I opened my LLC over a decade ago, without any prior business knowledge or guidance, only gumption, and a hardy belief that I wanted to make my dreams happen on my own terms.
My business has gone through many transitions over the years, from the business structure to how I make revenue.
I’ve made mistakes along the way, from miscalculating taxes, struggling to master bookkeeping to focusing too much on operations and not enough on sales.
In the past 10 years, I’ve developed a strong business acumen, and I love sharing what I’ve learned with new clients and burgeoning business owners.
My first hand experiences have taught me that no matter what business you are in, you are in sales. Sales = money, and if you don’t know how to manage business finances you are likely going to set yourself up for failure.
I want you to succeed.
I understand you didn’t start a business because you wanted to get into sales or learn how to read a profit & loss sheet.
I hate to be the one to tell you this but selling and understanding your cash flow is an essential part of the entrepreneurial journey, especially if you want run a thriving business.
I want you to do what you love and keep the lights on!
In order to grow a healthy business you are going to need to develop a financial system that puts you in the driver seat, even if you aren’t making a dime right now or have zero business background.
You are now in control of how much money you make and how you use it. That’s the wonderful and scary part about being an entrepreneur!
But don’t worry. I’ve got your back.
If I had to start a business from scratch again, these are the exact 7 steps I would take to set up a business for financial success, and I highly suggest them to you!
Step #1 Register for the best business structure that meets needs now and keep it simple.
So often people overcomplicated the business registration process.
They are thinking about what their business could be someday instead of what will work for them right now.
They also haven’t done enough research to understand what business structure is best for them.
There are a lot of misconceptions, like an LLC is going to save on taxes!
Writing off business expenses helps, but know that an LLC is for liability protection and by default a single-member LLC is getting taxed the same a sole proprietorship. Plus there is the 15.3% self-employment tax to contend with.
When I first started out in business I was a sole-proprietor, I transitioned into an LLC and I am now an LLC being taxed as S-Corp. (This is a common pathway for a lot of entrepreneurs).
Your business will evolve overtime, so don’t be afraid to register for one type of business structure and then expand later.
You might also expand what you do in your business, or change direction.
This doesn’t necessarily mean you need to open up an additional or new LLC. I highly recommend not overcomplicating your tax filing and business structure especially during the early stages of your business.
There may be a simple solution, such as changing your principal business activity code or you might discover your new activities fall under the right code for your LLC already!
*I am not a Tax Accountant or Attorney, so please seek professional advice on any decisions you make related to this article or that may have legal or tax consequences.
Lastly, make sure to register your business in the state you are actually operating out of. So often, people think they can save taxes if they file with another state, but it bites them in the butt later!
Register where your business is at. If you move and or expand, then you will likely need to file for a foreign qualification. I recently did this when I moved from NYC to NJ!
One of the best resources that helped me through the process was CorpNet.
I HIGHLY RECOMMEND them!
They can help you with your business filings from registering your business, to getting a DBA to setting up sales tax with your state.
They were a HUGE time saver and an incredible support when I was going through major business transitions.
Filing any forms with the state or federal government can be a serious headache and hassle. Their systems are often dated and confusing.
Corpnet makes a complicated process easy.
Step #2 Set up a corporate records book.
Once you register your business your next step is to set up your corporate records book.
What is a corporate records book?
In layman’s terms it’s a collection of important records and documents related to your business entity. The documents that are needed depend upon your business structure.
According to Law Insider:
Corporate Books and Records means all Books and Records of the Company relating to the Company’s corporate existence, equity arrangements, accounting practices and tax returns, and including the Company’s stock ledgers, auditor’s letters, business and financial records (including budgets and ledgers) and all employee personnel files and correspondence regarding employment matters.
Some basics things you will want to include are:
- Business Formation Documentation: Articles of Incorporation / Organization / Corporation (with seal)
- Tax ID assignment letter (EIN)
- State Documentation
- Certificate of assumed name “DBA” Doing Business As certification, if applicable
- Here is a more extensive list here
Once you register your business, you should receive this paperwork.
You are going to want to keep it together and save it in a safe place. Both physically and electronically.
These documents are going to be necessary for you to take the next step.
Step #3 Keep all business and personal funds in a separate bank account.
In order to open a business account, you will need to present the necessary documentation.
Opening a business checking account is a fairly easy process and can be done in one day. So don’t delay!
One of the most important things you should know is the IRS does not like you to mingle personal and business finances. This can get you in hot water and increase your chances of being audited.
Separating your business money and personal money is vital, even if you are just starting out.
If you are self-funding your own business, you will need to make sure to move personal funds into your business account, then record the transaction as a owner contribution.
If you have a small business loan or investor its even more important and necessary to delineate your personal monies from your business funds, this all starts with getting a business checking account.
But what if I don’t have any money to start or fund my business?
You know that saying, “It takes money to make money!” Well it’s true.
Even if you are thinking of starting something low maintenance like painting rocks or selling homemade sweaters.
You’ll need the funds to buy materials, run a website, have a working phone, register your business and feed yourself. That is probably why step four should really be step number number, and never overlooked.
Step #4 Make sure you have capital or a safety net before starting a business.
Starting a business hoping it’s going to make money right away is very, very ambitious.
Plan for the worst case scenario and believe in the best case scenario.
