4 Easy Tips for Setting up your Business
When you are starting your business, there is excitement, apprehension and a few unknowns. I am sharing tips on how to make sure your back office is set up so you can run and build an amazing business. Doing these simple things will enable you to grow with more ease and flexibility.
Here are 4 things I personally did before my business launch:
1. Set up your business Entity.
Establishing a business entity will ensure that your business is set up to operate legally and efficiently. Even independent freelancers, bloggers, and consultants can benefit.
The LLC (Limited Liability Company), S Corporation and C Corporation are the three most common types of business structures in the U.S. These structures have unique differences and advantages.
- LLC is great for small businesses that want liability protection, and minimal paperwork.
- S Corporation is a pass-through entity for federal taxes and is great for small businesses that can qualify.
- C Corporation is a standard corporation which files its own tax report. While not ideal for freelancers, the C corp is optimal for businesses who seek funding from a VC.
Note: I have seen several businesses shift from LLC to C Corp when unexpected growth or funding was on the horizon; this is not uncommon.
MY TIPS: I set up an LLC, and used Bizfile services to facilitate the process. A few reasons I did this (even before having clients):
- DBA Name: Filing a DBA "Doing Business as" name for your company is a simple and necessary step. Going through the process of verifying my legal businesses name was important to me, because I wanted to make sure I owned the business name legally before buying a domain.
- Personal Liability and Asset Protection: When you set up a separate business entity it limits the liability of the business owner. The LLC acts as a corporate shield.
- Tax Benefits: When you form your LLC, your business will have a Tax identification number, but as an LLC, you may also file on your personal taxes which is less cumbersome in the beginning.
- Separating Business Finances: Having the separate entity also allowed me to easily set up a bank account so I could isolate my business expenses from my personal. I set up my account and deposited my 'Startup Investment'. That was money I allocated to pay for upfront business costs.
2. Create a P&L.
Create a spreadsheet to track your revenue and expenses. You don't have to use expensive software when you are first starting out. I suggest doing this in excel.
What does a Profit and Loss worksheet track?
- Net Sales
- Gross Margin - Expenses = Net Operating Profit
- Net Operating Profit + (Other Income - Other Expenses) = Net Profit Before Taxes
- Net Profit Before Taxes - Taxes = Net Profit (Or Net Loss)
MY TIPS: Keep it simple. Here are a few examples of what to track:
- Office Supplies: Furniture, Computer, Paper, Pens, Folders, Printer, Ink.
- Office Expenses: Rent, Utilities: Electric, Wi-Fi, Phone.
- Travel: Flights, Transportation, Meals related to business.
- Cost of Goods: If you are creating or manufacturing goods, document all costs of materials and production.
- Licenses & Fees: Software subscriptions, business license etc.
- Marketing Expenses: Promotions, Advertising, Branding, Website Development, Printing.
- Professional Services: Fees to Consultants, Accountant, Legal.
- Salaries: Full-time and Part-time employee costs.
I personally like to bucket income into categories so I can track where the business is earning the most.
- Hourly Project Fees
- Monthly Retainer Fees
- Commission Fees
- Referral Fees
- Speaking Engagements
I also like to track the source of my income, for instance whether it was a Referral from Client, Web-to-Lead, PR etc.
3. Create a Budget.
My TIPS: Once you have laid out the basics for your P&L you can utilize the same worksheet (copy format and rename a new document). You will categorize spending in the same way you categorize expenses in the P&L. This will keeps this easy when making adjustments from Budget to Actuals.
Many people allocate personal funds initially to cover initial costs of launching their business. I personally invested $5,000 in my business upfront between website, legal, business fees and supplies. Make sure to track those personal investments so the business can pay you back, once you are profitable!
4. Get Legal Contracts in Place.
My TIPS: If you are providing services: Consulting, Content Creation, Strategy etc., you will want to consider a few things:
As you engage with clients, contracts will be exchanged. Two must have documents:
- Mutual NDA (non-disclosure agreement) to protect all parties' confidentiality.
- MSA (Master Services Agreement) - this is a contract outlines responsibilities of both parties in the partnership. It typically includes services, rates, and terms of services.
Once you've accomplished these steps, you'll be on your way!