Start-Up checklist and discussion.
- Checkpoint #1 - Have you objectively proved out the feasibility of your venture?
- Checkpoint #2 - Entity Selection (Contact dave@davebarnettcpa.com for free consultation)
- Checkpoint #3 - Organizing LLC or Corporation with Secretary of State (free online service available)
- Checkpoint #4 - Federal ID#
- Checkpoint #5 - S Corporation tax election
- Checkpoint #6 - Bank accounts
- Checkpoint #7 - Business License and permits
- Checkpoint #8 - Getting state payroll and sales tax ID#s
- Checkpoint #9 - Business Insurance
- Checkpoint #10- Trademarks, Patents, DBA, and Logo
- Checkpoint #11 - Bookkeeping and Payroll Reporting
- Checkpoint #12 - Income Taxes, Estimating and Filing.
Checkpoint Comments and Discussion:
Checkpoint #1 ? Have
you objectively proved out the feasibility of your venture?
First off, before you get too far down the road on your new
business venture, are you sure your business idea is really feasible? This is
where preparing a business plan can really help. Many prospective business
owners think that a business plan is only needed to raise capital. Or that it
has to be a 3 inch thick $5,000 dollar affair. It doesn?t. Your internal
business plan can be informal and self prepared using many free library and
internet resources. There are free templates and spreadsheets on the site to help you
organize your planning.
The main reason that you should prepare a business plan,
however informal it may be, is that the process of doing so forces you to
consider marketing, production, and financial realities that have to be tackled
before you take the plunge. The
process of producing a plan is just as important, if not more important,
than the finished product.
The business planning process forces you to identify what
makes your business idea special, who needs the product or service you want to
provide, and how you will reach those potential buyers. It also forces you to
figure out the realistic capital needs of the venture and how much sales you will have to generate
in order to make the business feasible. Sometimes prospective business owners
get a sobering reality check when they prepare the projections and find out
that it?s too big of a pay cut from their current situation. Another benefit of going through the planning
process is that you end up with a road map of specific goals and achievements
to work toward. Remember, you?re not just going into this to create another job
for yourself. You want to create a business that can be sold or passed on to
your heirs.
While I encourage everyone with a good product or service
idea and a passion for running their own business to embrace the
entrepreneurial spirit, it?s important to prepare a sober analysis of the
venture first.
If you do need a formal business plan for your banker or
investors, it will be a much easier, and less expensive, process if you?ve
already worked through your in-house, informal plan. Use the business plan
sample templates and spreadsheets as a guide. Remember to use the ?save as?
button to give it a different file name and then edit and adjust to fit your
business.
If you need something more formal that can be used to
prepare bank or investor quality plans I recommend you look at the ?Business
Plan Pro? software here. It retails for $100.00 and includes sample plans from
many industries that can be modified for your specific business. Email for
details on how to get a 100% rebate credit on this software.
For now, let?s assume that you?ve at least gone through the
process of preparing an informal plan and you?re still enthusiastic about your
new venture.
After your
business is up and running you will (I hope) be continuously ?business
planning? your company. This is typically an informal process
where you recalculate your operating profit margins, break-break even point,
marketing strategies, and cash flow projections, as well as your, and your competitor?s, strengths and weaknesses.
One of the services we offer is the
quarterly/annual Business Coach Manager?s Report. This report gives business
owners critical information not included in the standard compilation report
service offered by most CPAs or accountants, by providing a customized plain
language analysis of your financial situation with real time benchmark
comparison to your competitors. This is
the information your successful competitors use to manage their businesses.
Just one more obstacle and then you can begin filing all the
applications and registrations to keep you legal and compliant with the various
federal, state, and local governmental authorities.
Before you file secretary of state documents you have to
decide which legal entity best suites your specific situation.
Checkpoint 2 -
Entity Decision: Sole Proprietor, C or
S Corporation, LLC, or Partnership. (Free consultation available to help in your decision.)
This is a broad overview of the legal entity choices.
The following pros and cons comparison is from the AICPA brochure on
entity selection.
Sole Proprietorship
Pros
? Inexpensive to start and simple to run
? One level of tax on net income
? No separate tax return
Cons
? Unlimited personal liability
? Ownership limited to one person
Partnership
Pros
? Ownership not limited to one person
? One level of tax on net income
? Income and expenses allocation is
unrelated to percentage
of ownership
Cons
? Unlimited personal liability
? Each partner legally responsible for
the business acts of
other partners
? Requires separate tax returns
S Corporation
Pros
? Limited personal liability for shareholders
? One level of tax on net income possible
Cons
? Requires separate tax returns
? Restrictions on adding investors
? Income and expenses must be allocated
according to percentage
of ownership
C Corporation
Pros
? Limited personal liability for shareholders
? Easy to transfer ownership/add investors
? Perpetual continuity presumed
Cons
? More costly to set up and maintain
? Requires separate tax returns
? Net earnings may be double taxed
Limited Liability Company and Limited Partnerships
Pros
? Limited personal liability for members
? All members can participate in management
? Incomeand expenses may be allocated in a
manner unrelated to
percentage of ownership
?LLC can elect C or S Corporation tax treatment
Cons
? Not automatically perpetual like S or C corps
? More costly to set up and
maintain*
*Preceding section from AICPA Brochure
The entity decision is very important and should be made after a
consultation with an advisor who has specific information about your specific
business, your financing or investment structure, and your future plans for the
venture. While most small business owners are using the LLC entity with it?s
options for tax treatment there are some situations where that simply doesn't
work and a regular corporation, C or S, is preferable. Be wary of any advisor who tells
you there's a ?one size fits all? choice. There isn't. See the Business Coach articles on entity
selections for more details.
