The next thing I recommend is to find your professional support team. This includes an accountant, an insurance professional, a lawyer and a financial/investment person. Now, this will initially sound expensive, but most of these professionals will only charge you for the time they spend working on your stuff.
Here’s why you need an accountant. An accountant will help you set up your accounting basics. They can also tell you how much you should be paying for state and federal taxes. they will tell you what sorts of things you can deduct on your taxes, including depreciation, a home office, mileage on your vehicle etc. They can also “run the numbers” for you about how much you should be putting into savings, in case your new company has some quiet periods, financially, they can figure out exactly how much you can put into your 401K from the employee and the employer if you choose to do that, and if you choose the S-Corp route, how much you should pay yourself as a salary vs. how much you take as a distribution from the company. You’ll also find that when you run your own business you suddenly have to file new tax forms that you are responsible for . Some are due every time you pay salary, some are due quarterly, and some are due yearly. Depending on your level of experience and amount of time you’re willing to spend on paperwork, you can decide to fill it out yourself, but I highly recommend that you get a professional accountant to fill it out the first time and explain what you need to do. I learned this the hard way. When I was on the bench for 6 months, I decided I could figure out my tax forms. So I copied one of my previous quarterly returns. Well, a month later, I suddenly received a bill from the IRS for $12,000. Well, my taxes were paid in full, but since I screwed up the return, I had to spend the next 6 months going back and forth with the IRS trying clear this up without paying major penalties or the $12,000, which I didn’t have to spare at the time. Since then, I gladly pay my accountant to take care of this stuff for me. At a bare minimum, you want to find someone you trust to take care of your yearly tax returns.
I recommend getting a copy of Quickbooks or some other financial software you can use to track your business. This has actually been invaluable for me because each quarter or year end, as long as I make my entries, I can just print off a couple of forms (or if your accountant uses Quickbooks, you can just give them the “accountant’s copy” and they have all of my transactions for the business. Again, I highly recommend getting your accountant to set up all your accounts. Based on your business, you may have different needs, or want to track different expenses. But no matter what your business model is, you can quickly see accounts payable, accounts receivable. You can print off professional invoices and purchase orders. You can track your bank accounts, taxes and expense very easily. You don’t need to be an accountant to use this software. Believe me, I’m a software guy, not an accountant, but it’s pretty easy to update every 2 weeks or a month depending on your volume of transactions. I spend on average 1hr a month doing pretty much everything (and I track my weekly travel expenses in the system). It’s totally worth the effort.
Setting up your Business Bank Account
In my last post, I talked about how to get started, how to get the paperwork rolling for your new business. This time, I wanted to start talking about some of the key pieces you need for your business.
First order of business, get yourself a business checking account. Now this initially sounded like an easy task to me. So I started checking out the banks in my area and quickly realized that business checking accounts have a lot more options than your average personal account. Here’s some of the big things to keep in mind when selecting your bank/account type.
1. First and foremost, you can’t open a business bank account without your business paperwork. Normally, your Article of Incorporation or some similar form of proof that you are truly a business and registered with the state you are opening your account in. When I moved to NC from MN, I decided to switch banks. I had been with US Bank and I loved them, but they had no presence in NC/SC, so I had to make a switch. Before I could open any account, I needed the actual NC paperwork that proved I was licensed to do business in that state.
2. Bank Fees. Does the account carry a monthly fee? If you carry a high enough balance, is the fee waived? Is it likely that you will be able to carry that balance every month. My account charges me $12.95 every month if I don’t maintain a $5000 balance for the entire month. This can add up quickly, so I do everything I can to maintain that balance. Make sure you know exactly how and why your bank will charge you fees. Some of the other fees to check on are: Does your bank charge your for ATM’s that aren’t in your network? Are you charged for viewing your checks online? Do they charge you to download your transactions into Quicken or Quickbooks? Do you earn interest on your account? All these add up quickly, especially when you’re just starting out. You need to look at how you bank to decide which fees don’t matter and which ones will kill you.
3. How long will the bank hold your checks after you first open your account? Now this is something I never thought of. When I first started with my bank, I was getting paid by check. Now since I had a bank account, I figured it was no big deal. I quickly found that until the bank thinks you’re reliable, they will hold your funds for 7 – 10 days. Now, if you’re just starting out, this is a long time to have money just sitting in your bank that you can’t spend. Many banks will release your funds immediately if you direct deposit it, however, this isn’t always an option. Just be prepared for this possibility.
4. Can you do most of your banking online? Does your bank offer free online bill pay. For me, this feature is invaluable. I spend a lot of time on the road, so I want to be able to pay all my bills online, anytime I want. Make sure to find out how much your bank charges for this convenience.
5. Can you tie your personal account to your business account? this was another important feature for me. Since I setup as an S-Corp, it meant that I would be paying a salary to my employee (me). So I wanted to link up my accounts so I could do easy fund transfers from my business account to my personal account.
6. Extra things. Most accounts will allow you to do wire transfers, but only after you’ve filled out some additional paperwork. For example, I needed to move some money around in a hurry. Well, with the new money laundering laws, any large checks must be held for 7 days by any account. A wire transfer was my only option. Well, I called up my bank, and they informed me that I would have to visit a live bank person, fill out some paperwork, and then I could do a wire transfer over the phone. Well, I was on the road, and my bank wasn’t in the area. I made it work, but it took a lot of phone calls and extra stress. My advice to anyone starting out, get yourself set up to do wire transfers. You may never need it, but just in case, have the paperwork in place.
Wow. I forgot just how much effort it was to get a “simple” bank account set up for my business. Anyway, next post, I’ll hit the next set of needs to focus on for your new business.
Thanks for reading,
Mike
Creating your Business
Well, with a new website design, I decided it was time to visit some old things I talked about a while ago. I wanted to start at the beginning. Creating your company. This is a step that I think everyone should do. Why do I say that? No matter who you are, you’ve had an idea, or thought that you know enough to go out on your own. With your own company, you can do that. It’s cheap and low maintenance.
What do you really need to get a company started? You need about 3 different “potential” company names. I recommend doing some web searches to see if the name exists, and more important, does the website exist. Your first step should be to make sure your domain name is available. You don’t even need to do anything with it (yet), you’ll want to get it reserved as soon as you know that your company name is “official”. I used 123cheapdomains.com, but any registration service will work.
Now, once you have found your domain, you’re ready to register your company. There are a lot of websites out there that take care of everything for you. I personally used www.mycorporation.com. I know there are a lot of others, but I can only personally vouch for this website. It was easy, it was reasonable, and it was worth it. I believe when I registered my company in 2006, it was only $300 for the whole process (not including state registration). They even give you all of the paperwork you need to send in to get yourself registered in your state of incorporation. There are lots of options and lots of extra little things that you can buy, but in all honesty, all you need is that federal tax ID. So you can buy the extra services like annual reports, or a stamp with your business name, but from first hand experience, you really don’t need any of it. Just stick with the basics (you can always get the fancy stuff later if you find you really need it.
Now, after a couple weeks you’ll get your confirmation of your business name and tax ID. As soon as you get this, buy your domain.
I’ll save the details for that stuff for my next post.
Thanks for reading,
Mike