Starting a new business can be both exciting and challenging. Exciting because you’re doing things on your own without a boss. Challenging because there are many things you have to know before you start a business. I’m sure you have heard that very few businesses succeed at staying in business for more than 5 years. Sometimes that is because people who went into business did not really want to be doing things for themselves, they just felt like they had no other choice because of their situation. Other times it is because a person (or group of people) starts a business but really doesn’t know everything that it takes and things just build up to the point they just don’t want to have anymore of the “headaches.” Unfortunately, many of these business people probably could have avoided their “headaches” if they had really pre-planned how their businesses would function and what it would look like when it was functioning well. It takes having a Solution mindset. Defining the solution your business provides to your customer is a key element. It takes communicating that to those who need to hear it and being able to follow through with your promised solution. Some people won’t even take the leap because of all of the negative things they hear about “being your own boss.” I just want to remind you that they are not cut from the same cloth you are and I know you can do it!!
Here are the steps I found relevant as we were starting our business venture, Soluorient.
The first task you have is to figure out what you are going to call the business. I had to decide whether I was just going to use my own name or use a Ficticious business name. Using a dba (Doing Business As) can be kind of cool because it can eventually have it’s own identity and logo and potentially be trademarked. However, if it really isn’t something people can identify your company with, they may not use it. They also may not even think of the business name if you’re the only one doing the work with them. Since I knew I would be working with a team of people with the same vision “To provide businesses the solutions for their accounting needs.” I knew a fictitious name would create an identity we could all stand behind. The name we chose for this business Soluorient really does embody our vision but has a couple of issues. The first is, how to pronounce it. Many of our clients get stuck on the “uo” part of the name. Once we say it out loud to them “Sol-or-ient” there is no problem. Then, there is the meaning. The word Soluorient is not a real word. Many clients wonder what the meaning is. Well, since we work from a solutions approach. We believe that the statement that we are “Solutions Oriented Accountants” is clearly stated with Soluorient. It gives us the opportunity to discuss this approach with our clients and help them see the difference in how we work with them. Hopefully you can find a name you can stand behind too. If you do go with a fictitious name, you will have to file a fictitious name filing with your county recorder. This filing needs to be done first before you get your business license or bank account. You will also have another stage of this step. Publication of the fictitious name and there are many news publications which will take care of this for you. You will just have to select one. I recommend you select them by cost as some of the papers charge quite a lot and the real requirement doesn’t stipulate how many readers have to see your public notice. Just that it has to be made public for a period of time.
The Second Task is to file for a Federal ID number, sometimes referred to as a Federal Employer ID Number. You want to ensure that even if you do not have employees, people do not report your business income under your social security number directly as passing this number around to too many people is not a good idea. The IRS issues the Federal ID number even if it is to sole proprietorships with an individual’s name and it is a very quick process which can be done online.
The Third Step is to file for a resale number if you are selling anything. You actually need to have one even if you wholesale your goods. This can be done at your local State Board of Equalization office and some states allow you to file online. When you file for this number they will tell you the frequency of your reporting which usually is monthly, quarterly, annual. Having a good bookkeeper (like those that work on our team), and using a good tracking software like Quickbooks or Xero, will make this filing process very easy. Please also note that each state has “Nexxus” laws which tell you what they define as sales within their borders and taxable sales. If you are selling across borders you will need to understand each state’s requirements. There are tracking software for this and there are also websites that can tell you all of the different requirements for each state. It is very important to be on top of this. You don’t want to be non-compliant in a state and be charged any of their fines or penalties for not following their requirements.
The Fourth Step is to obtain a business license. Each city you operate in requires you to have a license and they all want to know your contractor’s license number if you are a contractor, have proof of your Fictitious Name filing if you did one, they will also ask for your Federal ID Number and Resale Number. This can become cumbersome if you are a contractor who works in many cities. Some of the larger cities actually allow you to file for your license online and pay your renewals online others will require you to go into their City Hall and pay for the license. Please note that one city will be your main hub where you do your administrative work as well as work with clients or customers. That city will require you to report 100% of your gross income and may also have vehicle and employee fees that they add to your license. The other cities will generally only want to know the revenue you generate in their city. You will need to obtain this license before you actually start doing business so that you can open a business bank account. Please be careful, do not think that you will be able to get away without filing for one. Once a city figures out you have operated in their city without one, they penalize you VERY heavily for any prior unfiled years. Definitely not fun. The city of Los Angeles and some other larger cities also have unique exceptions for certain types of businesses and lower levels of income may not be taxed if the license is filed timely. So, it is really important that you make sure you file for the license to avoid any penalties and potentially avoid having to pay fees at all, because you qualify for the lower income level.
The Fifth step is to decide what type of entity your business should be. In my next blog I am going to discuss the new tax law changes and how that should affect your entity choice. If you decide to incorporate your business or form an LLC, you will need to have the stamped documents from the Secretary of State of the state you have formed your entity in. These will have the entity ID number and the date of formation stamped on them and that will be important for the bank to have when opening the account. You will also need a copy of the signed minutes which shows the election of the officers or members (of LLC) that have authorized the opening of the bank account and who the signers will be on the account unless you can prove you are the only owner which would be clear on your initial statement of information filing.
The Sixth Step is to open a business bank account in the name of the business. Even if the name of the business is your own name, you need to have a business license and EIN to open a business account. If you also formed a dba, you will need a copy of the stamped fictitious name filing. If you formed a corporation or LLC then you will also need the stamped articles and the bank account minutes authorization. Bringing all of these items to the bank with you, along with an amount for your first deposit, will make the opening of your account go smoothly.
The Seventh Step is probably going to be your most difficult and personal. You really need to assess what it’s going to take to do this business. You need to decide on your administrative location (home can be nice at first but what if you grow out of it?), how much manpower it is going to take even if it is only you, any new equipment you need or finances you will need? Very few businesses can start with zero capital and grow quickly enough to support the people working in them. I encourage you to really take time to put down every potential cost and step that you and your staff are going to have. This will help you see if you need some capital and to schedule out services that you obtain based on when you will get the funding. Soluorient works with clients regularly to identify these things and help them create their plan and processes and identify any additional outside services that might be necessary to make their vision a reality. It is good if you do much of this yourself because you will own the results but it is also nice to have a consultant who can ask all the right questions to stimulate your thinking. You will find that accountability is the key to helping you achieve your goals. Knowing that someone is going to check in with you regularly will help you accomplish great things.
The Eighth and Final Step. Before life gets too crazy with how much work you will be bringing in, you need to formulate your business processes and incorporate the use of a business bookkeeping and a client management software like Insightly, Quickbooks or Xero. Technology has become so integrated that you can create invoices, receive payments from customers, pay your vendors, look up customer contact information, review your notes on a customer, track projects, create an estimate and upload receipts to your transactions on the go, all while syncing them with your banking activity. You will definitely need a strong bookkeeper committed to your success and who knows what the end result should look like. This person can fine tune your transactions so that your bank account is reconciling and your payments are all posting properly. Using a good software will make your life much easier while you work on your business instead of in it. Having a team like Soluorient to help you with the required filings, fine tuning your bookkeeping and assisting you with cash flow tracking for your business will make sure you are always in the strongest position possible.
All of this may seem a little overwhelming, but if you follow these steps, we are sure you will have a strong thriving business and be aware of any changes necessary when the time comes.
We here at Soluorient wish you all the best!