Should I Wait Until I am Making Money to Set Up a Business?
Sep 19, 2022When you're first starting out as a business owner, it can be tough to know when and how to set up the structural elements of your business. Do you wait until you're making money? What about establishing a bank account and getting an LLC? In this blog post, we'll discuss some of the key things you should be doing as soon as you decide to start a business.
One of the most important things you can do when starting a business is to establish a clear separation between your personal and business finances. This will help you stay organized and compliant, and it will make it easier to track your income and expenses. Use your own money to fund a bank account for your business and start using that account for all business transactions as soon as possible. You don't need to wait until the business is earning revenue since, when you do, it needs a place to go.
You should also consider the type of business entity that makes sense for you. Each could have different legal an tax consequences. You can also start as a sole proprietor and not register an entity at the state level yet if you would like. In some states, starting an LLC can cost upwards of $800 per year (CA) and it could make sense to wait until the business is income-generating before committing. If you have assets to protect, however, consult with a lawyer to get legal advice.
Speaking of legal, it is never too soon to have solid contracts in place for your business. You don't need to be making a certain amount of money to build the systems to protect it. I recommend the Legalpreneur for contract templates and bundles.
If you have an e-commerce business or are selling online, you'll also want to consider how you will collect payments from customers. There are a number of options out there, and the right one for you will depend on your business model. You may want to take credit cards, so you will have to set up a payment processor or invoicing platform. You want to create as few barriers as possible from people paying you and paying on time.
Finally, it's important to have a method for tracking your income and expenses from day one. This will help you stay on top of your finances and make filing your taxes a breeze come tax season. There are a number of accounting software programs out there, so find one that works for you and your business. We use QuickBooks Online with our clients.
All of these elements should be done as soon as possible in a new business to set you up for success. It is much harder to implement these the further along you are in business so it is never too soon to set these things up.
