Have you been thinking about starting your own business? Being your own boss is the dream of many people, and every year, thousands of people take the courageous step of becoming an entrepreneur.
If you are thinking of starting a business or have already started a business, here is a detailed checklist of items to consider to get your new business off to a great start.
1. Make a plan.
There are a lot of moving parts to a new business! You’ll want to get organized (or get some help becoming organized if this is not your skill) and think about how some key functions in your business will work. Some of the topics and/or questions to consider when developing your plan include:
What will you sell?
We’ve found there are really two types of entrepreneurs. The first is someone who knows exactly what type of business they want to be in because they have a skill set or background in it. They have a good idea of what they want to offer the marketplace.
The second type of entrepreneur is one who simply wants to be an entrepreneur. They may look for a franchise that already has some structure to it or a business to purchase where the owner is retiring or simply wants to sell. They don’t really care what products or services they sell, they just want a successful business to run.
Who will you go into business with?
Do you want to start a business by yourself, or do you want to find a partner? Many people start businesses as solos and then add partners or merge with other businesses to grow or expand. Everyone is different, but it’s something you need to work out before you get started.
You’ll also want to consider how you will build your management team. Initially, it can be yourself along with vendors you hire like accountants and attorneys that have skill sets that you don’t. As you grow, you’ll need people to head every function in your business, such as Sales, Marketing, Finance, Operations, Human Resources, IT, and Strategy.
Who wants to buy what you are offering?
Is there an established market for what you intend to sell? Or do you have something that is one-of-a-kind? What competition do you have, and why will your offering stand out?
To answer this question, you’ll need to perform a market analysis that will help you see if you have competition or if you are blazing a new trail. From there, you can plan your marketing and sales activities so that potential customers wll be able to find you.
Will you be able to generate a profit?
Almost anyone can start a business, but making a profit requires planning, preparation and skill. That’s why you’ll want to crunch your numbers to make sure your business is viable. You may need the help of an accountant or financial consultant to help you complete your plan.
What is your company?
Take a crack at describing your new company. This may be the start of your mission, vision, and values statements as well.
Once you’ve answered these basic questions about your business, you can write it up and put it all together in a business plan. The last step is to write your Executive Summary, which will go at the beginning of the document.
You don’t have to write a business plan unless you need one to find funding, but the entrepreneurs who do have an increased chance of surviving their first few years.
2. Make a budget.
A budget clarifies the financial aspects of your business. How much overhead will you have? How much startup cash do you need? How much revenue will you need in order to sustain your business on an ongoing basis?
In addition to a budget, think about how you want to measure your financial results on an ongoing basis. What metrics do you want to know about on a monthly basis? What reports would be useful for you to make good business decisions about opportunities? These answers may not be clear when you first start, but they will become clearer over time, and a good accountant can guide you along the way.
3. Choose your organizational structure.
Should you choose a sole proprietorship to keep down initial costs, or should you incorporate your new business? There are many choices when it comes to entity selection for your business, and they vary state by state. The most common ones include sole proprietorship, partnership, limited liability company, S corporation, C corporation, and nonprofit. These choices have both tax and legal consequences, so this decision is best made with the advice of a professional attorney, CPA, or both.
If you incorporate, you’ll need to select the state you want to do business in and file incorporation papers with the proper state agency. But before you do that, you’ll need to name your baby!
4. Name your baby.
Your new business needs a name, and this can be an exciting step! It’s important too. The business name is the first item that displays your company culture and your business identity to the world.
Once you’ve decided on a name, you should register it with your local county. In some states, this is called an Assumed Name; in others it’s referred to as a Fictitious Name or DBA. You may also want to trademark your business name; this is done at the national level by industry.
5. Get an address and phone number.
Will your business need a physical location? In this step, you’ll need to decide what address and phone number you’ll use for your new business. If you work at home, you can always get a mailbox at a place like Postal Annex, The UPS Store, or even the post office. This won’t always work for a street address, but it’s something you can put on your marketing materials so your business looks more permanent.
Choosing the phone is important too. A cell phone alone is not really high enough quality for a business, but many people start out this way.
6. Get an IRS number.
If you remain a sole proprietor and don’t hire any employees, you can use your social security number as the number that the IRS needs for filing your taxes. In other cases, you’ll need a different tax ID number from the IRS.
You’ll need this number for several things, such as filing income tax return, filing payroll tax returns, opening bank accounts, and getting paid in some cases.
You can now complete a form online to get an IRS number. This page from the IRS.gov website explains more: https://www.irs.gov/businesses/small-businesses-self-employed/apply-for-an-employer-identification-number-ein-online
7. Open a bank account.
Once you have your Fictitious Name document or your incorporation papers, you can open a bank account for your business. This is a big step too, and a good time to start involving an accountant.
8. Find an accountant.
You may have already have enlisted an accountant to help you with your business plan and budget. But if you haven’t, now is a good time. You’ll need to make many decisions regarding the accounting functions in your business, such as:
- Selecting the accounting system you need and getting it set up correctly to record and track your accounting transactions.
