Set Up Company Bank Accounts
Once you have officially formed your company and obtained an Employer Identification Number (EIN) from the IRS, you are now ready to open one or more bank accounts. Take your EIN and a copy of your articles of organization/incorporation with you to the bank. These are usually needed to open the bank account.
Obtain Additional Funding
Funding a new business can be one of the biggest challenges for business owners. It can be difficult to obtain a loan for a new business because that business has no history.
Be prepared as the business owner to have to personally guarantee any loan in the beginning. This means that your personal credit score and income history is critical. Even if you are applying for credit in the name of the business, it is really you personally that they are judging the loan upon. After all, your business is new, so what else does the bank have to go on for making a decision.
There are three credit bureaus for obtaining a credit report: Equifax, Experian, and Trans Union. You can also purchase your FICO score from MyFICO and some credit bureaus. The FICO store is a number that ranks your credit-worthiness.
You should strongly consider taking out initial lines of credit before quitting your existing job. The reason is because even if you have great credit, if you have no current income, it will be difficult to get a loan for your new business. Here are some suggestions for how you can obtain funds for your business.
- The US Small Business Administration (SBA) has small business loan programs available. Be prepared to personally guarantee the loan and to spend a lot of time on documentation and paperwork.
- personal loans that you then make to the business from your own lines of credit.
- funding from family and friends
- credit cards
- home equity lines of credit
Obtain Business Credit Cards
Another funding step to consider is obtaining a credit card in the name of the business. Even if you have to personally guarantee the credit card, the benefit is that you start establishing a credit history for the business. Another reason this is valuable is because it helps you keep your personal expenses separated from your business expenses without having to do a lot of expense reports to reimburse yourself.
Accept Credit Cards
The easiest way to accept credit cards payments from your customers online is using Paypal, because you do not need a merchant account or good credit. Another great tool for accepting credit cards on your web site is 1ShoppingCart. If you need a physical machine to process credit cards in person, you will need to apply for an actual merchant account, which is based on your credit-worthiness.
QuickBooks is a business accounting software program that is offered by Intuit. There are various other accounting programs on the market, but this is just one example for you to consider. You should pick the one that you are most comfortable with and that you will be most likely to use.
Set Up Physical Files
Although you will be using an accounting system, you still need to keep your paper files organized. The IRS requires you to maintain your receipts to prove your income and expenses.
Here are some example folders that you should consider creating for storing your files once you (or your bookkeeper) have entered them into an accounting software program:
- Utility Bills
- Bank Statements
- Bank Loans
- Credit Card Statements
- Expense Reports
- Office Supplies
You can also further subdivide these depending on how many different accounts you have, so any one file does not get too large.
Keep Business Records Separate From Personal Records
It might be tempting to pay some of your personal bills from your business checking account, but this is an absolute “No-No”. It is really important that you maintain your personal records separately from your business records.
One reason is because you can lose the protection that you are given by any separate legal entity you formed if you co-mingle your personal assets and your business assets together. In other words, someone could “pierce the corporate veil” and get to your personal assets because you were really just one and the same anyway (at least you acted like it).
Another reason it is important that you maintain your personal records separately from your business records is because it makes it much easier to identify the health of the business. If your house payment is mixed in with your business expenses, it makes it really difficult to see how well the business is actually performing.
Maintain The Records For the Business
Over time, you will need to continue to maintain the business records. This includes the income and expense records, but also includes your official corporate or company minute book, as described in Chapter 2.
If you are ever sued and you have a legal entity that provides any level of personal asset protection, this record book will be one of the first things that gets subpoenaed by the person suing you. They can try to show that you have not really maintained a legitimate entity separate from your personal life, and that you should thus be personally liable for the judgment too (because of the “piercing the corporate veil” idea mentioned above.
Meet Continued Filing Requirements
Over time, you will have various filing requirements that you must meet to keep your business out of trouble with various government agencies. Every business has different requirements depending on the nature of the business and how it operates, but here are some examples of the filing requirements you may have to meet:
- Estimated quarterly income taxes – This is where you pay the IRS and your state revenue department a portion of the income taxes you owe throughout the year. See the end of Chapter 2 for links.
- Payroll tax reports – If you have employees, you must file these (or have your payroll company do so, which is recommended).
- Annual or bi-annual reports with your Secretary of State to maintain your entity in good standing.
- Your annual corporate/entity tax return (in addition to your personal tax return, but with different filing deadlines.)
- Sales tax returns
- And more