1) Consult an accountant. This isn’t a self-serving piece of advice. A good accountant is one of your most important business advisers, and can quickly answer questions that may take you hours to figure out.
I once read somewhere that the definition of an accountant is “someone who solves a problem you didn’t know you had in a way you don’t understand.” Funny, but true. Do you know the difference between an “S-corporation” and an “LLC”? Do you know the advantages and disadvantages of each? Probably not.
Ask other small business owners in your area for referrals to an accountant. Find one whose personality you like and who specializes in small business. (And if you can’t find one you like, please talk to me.)
2) Write your annual business goals. I’m not a big believer in the standard business plan, wherein you lay out in great detail ((cue trumpets!)) your business strategy and financial projections. Blech. They’re overkill for people just getting started.
Instead, I believe in setting what I call “Annual Business Goals,” and revisiting them maybe twice per year.
Imagine your business one year from now. How much money do you need to make during this year? How much per month? How will you do that? What are your ongoing monthly expenses? Will you generate enough money to cover those expenses? I’d spend several hours answering these questions and recording those answers in Google Drive, or Evernote, or on a big yellow legal pad.
3) Choose the legal structure of your business and file the appropriate documents with your state. There are five different types of business organization: sole proprietorship, partnership, corporation, S-corporation, and limited liability company (LLC).
There are distinct advantages and disadvantages to each form, and each is taxed in different ways. It’s really a good idea to consult an accountant on this question.
Meantime, if you want to DIY, see the Business Services section of Legal Zoom for great tips.
4) Register your business name with your state government. The legal name of your business is the name of the person or entity who owns the business. Using myself as an example, my business name is Renee Taylor, CPA because I’m a sole proprietorship. If I were incorporated, I might go by the business name of Accounting Wizardry, Inc.
But have you ever seen those little letters “d/b/a” on a check or invoice? They stand for “doing business as,” and refer to a “fictitious business name” that is separate from your personal name or the officially registered name of your corporation or LLC.
Conveniently, the U.S. Small Business Administration (SBA) provides this handy chart for business name filing requirements in each state.
5) If required, get a federal tax identification number (also known as an “employer identification number,” or EIN). If your business operates as a partnership or corporation, or if you have employees, you’ll need an EIN, which is obtained from the IRS.
But if you’re self-employed as a sole proprietor (even if you use a fictitious name), no EIN is required. Simply use your Social Security number.
6) If required, obtain an ID number from your state revenue agency, which serves the same purpose as your federal EIN. These requirements vary by state.
7) Obtain any licenses and permits. As usual, these requirements vary by state and also by type of business, and unfortunately there’s no easy way to get a really clear answer without doing some digging. Again, check with your state’s revenue department and also your county’s tax office.
8) Establish a business checking account and get a business credit/debit card. It’s far easier to keep track of your business income and expenses by maintaining accounts separate from those you use for personal reasons.
9) Establish your books. There’s nothing wrong with keeping track of business income and expenses on a spreadsheet. It’s what I did for years, and it’s free. But there are many great accounting software programs that provide useful reports, are cloud-based, and automate many accounting tasks. Quickbooks is the elephant room and isn’t
necessarily the best, though most accountants are very familiar with it and will likely recommend it to you. I’m personally a huge fan of Xero. It’s what I use and recommend to all my clients.