- Getting help with federal and state tax requirements, including collecting state and local sales tax if applicable.
- Getting help setting up accounting processes such as invoicing customers and collecting money.
- Getting any financial questions answered that you may have.
9. Get insurance.
Protect yourself and your new business by making sure you have all of the right insurance policies set up. Here are a few areas for you to consider covering with insurance policies:
- General liability
- Building and property coverage
- Errors and omissions
- Workers compensation
- Auto insurance
- Identity theft
10. Hire an attorney.
An attorney will come in handy when you first start your business as well as act as a resource when legal issues arise in the normal course of business. Initially, there are many legal documents to set up:
- Contracts with customers
- Terms of agreement for your website and any other client-facing applications you may provide your customer
- Employment offer letters and agreements
You may also want an attorney to review any vendor or partner contracts that you will be a party to.
11. Get paid.
How will you collect money from your customers? You should have opened your bank account already (see #7 above), so you can get paid when someone writes you a check. But that’s typically not enough options to give your clients. They may want to pay you via credit cards, PayPal, or even bitcoin.
To take credit cards, you can start with PayPal for business, but eventually, you will need a merchant account, which enables you to accept credit cards from your clients and get paid via your bank. Applying for a merchant account is similar to applying for a loan.
If you use QuickBooks, you may be able to collect money through Intuit’s payment options. You might also be able to collect money via your point of sale system or your online shopping cart software. Let us know if we can help guide you in this area.
12. Get specialty and local licenses.
Depending on the type of business you have, you may need additional licenses and permits to operate. For example, if you plan to serve alcohol, you need a liquor license. If you’re a hairdresser, you need a cosmetology license.
You may also need local licenses to operate in your county or city. Check with your local city or county offices to see if a business license is needed. Even if you are operating out of your home, you may need this kind of license.
Starting Your Dream
Hopefully, these twelve steps will make your entrepreneurial journey a little smoother so you can begin to accomplish your lifelong dreams of owning your own business.
If we can help you along the way, especially with your accounting, tax, and business advisory responsibilities, please reach out any time.
In his book, The Rebel Rules: Daring to Be Yourself in Business, author Chip Conley describes what investors look for in a management team when considering providing startup money to new businesses. He says your management team should consist of a “brain trust that includes a passionate visionary, a ‘get-your-hands-dirty’ operator, and a responsible, finance-minded executive.”
Even if you’re never going to seek venture capital money to fund your business, this tidbit of advice makes a great strategy question to consider for your business, especially if you are an entrepreneur. Do you have these three roles in your company?
The passionate visionary is a creative idea person. She has the technical knowledge that supports the service or product that will be created and offered. She sees the market need and just how to sell and position the product so that clients or consumers will want the offering.
The visionary often has more ideas than budget. The finance role can evaluate the profitability of the visionary’s ideas and prioritize the projects. The operator can execute the visionary’s ideas.
The visionary provides strategic direction for the company and keeps the market offerings fresh.
If your business is missing a visionary, you might also struggle to keep your practice full as often (but not always); the sales function could fall to the visionary. You might also find yourself getting stagnant with your service offerings and falling behind the marketplace.
The fix for a missing visionary is to develop a sales and marketing team and/or a research and development team that can serve these functions.
The operator is an action person who can execute. She gets things done. She can find and hire the right team. She is a systems builder who can develop the systems, job descriptions, procedures, and processes that makes the company unique.
The operator takes the visionary’s ideas and makes them happen. She needs the visionary’s ideas because she would rather take someone else’s ideas and work with them than create her own. She also needs the support of the finance executive to stay on budget and to focus on one project at a time or avoid hiring too many people.
A business without a good operator never gets the product to market and may also constantly be short of team members.
Responsible, Finance-minded Executive
The finance expert helps to make the dollars work for the company. She can tell us how much we need to sell and how much we can spend. She can also provide capital sources for the company via investors or loans.
The finance executive loves numbers and can help to make sure the company’s operations are profitable. She’ll work closely with the operator to make sure that the right number of people are hired at the right salary levels. She’ll work with the visionary to plan and budget for new sources of revenue and new product lines.
Without a finance executive, a company often spends more than they bring in and may not have a viable profit plan. They may also run out of cash which can cause problems with creditors and investors.
This is the role we can not only help you fill, but also help you build your financial literacy to the level that you need for the stage your company is in now and for the future.
Your Business Success Trinity
As you were reading, which role are you? Which role jumped out at you that might need shoring up in your business? You might be strong in one area and need to outsource another while keeping a strategic eye on things overall.
Take a look at each of these roles and objectively assess your business. How are all three roles being served in your company? Which ones need more development in order for your business to grow?
Getting clear on your company’s roles can very well take you to the next level of success.
Which trends impact your business the most? Which ones speak to you? Feel free to reach out to discuss any of these ideas with us.
