Business Startup Checklist

Avoid trouble as you launch your new business

by Peter Girolamo, C.P.A., M.B.A.

Congratulations on your decision to go into business. If you’re like most entrepreneurs, you’ve probably thought out every detail of your business operations, you feel ready to go, but still just a bit hesitant. There are a lot of unknowns when you start a company, and as ready as you feel, you also feel like anything could happen.

At my CPA firm we’ve seen this many times. My practice is targeted toward small business and the small business owner, so I have had a front row seat for the good, bad and ugly. I’ve put together this checklist of items for you, based on actual situations that seem to occur over and over with startups. Hopefully this information will help you to avoid some of the problems that other new business owners have had to overcome.

The most important thing is to have a plan

Please get the idea of a full blown, multiple page, multiple exhibit, colorful graphic business plan out of your head. Most of the small businesses I know don’t use one and don’t need one.

I wouldn’t say that if you’re going for venture capital type financing. That’s not the kind of small business I’m talking about. My clients are typically regular folks who are ready to leave the world of being an employee and want to make a go of it on their own. They pull financing from anywhere they can, equity in the house, loans from family and friends, savings, or just pulling themselves up by their bootstraps.

Please understand, a business plan is extremely important. What I am arguing is not that you can do without a plan, but rather that the plan can be informal. Informal implies flexible, and in a startup situation things change quickly. Flexibility is important.

I recommend that you give careful thought to the following:

  • Where the startup capital will come from
  • What your up front and ongoing costs will be to run the business
  • How long you will need to fund the business before it becomes profitable
  • How you will market the business and the cost to do so
  • How others in the same business are operating, identifying their best and worst practices
  • What could go wrong, and what you will do when that happens

It would be helpful to write this all down, although many entrepreneurs keep this in their head and don’t commit to paper. Do what you are comfortable with, but be sure to consider the knowns and the unknowns as you proceed. As your business grows, you will find value in a more formal business plan, but take it a step at a time.

Have a conversation with a CPA and attorney

Business is complicated. It is impossible to know everything about running a business, but an accounting, tax or legal professional can alert you to areas you may not be aware of. The best time to do this is before you formally open for business. I suspect you will find this to be a very useful experience. Also, by meeting with a professional you will have begun the process of establishing a relationship that you can rely on as your business grows.

Choose your entity

Your entity is the organizational structure you choose for legal and tax purposes. The most common are sole proprietor, partnership, corporation or LLC (Limited Liability Company). At the early stages of business I very frequently recommend the sole proprietor structure for a single owner business, or a partnership if there is more than one owner. These entity forms are simple and quick to set up, and not as costly as a corporation or LLC.

There could be tax advantages to the corporate or LLC structure, but most businesses don’t make a profit in the early stages, so the tax advantages are less important. It is a good idea to revisit the question of entity choice after your business has reached a solid plateau because your company’s situation and needs could have changed. Also, please be sure that you have adequate insurance, and consult with a CPA and attorney as your particular business could have specific needs.

Register your business name in various places

You will want to reserve and protect your business name since it will become your identity to the public:

  • Register your fictitious business name, commonly referred to your “DBA” (Doing Business As) with your county, if necessary.
  • Obtain a web domain name (also called URL or uniform resource locator) and email addresses. There are many companies who can help you with this, such as Yahoo, Go Daddy or Network Solutions
  • Obtain a taxpayer ID number from the Internal Revenue Service (this may not be necessary if you have no employees and are operating as a sole proprietor)
  • Obtain state ID numbers if you have employees
  • Obtain a sales tax seller’s permit from your state
  • Obtain city and/or county business licenses, if necessary
  • Your particular business could require other licenses and permits specific to the type of business you have. You can find out by contacting your secretary of state, state licensing board, state small business commission and/or the chamber of commerce.

Set up your bookkeeping system

It is critical that you track money in and money out on a timely basis, even before you formally open for business. This is your feedback on how your business is doing and the raw material you use when you make business decisions.

It is best to track income and expenses in categories that make sense for your business. If you are comfortable with computers, use a program such as quicken, quickbooks or peachtree. Or you can give your check register, credit card statements and bank statements to a firm like mine to keep track of your money for you. That way you have a set of eyes looking at your finances even if you don’t have the time to do so.

Either way, look at your financial results frequently, preferably monthly, to see how your business is doing and whether you need to make changes based on the numbers. A good CPA can walk you through the numbers so you know what is important to focus on.

Hire a payroll service if you have employees

Most business owners find the payroll process fraught with headaches. There are hours to track, taxes to calculate, deadlines for paying in taxes, deadlines for filing tax forms, workers comp audits, and so on. Outsourcing payroll to a local payroll service company or to your CPA can be very inexpensive. At my CPA firm we have a separate division that handles just payroll. In addition to our bookkeeping clients, we have many payroll only clients. Payroll outsourcing could be one of the best value choices a new business owner can make.

Obtain adequate insurance

In business things can go wrong, mistakes can be made and accidents can happen. Life is not perfect, and that statement is especially true in the business world. Consult an insurance agent familiar with the needs of small business. Be sure to consider general liability insurance, and professional liability insurance if you are a professional. You may need other types of insurance, such as vehicle, property, malpractice, product liability, workers compensation and errors & omissions, to name the most common. You can see this can be a complicated area, but very important.

Make sure you are adequately capitalized

The chances of making enough money for a business to support itself are very low in the early stages of a new business. Yet, there are expenses and wages that need to be paid, investments in plant and equipment, and other fees that must be paid. It is rare that a business can “bootstrap” itself to success, starting with no money.

There is no magic number or formula that will tell you exactly how much business startup capital is adequate. This is a good conversation to have with your CPA. But as a rough guideline, you are best to calculate and estimate your expenses to start and run the business for the first year, and assume your startup capital must be at least that total amount. Then determine how you will obtain that financing, whether from savings, borrowing on your house, loans from family or friends, outside investors, bank financing, leasing of equipment and so on. You may need to draw on a number of these sources to make your business fly. Be sure that you consider interest payments in your budget if you are borrowing funds.

If you have any questions or need to speak with a CPA, feel free to contact us.

Peter Girolamo, CPA specializes in bookkeeping, payroll, tax services and related advice for small businesses and their owners. His office is located in Thousand Oaks California, but he serves clients in several states. Peter can be reached or by phone at 805-778-9277.