You don’t want to feel desperate, graspy and needy when you are in the process of making sales or trying to making smart business decisions. People will smell your desperation, and the pressure can cause you to feel blocked or like you are going to explode, if things don’t work out ASAP.
On average it takes business 2-3 years to become profitable.
Figure out how you can weather the first few years of your business, knowing it takes time for seeds to grow before you can reap a harvest.
Making money in your business may happen swiftly. Nothing is impossible. And there is an exception to every rule. But it could also take wayyyyyy longer than you anticipated.
So ask yourself, how can I pay my bills and when starting a business?
This answer will vary from person to person.
- Some have savings.
- Others will seek capital, investors and a business loan.
- Some will work their 9-5 until they can quit.
- Others will do pre-sales or collaborate with business partners.
- Some work part-time while they transition full-time into their business.
Come up with a plan for how to sustain yourself and business during the early stages. YOU’VE GOT THIS! You can do this. You are more than capable of executing a sustainable plan.
Step #5 Begin a bookkeeping system ASAP. Don’t wait. You’ll regret it later.
Once you’ve got funds coming in and out of your business, it’s time to start bookkeeping.
Many people skip this step and then find themselves drowning in receipts at the end of the year, trying to file their taxes and freaking out.
(This was me a few years ago!)
Avoid this like the plague if you can. Save yourself a huge headache and get a bookkeeping system ASAP.
Whether that is doing it yourself on a spreadsheet.
Figuring out how to use Quickbooks.
Or hiring someone to do your bookkeeping for you.
I’ve done all three.
And I have to say the BEST DECISION I ever made was to stop trying to do it myself and to hire Bench.Co to handle all my bookkeeping and tax filing.
I LOVE LOVE LOVE how they do business.
First the professionalism and first impression is INCREDIBLE.
I remember being amazed when I did the FREE trial period. They had my first month of bookkeeping completed so quickly and I was able to look at my numbers online in less than 3 days.
Once you sign up and decide on how to pay for the service, they connect you with someone who does all the on boarding.
They hold your hand through the process of connecting all your online accounts, so their bookkeepers are getting the most accurate data daily.
Once your accounts are connected. You will be set up with a bookkeeper, who reviews your accounts and gets clarification. What’s so awesome, is their online platform makes it super easy to answer their questions and clarify business categories.
You can also chat with them or schedule a call. One of my favorite parts is that I have profit & loss / income statement that is always up-to-date!
Bonus, I paid extra for them to file my taxes for two years! WAHOO!
I am in love! Seriously, after struggling with bookkeeping for years and even hiring a tax accounting firm to do it, this is by far the best service I have found so far to meet my bookkeeping and tax filing needs. Learn more here
No matter how you decide to manage your bookkeeping, do it right away and don’t avoid it. It’s important to your business and to stay accountable and honest with the IRS.
Step #6 Track and plan for expenses by setting up a budget.
Bookkeeping is key to tracking your expenses and income but you also need a budget.
Budgets are your way of deciding what is a priority in your business in the upcoming month, quarter, year.
You get to decide in advance what you want to spend your money on and whether or not you have the funds to support your vision, goals and plans.
If you are self-funding right now, budget based on an estimated and educated guesses of what things are going to cost to sustain your business and become profitable.
Take or leave this piece of advice…Use the funds for incoming producing activities! Or will likely give you a ROI!
The new desk and fancy chair can wait, what do you need to close sales, create products, or offer services to people!
Without a budget or bookkeeping, you are throwing spaghetti at a while.
Budgeting and Bookkeeping work together to keep you in control of your business money instead of it controlling you.
In order to succeed and expand your business like you are dreaming of, you will need to take 100% financial responsaiblity for your life and business, and one way to move towards that is to budget!
My favorite budgeting tool for both personal or business is You Need A Budget aka YNAB. It uses the zero budgeting method and I have watch my clients use this simple budgeting app and change their lives!
You get the first 34 days free! Try it out, link here
Step #7 Focus 75% of your time and money on Sales & Marketing.
One of my biggest regrets in the early stages of my business is not recognizing how much time I wasted on activities that I thought were going to help move the needle forward in my but were just busy work or distractions. I spent a lot of time focused on tasks that were never going to bring me income or clients.
The operations and administration you can figure out as you go along.
Sales and marketing is what will keep your lights on!
If I could go back in time and give myself one piece of advice before starting a business it would be to learn to master sales, and know that selling is sharing what you uniquely do and how you help people.
Too many people waste valuable time and money on inessential things that don’t help their bottom line.
Then before they know it, they are a slave to their business, they are barely getting by and they have to file for bankruptcy.
If you focus on getting REALLY good at telling people how your service, product, business can help them solve a problem or support their dreams, then I can almost guarantee you will make a lot of money!
YOU CAN DO THIS!
YOU CAN START A BUSINESS FROM SCRATCH AND BE SUCCESSFUL.
Keep believing in yourself. Have faith and follow these 7 steps to get you started on the right track.
Bonus step, is keep an open mind and keep educating yourself. Never stop learning, studying, experimenting, trying and failing. Persisting!
If you would like further support and accountability with your money, business or life, Contact me. I love helping business owners and people to fund their dreams, worry less and live out their divine purpose.
Xo Whitney
2 thoughts on “7 Financial Steps I Wish I Knew Before I Started a Business from Scratch. ”
Excellent article ! Thank you for sharing
I appreciate your lovely feedback Mary!