Starting a business can seem like a long and drawn-out process – but don’t worry, you’re getting closer to being ready to launch. Now that you’ve got office space, a team of advisers and some great-looking marketing material, you’re ready to complete a few final housekeeping items to keep your business “legal” and in compliance, while also helping you manage your money and pay your taxes.
Financial And Legal Nuances of Starting A Business
Here are a few financial and legal items to keep in mind as you prepare for the last steps of starting a business:
Open a Business Bank Account
One of the easiest ways to keep track of your business expenses (and keep them separate from your personal finances) when starting a business is to open a business bank account. Corporations and limited liability companies (LLCs) are required to maintain separate bank accounts, and this practice is also highly recommended for sole proprietors. For corporations and LLCs, failure to maintain separate business bank accounts can lead to a “piercing of the corporate veil” and a loss of protection from personal liability.
Even if you don’t have a corporate entity when starting a business, if you’re a sole proprietor, keeping a separate business bank account is important to help you track revenues, expenses and profitability of your business. It also lends credibility. Remember, banks will require at least a DBA (“Doing Business As”) filing before they let you open a bank account under the name of your business (if the business name is different from the owner’s name).
Let CorpNet™ help you file a DBA quickly, easily and at an affordable price. Read more about our DBA filing service so you can get started with a business bank account.
If you’re starting a business by “bootstrapping it,” that means you start with a small or nonexistent budget, paying for everything as you go. But if you want to grow faster, or if you need money quickly to invest in bringing your product to market, you probably need to get financing for your business. For a small business, this can mean obtaining a loan from the Small Business Administration program, securing a line of credit through your bank, or seeking equity investment from angel investors or even friends and family.
When starting a business, trade credit may also be a source of financing. It is important for the business to maintain a good credit rating just as it is for an individual so that the business can maintain access to capital at attractive terms, even during a credit crunch.
Stay in Corporate Compliance
Forming your business as a legal entity is just the first step to stay in compliance with laws and regulations when starting a business. Once you’ve formed your business, maintaining corporate compliance is essential if you are to continue enjoying the benefits of having created a separate entity, including limited liability and protection of your personal assets. For more details on how to keep up with your ongoing compliance responsibilities after starting a business, read CorpNet CEO Nellie Akalp’s article on Small Business Trends about what’s next after you incorporate your business.
Keeping your personal assets protected is one of the most important benefits of incorporating or forming an LLC. Making sure you comply with the various regulations applicable to your entity and business will help prevent creditors from “piercing the corporate veil” and holding you personally liable for the debts and obligations of the business.
Check out CorpNet’s Corporate Compliance Services for more information on how CorpNet™ can help you manage your business filings and stay in compliance.
Stay in Legal Compliance
Make sure you know and understand the rules and regulations that affect your business and industry. As mentioned above, hiring an attorney with experience in your industry will help you stay aware of your obligations and steer clear of trouble. Don’t assume you can “figure it out on your own.” Often the cheapest and most cost-effective legal advice is the kind you get before you urgently need it. This is just another example of an area where scrimping in the beginning can cost you a lot more later on.
Set up a Recordkeeping and Bookkeeping System
When starting a business, from the time you collect your first customer’s payment, keeping accurate and detailed records and balancing your business’s books is essential to maintaining a profitable and compliant operation. Whether you hire someone to help or decide to do it yourself, you need to create and maintain a proper recordkeeping, bookkeeping and financial management system. While your needs may be simple in this area at the beginning, make sure your system is scalable so that it can accommodate your business as it grows. You don’t want to find yourself having to start over in this area when you become more and more successful.
Every business owner needs to have a strong foundation of financial planning, tax preparation, and legal compliance to make sure your business is done “by the books” and avoid any problems or complications with regulators or the IRS. Taking a few hours before starting a business to get a business bank account, set up a consistent bookkeeping system, and make sure you know about your regulatory compliance obligations can help you save thousands of dollars worth of added costs and hassles in the future.
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Great list here. #1 – Opening a business account is a very important step. You never want to mix your own personal account with your business monies. So many things could go wrong with this and it’s just not proper. Thanks for sharing this useful info with our community.
We actively work with startups and all financial decisions, especially early on in the business formation, are very crucial. Many entrepreneurs have started relying on crowd funding, which is a great alternative, since you receive outside funds without an obligation to repay (versus a bank loan).
One very important issue that is a must when setting up if you have partners is to ensure you have a correctly drawn up legal partnership agreement. It can cause major problems down the line if this important step is missed out!
Another good tip is to offer free advice or consulting to charities or companies that are in the same locality. The more you help them the more business they will refer.
When starting a business over eBay or any other platform such as Amazon, it actually bypasses most of the necessary steps involved with other type of businesses, and that enables the startup to focus mostly on their products and the market when their time is most precious.
I advise all of my start up and novice business owners to reach out and establish banking relationships from the get go. Interview with a commercial loan officer. Find out about the process and what banks are looking for; how they make their decisions. Seek out smaller, regional banks and credit unions. They are much easier to deal with. You’ll find out that its important to have your paperwork and financials organized and together.