#1: START SMART IN YOUR BUSINESS

New to small business ownership or thinking of starting a business? This episode focuses on 5 key decisions and actions that new entrepreneurs are faced with. If you're new to business and at the very beginning stages, it's likely you've had a whole bunch of questions pop up and you're feeling a bit overwhelmed by it all. What type of business entity do I need? What financial tools do I need to manage my business? And who do I need to think about hiring as I start my business?  

There is a free resource along with today’s episode to help keep you on track as you start your entrepreneurial adventures: The Start Smart Checklist for New Entrepreneurs. Just click the link below! https://www.financiallyadjusted.com/startsmart 

We cover 5 key decisions/actions in today’s episode. These are choosing an entity type, documenting your costs in the beginning stages, budgeting, any financial tools and systems you might need to set up, and professionals you might need to hire from the start.

 There’s a lot to think about in the beginning stages of business, but this breakdown should start you off on solid ground! Be sure to check out some of my affiliate links below related to today’s episode.  

ADP: This is a fantastic payroll company that I recommend. I use this in my business and recommend it to clients.
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 Complete Business Group: This is a company/3rd party that offers QuickBooks products at a much better discounted price than if you just purchased directly from QuickBooks online.
https://completebusinessgroup.com/leading-ledger-bookkeeping-llc/ 

Capital One Spark card: If you have healthy behaviors around spending with a credit card, this is a great one to use and earn cash back. It also links up well with QuickBooks Online. If you have unhealthy spending habits with credit cards, please avoid using one! You need to be able to pay it off monthly and not carry a balance. I use this one for my business and it makes paying bills simple.
https://i.capitalone.com/Jnub3fUEX

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Disclaimer: This content is for educational and informational purposes only. Please consult with an accounting professional for direct advice based on your specific business situation.

Transcript

Hello there and welcome to Financially Adjusted.

This is Leslie Roth, and I am really glad you're here with me today. Today's episode is one that is geared toward the new entrepreneur, someone who's getting ready to start a business in 2024 and has all the questions associated with that.

So, if you're new to business or you are just at the very beginning stages, it's likely you've had a whole bunch of questions pop up as far as: “What type of business am I starting?”, “What tools do I need to use to manage everything?”, and “Who do I need to think about talking to to get some help?”. So, we're gonna cover all of that. What I think are the most important key actions and decisions that you can make in the beginning stages are the ones I'm gonna be talking about today. So, I've come up 5 key actions or decisions that I wanna talk aboutand we'll just dive right in. 

The first one is gonna be your entity type. This is going to be probably the first question that popped in your mind most likely and will be one of the first things that you need to do in your business. And really, it's the first step because when you move forward and you try to operate in your business whether it's getting a bank account, or whatever, you are going to want to have your entity worked out. If you are starting a business that is really simple…it's just a side hustle... and you're not quite sure how things are gonna go. You don't have to go out and get an LLC necessarily. I think that's most people's question is “Do I need an LLC to operate?” and the answer is no. You can simply operate a business with just your Social Security number. So, if you are one person in ownership of a business, you don't necessarily need an LLC. You can just file your taxes using your Social Security number. You're gonna file your personal tax and there's a schedule that goes along with those taxes that has all of your business information on there. And that actually goes for if you have an LLC as well. So, you can also file a DBA if it's just you and you don't wanna get an LLC, but you wanna operate under a different name than is just your first name and your last name. You can use a tool like legalzoom.com. That's what I did to start my business and it's super easy to use. They might only charge like hundred bucks or something like that for a DBA. So, basically you're just filing a “doing business as’…whatever the name of your business is. That's super simple and straightforward. And it can be a really great way to start out from the beginning. Low cost and easy until you see how things are going.

As far as an LLC, if you haven't heard of that it's a limited liability company, and It is a legal entity that allows you to separate your personal assets from your business assets. The reason that anybody would wanna get an LLC is really just for legal protection so that if you would happen to get sued in your business they can't come after all of your personal assets. They would only be able to sue for what you have in your business as far as assets. So, there's some protection there which can be helpful just depending on the type of business that you have. If it's something that you are concerned about, and you do want to get an LLC, you can also use a legal zoom kind of service online to do that. It’ll be a few hundred colors, and you can easily file that and get that in place. If you are a partnership, you're gonna want to likely speak with a legal professional just so you can get your partnership set up in a way that allows you guys to have clear boundaries and clear expectations. So, one thing that I think is the most important with a partnership is really fleshing out if you’re 50/50 partners, 60/40 partners. If you have more than two partners, then you have exactly on paper how much ownership each person has in that business and it's clearly stated. And if you have an agreed upon amount that you guys will take from the business when it starts earning revenue., then you need to make that clear so that everybody's on the same page and it's in writing, just in case anything would happen down the road. A lot of times with partnerships, it's really good on paper like you think it sounds really good to be in partnership with some and maybe things go south down the road, and you're really going to be thankful that you had that in place. And even if it doesn't (it could be a great um relationship that you have), I feel like it just keeps that relationship healthy to have it clearly laid out with all the expectations and how things are gonna go between the partners. So, chances are if you're doing a partnership, you're gonna be forming an LLC. You can also talk to your legal professional about setting that up for you. They can do a partnership agreement and then they could do the LLC for you. I am definitely not a legal professional so today you're not getting legal advice at all I'm just giving you some basic guidelines of how to start your business and what you might need to think about.

