Once you’ve got a business idea and are energized to hit the ground running, there are some important early steps that you shouldn’t skip. Entrepreneurship is a mix of intelligence, tenacity, hard work, and dedication—and then there’s that need to know how to start a business. If you’re ready to take your passion and turn it into a business, follow these recommendations to ensure you’re set up for success.
1. Start with a solid business plan
Many founders feel that a business plan is something that can come later, once the business gets on its feet. It’s true that your business plan will change over time, but it’s actually a good idea to start somewhere and give your new venture some sense of direction. A solid business plan outlines the structure of the organization, and also sets goals to ensure sustainability and growth. A business plan will also be essential if you decide now, or in the future, to raise capital.
2. Choose your business structure
This is one of the first steps in starting a new business. There are various business structures, but finding the one best for your long-term plans is key as you can only switch your business structure one time. Consider your future goals. How many employees will you need to hire? Will there be multiple owners? What risks are associated with your type of business? Will you need investors?
Make sure you know the differences between the structures and their tax implications.
- Sole proprietorship: One business owner who reports all income and losses on their personal tax return. The entity has no protection of personal assets against business debt.
- Partnership: Two or more owners who share management responsibilities, profits, and debts. Also enjoy pass-through taxation like a sole proprietorship.
- Limited liability company (LLC): Provides a mix of benefits from a partnership, corporation, and sole proprietorship, without having to worry about double taxation.
- Corporation: A corporation is an independent legal entity, and must have a board of directors, and distribute common stock.
- S-corporation: Offers tax benefits of smaller businesses, but the owners are protected from liability.
When in doubt, consult with a business lawyer or a CPA to determine which business structure is right for you. Our team is experienced in this area and can help you identify the tax implications of the various options.
3. Raise capital
You may or may not need funding immediately, but chances are raising capital will become necessary at some point in order to expand the business. Aside from your personal character and exceptional credit, the two most important pieces of information you will need to share with investors will be your business plan and your profit and loss statement (if raising capital in the future). A P&L statement can give investors a clear overview of your company’s financials and what they can expect from you with financial projections. Using cloud-based accounting apps from the beginning can simplify the process and ensure you have an accurate, current financial picture.
4. Work smarter, not harder
Invest in the business from the beginning, and you will see your ROI quickly. This starts with investing in the tools that allow you to focus on what you do best. Cloud-based accounting apps can eliminate countless hours of manual data entry, reduce human error, and offer invaluable security features to protect your business. Staying on top of your books, and having an up-to-date clear picture of your overall financial position, will make it easier to adapt and adjust along the way.
Looking for help getting started with keeping your books on the cloud and automating data entry? Check out our free online course, 5 Weeks to Better Bookkeeping, which covers everything from how to start a business to how to clean up your existing accounting.
5. Find a team
You might believe that you know your new business, how to run it, and how to grow it the best. One thing that successful entrepreneurs have in common is they have a team that is smarter, more experienced, and better connected than them. Make a plan to hire experts in the niches you’ll need: marketing, accounting, technology, product development, sales, supply chain, etc. You may be the expert on your idea, but having an expert in marketing will help you reach your ideal customers quicker and more efficiently. Hiring a bookkeeper or CPA to assist with your daily financials and tax planning can mean saving thousands of dollars over time. Successful people surround themselves with people who challenge them, can teach them, and eventually make them more successful. Find your team, treat them right, and learn from your experts.
As cloud accountants, we have seen many small businesses get in deep water after failing to pay taxes, choosing the wrong business structure, or improperly handling payroll. That’s why we created the Business Start-up Checklist. Make sure you don’t miss a step and are covering all of the details from the beginning. Knowing how to start a business in advance will pave the way to a successful business. If you have any further questions or need help choosing the best accounting apps for your business, contact us to set up a consultation with one of our experts. We want to see your business grow!