Starting a new business?
Here are several questions we are often asked about startups, along with our answers, provided to assist you as you launch your new business.
- Do I need a city business license?
- Do I have to register with the
IRS and state? - Do I need accounting software, and if so what kind?
- How do I set up my books?
- Where can I go for advice and counsel about my business?
- How much money do I need for this business?
- What kind of banking relationship should I have?
- Should I incorporate my business?
Do I need a city business license?
Yes, even if you are starting a home based business, you must contact your local city hall and obtain a license to do business within the city limits. There is generally a small annual fee associated with the business license, typically the fee is based on the amount of revenues you bring in over a year's time. Contact your local city hall for details and application forms.
Do I have to register with the IRS and state?
Generally the answer is yes, but it depends on the type of entity your business is operating as. A sole proprietor, or single member LLC, with no employees can operate using his or her social security number. But if that same sole proprietor hires employees, a Federal employer identification number (EIN) will be required, along with a California Employment Development Department (EDD) account number. A corporation, or LLC with more than one member, must also obtain the Federal EIN and California EDD account number.
Do I need accounting software, and if so, what kind?
The need for software depends on the size your business, time available and comfort level with computers. Many of our clients still use a check book, and provide us with their check register and bank statement each month. From there we take over the bookkeeping in house and maintain the accounting and tax books and records. Other clients use software as a computerized check book (such as Quicken) and similarly provide us with their monthly activity, which we use to create accounting ledgers and books of record. And of course, some clients use a professional accounting software, such as QuickBooks or Peachtree.
If all you want to do is track money coming in and money going out, you can use the old fashioned manual system or basic software like Quicken. If you are comfortable with computers, have some more time on your hands and feel adventurous, use something like QuickBooks. As you can see, this is a somewhat complicated and important decision. Feel free to contact us to discuss your particular circumstances.
How do I set up my books?
The key to setting up your books is the chart of accounts. You will want to use income and expense categories which will help you with your business decision making as you track the amount of money flowing through each category. But be careful, too many categories can be unproductive, resulting in a long list of expense items that lose importance. We have a standard chart of accounts that you may download to use as a starting point. [download chart]
Where can I go for advice and counsel?
There are a number of sources of good information, some of which are free. A couple of excellent free resources include:
- www.score.com – SCORE (Service Core of Retired Executives)
- www.entrepreneur.com - This site is under the umbrella of the magazine of the same name, but it is advertising supported and therefore contains a lot of free information
- Also, don't hesitate to contact us, our first consultation is free of charge
For a small investment there are many excellent books available. We often recommend:
- The Emyth Revisited by Michael Gerber
- Good to Great by Jim Collins
- The One Minute Entrepreneur by Jim Blanchard
- Entrepreneur's Notebook by Steven K Gold
If you have the financial resources, there are paid service providers who can help you:
- Business attorneys
- Business Coaches
- Support organizations such as “The Alternative Board” or local trade organizations
How much money do I need for this business?
There is no simple answer to this question because so many variables are at play. Many startups simply get started on a modest budget and hope for the best. This can work, but it is risky. Most businesses do not turn a profit in the first year of operation. Accordingly it makes sense to have enough cash on hand to cover at least twelve months of operations. But again, this is just an estimate based on the averages. Contact us if you wish to discuss this in more detail.
What kind of banking relationship should I have?
We typically recommend that you choose a large bank, such as Wells Fargo, Bank of America or US Bank. The large banks tend to have strong technology platforms and online banking capabilities, along with the ability to download your banking transactions to assist with your bookkeeping. They are also accessible, with many branches and ATMs to choose from in and out of your area.
In addition, the larger banks will offer other products that may be useful, such as lines of credit, SBA financing, the ability to invest idle cash in overnight paper, and so on.
The challenge with using a large bank is that bank personnel tend to move among branches from time to time as they take on other positions in the organization. This can be frustrating, because the person with whom you have developed a relationship may be moved after a period of months or years. The reality is, however, that most banking matters can be handled by any banker with proper training.
By the way, we find that the movement of personnel also occurs in the smaller banks, so it is not necessarily true that you will find more personalized service at a local or regional bank.
Should I incorporate my business?
This is a complicated question, which has both legal and tax implications. While we can't provide you with legal advice, there may be good reasons to incorporate from a tax perspective, depending on your business objectives, size of your business and other circumstances. This question is best answered with a personal conversation. Please contact us if you wish to discuss this further.