer to do the legwork for you and get everything in place.
Create a Business Plan
Don’t skip this step! Your business plan can be one of your most valuable tools if you take the time to put it together properly. To begin with, your plan will tell how much your business is going to cost to get up and running. It’s common to underestimate this figure which can lead to a cascade of problems down the line because you haven’t set your prices high enough to cover your expenses.
You’ll find plenty of great resources to help you create your plan if you search around online.
A business plan will help you focus on your goals and identify exactly how you intend to achieve them.
Set Up Your Accounts System
There is absolutely no need to use a paper based accounting system given the wealth of affordable software solutions available today. Choose a system like QuickBooks or Sage to handle your accounts and you will have a huge selection of reports at your fingertips with a few clicks of your mouse. Issuing invoices and receiving payments takes just a few moments, payroll is a breeze, and tracking expenses is effortless. Your accountant will have easy access to your records which makes their job faster, and since most charge by the hour, you’ll have a smaller bill to pay for their services.
Accounting systems can link to your bank accounts and notify you when payments come in, and they can automatically send invoice reminders when clients don’t pay on time, which saves you having to keep track of the money that is owed to you. You can also make your contracts simpler by using engagement letter software.
Keep Business and Personal Accounts Separate
While you can use your business account to fund personal expenses and then pay the money back, in the long run it’s more straightforward to have separate accounts and keep them for their specified uses. Every transaction that your business makes needs to be entered into your accounts ledger and if you aren’t diligent about recording your spending on your business credit card then you’ll have unexplained gaps when it’s time to reconcile accounts and file your taxes.
If you need to lend your business some money to tide things over, then make sure that you document the details and set up the repayment information in your accounts system.
Explore Emergency Funding Options
There will inevitably come a time when you need access to extra funds. It doesn’t matter how well you run your business, sometimes things happen which are out of your control. Customers pay their accounts late, equipment breaks, suppliers increase their prices, or you need to hire a lawyer, etc. If you’re running with a nice cash surplus, you’ll be able to weather these kinds of events, but if you don’t have that buffer, your business can get into trouble very quickly.
The time to put emergency funding in place is before you actually need it. This can take the form of arranging a line of credit with your bank, finding out if you’re eligible for loans should the need arise, or looking into invoice factoring companies as a possible solution to get you through a tight spot.
By treating your financial foundation seriously, you will make the day-to-day running of your business easier, you’ll avoid penalties from your city and state, you’ll be ready at tax time, and you’ll have funding in place to get you through stressful business emergencies.