The products and services your business sells make it unique. The same thing is true of how these items are set up in your accounting software. Whether you’re using QuickBooks Online or something else, getting your products and services set up right can impact the quality of the information you can get out of your accounting system.
Here are the types of items you can set up in most systems.
Inventory items are used in retail and wholesale businesses. They are physical items that the system can keep count of for you. You can purchase or make the items, and the associated cost is usually tracked when a shipping receipt or bill is entered. They are sold when a sale is made and an invoice or sales receipt is entered.
Transactions using inventory items impact a lot of accounts on both the balance sheet (cash, accounts payable, accounts receivable, and inventory) as well as the income statement (cost of goods sold, sales, and returns). The inventory item can be tied to default sales and purchase accounts in most systems.
QuickBooks offers a type of item called a non-inventory item. There’s a big difference in that non-inventory items do not have quantities associated with them. They don’t increase or decrease the inventory account. But they are able to be tied to default sales and purchase accounts like inventory items above.
Examples of non-inventory items include items purchased for a specific jobs, such as a contractor purchasing appliances for a custom home, items you sell but do not buy, such as an ebook or other digital product, and items you purchase but do not sell, such as shopping bags.
A service item is a special type of non-inventory item. There are no quantities, which makes sense because services are not physical items. They also are only connected to a sales account and not a purchase account.
With service items, you could set up service packages or hourly rates.
A bundled item is a group of items that were designed to be sold together. For example, if you sell a gift basket of coffee products, you would bundle the items used to create the basket.
An assembly item is a special type of inventory item where the quantity is tracked, but it differs from an inventory item in that it can’t be sold separately because it is a component and not a whole item. Assembly items are available in larger accounting and inventory apps, such as QuickBooks Enterprise, and are used in conjunction with a Bill of Materials or other build feature.
An example is a set of shelves. The assembly components are the individual shelves and the frame pieces that you may want to keep counts of. An inventory item that contains the shelves, the frames, and other parts is “built” from the assembly items. The nuts and bolts could be non-inventory items or assembly items, depending on whether you wan to keep count of them or not.
Sales tax is a very special type of item used on an invoice or sales receipt to calculate sales tax due on the order. In many accounting systems, it’s usually kept in a separate list from the other product and service items. Rates can be entered for each sales tax jurisdiction.
Some systems have an “other” category to capture items such as freight, shipping, handling, and other add-ons to the sale.
Setting up the right type of products and services is critical to matching costs and revenue for accurate insights into gross margin. This section of your accounting system is also the one that’s most different from industry to industry and company to company. Be sure you get professional help from experts who know both the software and your industry for best results.
One of the most important success factors of small businesses is the ability to generate revenue, and to do that, most businesses need to market their services and products to bring in new customers and sales. The challenge for small business is how to make their marketing dollars work the hardest, and this requires careful tracking and measurement. Here’s one way to get started tracking your marketing spending so that you can find out what’s paying back the most.
List your sources of revenue
First, determine where your sales are coming from by making a list of all the ways you are currently attracting customers. Here are a few:
- Website via search
- Social media
- Google ads
- Referrals from existing customers
- Ad in local magazine
- Article on Huffington Post
- Board membership on local nonprofit
- Chamber of Commerce membership and participation
Track your expenses by source or method
Once you have your list, it’s time to look to your accounting system. Create accounts or other types of tracking codes in your system to track expenses for each of these marketing methods. If you need our help, please feel free to reach out.
The goal of this step is to be able to get all costs associated with each of these marketing methods so that you have a total cost over time by method. Don’t forget labor: if an employee spends three hours a week updating your social media accounts, this should be included in your costs.
Determine the source of your sales
To the extent you can, match the sales that come in with the marketing source or method. In other words, if a customer knows you from the Chamber and spends $500 with you, match the $500 revenue with the Chamber marketing source. Do this for every sale you can. If you don’t know or can’t attribute the sale to any one method, then code it to an Unknown tracking code or account.
This step can be difficult, depending on your business type, especially if your customers are anonymous, as in retail or restaurant sales. However, every business can do better by asking “how did you find out about us?” to each new client that comes in and recording that answer.
For online sales, you can use tracking apps such as Google Analytics to help you measure digital marketing methods.
Do the best you can on this step, and implement procedures to capture this information as accurately as possible for future sales.
Analyze and adjust
This is the fun part. Once you’ve done all the hard work, you should be able to match sales to costs and determine the volume of sales that are coming in for each marketing method. Let’s say you found out that you are getting no sales from your nonprofit board membership, the Huffington Post article, and social media. You now have some decisions to make.
If you are doing these things solely for the purpose of marketing, you could cut them out and focus on the remaining methods. It could also mean that you need to redo your social media strategy; it’s not working now, but another strategy might. Or just one article in HuffPost is not enough, but three articles could start paying off.
At any rate, you have far more information than you did before you started, and now you can make smarter decisions about your marketing. If we can help you code and crunch all of these numbers, please reach out any time.