Many new business owners start with good intentions. Entrepreneurs typically have great business ideas, potential customer lists and sometimes even adequate funding to get their company off the ground. But before the first sales are generated, office space is chosen and the doors are open, they need to ensure their accounting processes are in place to capitalize on all their hard work and investment.
10 Steps towards setting up a successful business
1. Setup a Budget - Although a budget can sound restrictive it can actually prove to be freeing and a great management tool to help you identify possible income and expense areas that you haven’t thought of. Using industry comparisons as benchmarks for developing your budget can be a great value. Keep in mind benchmarks are just a starting point as your company will have unique features to consider. Sample benchmarks can be found at: www.bizstats.com
2. Apply for Federal and State ID numbers–To establish your new company with the Internal Revenue Service and local State authorities you need to apply for the appropriate identification numbers. Most authorities require completing a simple form and most can be done online or via phone for a quicker response. These applications can be found at:
- Federal -www.irs.gov/pub/irs-pdf/fss4.pdf
- Kansas -www.ksrevenue.org/pdf/forms/cr16.pdf
- Missouri -www.dor.mo.gov/tax/business/register/forms/2643f.pdf
3. Incorporate - Whether you choose the S corporation, C Corporation, or LLC, setting up a corporation for your business gives you a layer of liability protection. This extra layer of protection can protect business claims from getting through to your personal assets. If using an attorney, a basic for-profit corporation setup should typically cost $500-$1,000.
4. Shop for your business bank account– All banks are not alike. Many banks offer no cost accounts or free online checking. Remember a good relationship with your banker can help you when it comes to borrowing needs down the road.
5. Choose appropriate accounting software – There are a number of software choices for tracking your bookkeeping and accounting. Your industry may dictate the software required but many small and mid-size companies can easily and efficiently use off the shelf product QuickBooks by Intuit www.quickbooks.com.
6. Invoice for your work –In the midst of getting your company up and running, don’t forget to invoice your customers for the work that you are performing for them. This may sound like a no brainier but many business owners have learned this the hard way. Consistent invoicing will help with consistent cash flow.
7. Reconcile your bank account - Reconciling monthly can catch mistakes made by both you and your bank. It can also alert you to fraudulent activity regarding your account. If setup properly, many of the accounting software packages make the reconciliation process a fairly easy task.
8. Compare actual income and expenses to your budget - – Once you are up and running, compare your actual sales and expenses to your budget. Identify areas that are not inline. Consider whether you need to adjust your budget or focus on your sales and spending.
9. Review your company financial statements consistently - Each business should produce, at a minimum, a quarterly Balance Sheet and a quarterly Income (profit and loss) Statement. The Balance Sheet should reflect what you own (cash, accounts receivable, equipment, building, etc.), what you owe (payables, loans, etc.), and your equity (money you have put into the company). The Income Statement should reflect your sales, cost of goods sold, expenses and your profit or loss for that period of time.
10. Develop a mentor or advisory board– Many business owners feel like they are on their own when it comes to business challenges. Look for strategic alliances with other business owners or advisors. In Kansas City, the Kauffman Foundation www.kauffman.org is a great resource for building your advisory team. Remember don’t be afraid to ask questions.