If you?d like to discuss this
choice with me call or email to set up a free consultation.
Checkpoint -3 ? Filing with the Secretary of State. (We offer free online LLC
or Corporation filing)
If you?ve decided to operate as a sole proprietor or general partnership
you can skip this step. All other entity choices must file articles of
incorporation (corporations) or articles of organization (LLC or LLP) with the Secretary
of State office.
You can go online to the Georgia Secretary of State?s office at www.sos.ga.gov/corporations and view
the pdf instructions and requirements for filing. However, I highly recommend that you use an attorney or
one of the online sites that prepare and file these documents for businesses at
reasonable fees.
We
offer a free online option for LLC formations or incorporations in all 50
states. It is highly recommended that you upgrade to ?silver? option to get the
documentation and help you need. We?ll rebate the extra cost as a credit
against any service fees if you elect to upgrade.
Your bank will require you to
provide the bank account resolution and federal ID# service included in the
silver option in order to open a corporate account.
Sec 1244 Stock - Request that the Section 1244 stock resolution is
included. This allows you and/or your shareholders to write off stock losses as
ordinary losses. Email dave@davebarnettcpa.com
for details.
Public Notice ? Incorporations only. Some incorporation services
handle this for you and include it in their fees. Others may send you the
article for forwarding to the paper, with payment for processing - $45. Make
sure you get this done if it?s not included in the incorporation services.
Checkpoint 4- Federal ID# - Form SS-4.
Checkpoint 5- S Corporation Election ? Form 2553.
(If Applicable) Be sure to look for the ?Notice of
Acceptance as an S Corporation? from the IRS. You?ll need to attach this with
your first income tax return.
Checkpoint 6-Open your business checking account.
Bank will need your federal ID# and corporate resolution authorizing you to open account.
Checkpoint 7- Acquiring business licenses and permits
Check with your City/County for business license and permit requirements. There are also numerous occupations that require licensing from the Secretary of State.
Checkpoint 8- Register with state for payroll and sales tax collection and reporting.
The State of Georgia combines the applications for payroll and sales tax ID#s on one form. If you are unsure about needing to collect and report sales or use taxes, email for clarification. Companies with employees must also register with the Department of Labor for unemployment taxes.
Checkpoint 9 ? Business Insurance.
Don't assume that because you have organized an LLC or Corporation that you won't need business insurance. If you have 3 or more employees you will also be required to carry worker's compensation insurance coverage. Construction industry entities are also required to carry various levels of insurance coverage for licensing.
Checkpoint 10- Protect your brand.
Consult your attorney about filing trademark, patent, DBA, or Logo protection.
Checkpoint 11- Bookkeeping and Payroll Reporting.
I recommend that you have financial
statements prepared at least quarterly and if you have employees it?s required
that you track payroll and make deposits on a monthly basis. According to a CNN
article the #1 business killer is ?sloppy accounting?. If you don?t have an in-house
bookkeeper available call us for assistance setting up an appropriate
and affordable accounting system for you. It?s important that you also understand the
financial statements, how to use them to manage your business, and how your
banker uses them.
Make sure that YOU, the business owner, open and review your bank
statement promptly every month. Ask for clarification of any suspicious items
or charges. This is your first line of defense against fraud.
Checkpoint #12- Business Income Tax Filing and Estimates.
Have your CPA prepare a quarterly tax estimate schedule. This is
another reason to have financial statements prepared at least quarterly. Get
your CPA involved during the year to keep from having an April 15 sticker
shock.
While we?re on the subject, here are other essentials that you should request from your CPA.
1. Monthly or quarterly review of financial statements. Prepare income
tax estimate payments. If you rely on an in-house bookkeeper, or if you
outsource you accounting, ask your CPA to review your internal controls and
cash accounts periodically to guard against fraud. If you?re using Quickbooks, request a quarterly or yearly ?cleanup? service to
correct coding and clean up your chart of accounts.
2. At least annually have your CPA prepare an industry benchmark comparison
profitability review report which identifies areas your business may be losing
money or under-performing relative to your same size industry competitors. This
is also a good time to recalculate working capital changes, profit margins,
break-even point, and get a cash flow analysis. This is the ?Business Coach Manager?s Report?
we prepare for clients.
3. Preparation of your business and individual income tax returns.
4. Year-round access for phone or email questions on taxes or
financial matters.
Don't wait until tax time to contact your CPA. Only through year-round involvement in your strategic and tax planning can your advisor help you grow your business and minimize your tax liability.
Questions or comments? Email dave@davebarnettcpa.com
