My Top 10 Tips For Entrepreneurs Looking to Get Their Financial House In Order

In speaking with many entrepreneurs, I find recurring questions that come up. Here is my top 10 of where to get started in setting yourself up for success in the financial facet of your business:

  1. Get Quickbooks. Period. 
    • Please….no ‘shoebox receipts’ or spreadsheets. How will you ever feel legit or know what your true profit or loss is?
    • There are many new financial software programs on the market, but a lot of them are incomplete. For example, one that you may have heard about, FreshBooks does not offer important accounting reports like accounts payable, general ledger, or a completed balance sheet (there is a balance sheet report in FreshBooks but you have to fill in the majority of the fields yourself).
    • A lot of these other software packages come from Canada, New Zealand, or Australia and don’t understand what we need. No hate on them, just saying they don’t include everything we use in the USA.
    • Quickbooks offers a desktop version and on online version. The desktop version is more robust and can be hosted through a cloud service like a remote desktop.
  2. Invest in a Business Attorney. No Shortcuts.
    • You can form your own LLC, sure. But, if you have partners, you need an operating agreement. And, to be honest, most folks have no idea what the terminology is on the Secretary of State filings so if you mess up it can cause more heartache. Do you know what a Managing Member is? Do you know what a Registered Agent is? If you forget one word or make a tiny error, they will send this back to you until you get it right. This will hold up starting your business. A business attorney can help you decide what you need, as well as the type of insurance you will need to protect yourself.
    • Whatever you do, I do not recommend that you use a service like Legal Zoom.  Don’t take my word, just Google the issues surrounding them.
    • I suggest becoming an LLC regardless of having partners or not. It adds a layer of legal protection separate of your personal assets, but an attorney can explain more.
  3.  Get an EIN. That is IRS Speak.
    • This is known as an Employer Identification Number and will be the number that the IRS identifies you by.
    • Complete a SS-4 on the IRS website.
    • This separates  your personal SSN from your business. Make it a separate entity.
    • You can still file a Schedule C on your personal 1040 Fed Income Tax Return as a single member LLC but you will not use your SSN as identification
  4. The Number One Question to Ask a Potential Bookkeeper. Quick Vetting.
    • Most folks claim to be bookkeepers but they are really just glorified data entry specialists. Anyone can download bank and credit card transactions and code them. But, do they know what debits and credits are? Do they know how the Balance Sheet and Income Statement work together? Do they know how to do journal entries. The question to ask: Do you know double-entry bookkeeping? If the answer is NO, run. You are paying exorbitant fees for something a teenager can do.
  5. Open a Business Checking Account. No Comingling.
    • Sure, everyone mixes personal with business. But as a steadfast rule, don’t do it with your checkbook. When you first get started of course there will be some of that, but open a separate account as soon as possible
    • Write yourself distribution checks and then pay your personal bills out of your personal account.
  6. Learn How To Read Financial Statements. This is Your Power.
    • Best Practice: Hire someone to close your books monthly and create a Balance Sheet/Income Statement to review. This let’s you know how you are doing on a monthly basis. If you cannot afford to hire someone, at minimum, learn how to do a bank and credit card reconciliation in Quickbooks. This ensures that most of your income and expenses are recorded.
    • A great quick read is “Managing By The Numbers” by  Chuck Kremer
  7. Create a Chart of Accounts That Works For You.
    • Think about the services or products you are offering. How do you want to see that on your income statement? Do you want to break out your revenue lines? Do you want detailed expenses?
    • Now there is such thing as Paralysis by Analysis, so don’t get too detailed. Consult with a good CPA who specializes in financial statement set up.
  8. Be OK with Debt. 
    • If you’re lucky enough to self-fund your company that is awesome. However, reality is that most folks cannot do that. Sometimes you have to use a credit card, a loan, or a line of credit. Or some combination. You want to stay away from the high interest bearing debt, but I started with a line of credit from a local credit union. If you are a new business, most likely you will have to personally guarantee institutional debt but it is worth it if you can find one that offers low interest rates.
  9. Get a Will and a Life Insurance Policy. Not Tomorrow but Today.
    • Not only do you want to protect the baby you are building but you want to make sure your loved ones are taken care of. Self explanatory. Get a good Estate Planning Attorney.
  10. Plan Ahead for Tax Time. And Not in December.
    • Have your tax CPA review your financials at minimum mid year, but best practice would be quarterly. Make sure that this CPA is also doing your personal taxes so he has a 360 view of your entire financial situation.
    • You may need to increase your W2 Salary or pay in estimated taxes. There are also many other factors to help reduce tax liability, but you won’t know this in December.

If you want to know more, please contact me at nesha@paicpapllc.com

Thanks for reading, Nesha

 

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