When contemplating whether to start your own business it is easy to be overwhelmed by all of the decisions you are faced. This holds true whether you’re an attorney looking to start her own practice, a real estate professional who receives a 1099, or an entrepreneur with a new idea. Below are a few ideas to think about if you are considering starting your own business.
– Entity selection matters – The decision to operate as a sole proprietor, partnership, LLC, or S-Corporation can have significant tax implications. There is no “right” choice, but it is important to know the pros/cons of each.
– Team Approach – Surrounding yourself will a good team of advisors can help you navigate many of the choices you will need to make. It is also important that your entire “team” is aligned towards your goals/objectives, communicating with you and with each other. Many of the decisions you’ll need to make require different skills, but will directly impact each other.
– Separate personal and business finances – As much as possible keep your personal and business accounts separate. This can help avoid a lot of confusion, and can be as simple as establishing a bank account and credit card in the businesses name. If expenses get incurred prior to the establishment of these accounts keep good records so they can be clearly identified.
– Establish an accounting system – Tracking your financial transactions is critical when you are starting out, and you might want to consider investing in some software. A system like Quick Books when properly used will be really helpful, and has the capacity to grow along side your business. One mistake we’ve found new business owners make is they purchase an accounting system, but fail to “learn” how to properly use it. Most of these systems are very intuitive, but it is important to makes sure you know the basics and have your software configured to your business.
– Taxes – These will vary given your location, size, type of business/service, but be aware you may be responsible for: state and federal taxes, licensing fees, sales tax payroll taxes, 1099s and more. Additionally, depending you may need to make quarterly tax payments, and should also factor in the impact of self employment if relevant.
– Business Expenses– These will vary based upon your business, but auto, travel, meals & entertainment, home office, and “technology” are just a few items to consider. You should not assume that owning your own business now entitles you to deduct every dollar you spend, but it is a best practice to keep documentation and records so that you do not miss any opportunities to deduct legitimate expenses.