So, moving on to S-corporations. I don't know if you've ever heard of an s corporation, but a lot of people think that this is also a legal entity but it's actually not. This is going to be a tax election. If you've set your company up so that you're an LLC. It's much easier to turn into an s corporation down the road. You would actually say you have an LLC and you're taxed as an s corporation. The S Corp is just a tax designation. And the reason that people do an s corporation is to save on payroll taxes and that is something you’re gonna need to discuss with your CPA or your tax professional to see if that's right for you from the start. Some businesses it definitely would be. If you know you're gonna have a substantial enough amount of profit, then you're gonna save money in taxes. But if you're just starting small and you're starting from scratch, it’s very likely that this will not fall under the category of entity that you want. So, a sole proprietor, is what we talk about first operating as an LLC or operating as a person under their Social Security number. Or as a DBA. If you're just one person operating a business, the term is usually sole proprietor. You can be a sole prop operating under your Social Security number or you can be a sole prop with an LLC. There are a few different ways you have probably heard that talked about. But do what's smart for you and your business. Every person's unique and every business is unique. It's always good to consult with a tax professional and possibly a lawyer when you're starting out. So, the second key action item, or decision, is going to be startup costs. Whenever you're getting your business off the ground there's a good chance that you're gonna have some associated with that, and you're not gonna have generated any money in your business yet to pay for it. So, if you're using personal funds, you are especially going to want to account for those and get that deduction. My suggestion is that for every single purchase that you make keep a spreadsheet in Google Sheet or Excel, and write down the date the amount the vendor that you paid and the business description. This is gonna be super important moving forward because you're gonna wanna get those deductions. And if you haven't started your entity yet, they're gonna be kind of lumped as a whole and be called organizational costs, and your CPA tax professional can deduct those and depreciate those over time. So, definitely keep track of them and keep your receipts. And make sure that you're not losing that deduction. Because even if your business isn't profitable from the start, if you're only taking a loss, they're still gonna count and help you to reduce your income that you're paying taxes on. So say you still are in a w2 job or your spouse maybe has W2 employment you can take that loss from your business and it can offset your taxable income and lower that so you owe less taxes. So don't think that it's not important. It really is. And as far as saving your receipts, I find that it's very helpful to save them in one folder, whether it's Dropbox or Google Drive just have them in one place where you know exactly where to go and find them. And set up a folder labeled receipts and invoices or just receipts and then have a folder for the year and have a folder for a month so that you can easily find things if you need them. 

Number three in our key actions and decisions is budgeting. It's super super important especially in the beginning and moving forward in your business to have a budget. And as far as your personal side I think it's smart to start with a personal budget and really honing in on what your unique situation is personally. Let's say you're single and you're starting a business and you still have a w2 job, you're gonna wanna make sure that if you want this new business to be your livelihood someday that you are really measuring what it's gonna take to get there. And then if you have a spouse you're gonna want to talk to them about your new business adventure and what does that look like for costs that are coming out of your pockets. Either way, no matter what your situation is you first wanna evaluate your personal situation. 

Make sure you have the cost to cover the business and starting it up. And then moving forward, have some projections. They can be really simple. You can just even write this down on a note pad, but you can look different scenarios of revenue that you might bring in and what does that look like as far as costs go in the business. Could you break even or turn a profit because that's all gonna flow also into your personal budget down the road. If you want to make your business full time and your livelihood, you're especially going to want to look at this closely. As far as a tool to use for budgeting, Every Dollar is Dave Ramsey and his team's app that they put together. It's free and you can pay for a version which allows you to link up your bank accounts, but it's totally free and I really like the free version. The paid version is nice too and if that benefits you go for it. I had it for a little while and I just found that I don't need it any more I just kind of plug my transactions in, but they would automatically come in with your bank account if you had the paid version. And then you just drag them to whatever category, but I find that the app on my phone is really helpful as well as on my desktop on my browser. It works really well and then one thing that's been super helpful is my husband and, we budget and we're on the same page, and so we each can pull up the on our phone and look at it. And if we have a monthly budgeting meeting, we can both have it open on our phones, and we can both look at it at any point in time. So, I highly highly recommend that I know some other ones that people have talked highly about or spoken highly about is Nerd wallet has an app that supposed to be pretty user friendly and YNAB It's y-n-a-b, You need a budget. I do believe that they might both be paid. So, if you find that Every Dollar isn't one that you like you can maybe try those out. But I know for sure that Every Dollar is free and it's very user friendly as far as I'm concerned. And I've been using it for years now. So, as far as a tracking tool… if you really don't want an app, you don't have to do that. You can just go with a spreadsheet; you know Google sheet and Excel sheet…if you truly wanna go old school you can do that and just grab a notebook and write down each month's budget. But I find that it's super easy once you get used to using an app just to be able to grab that and see it on your phone and plug in transaction whenever.

So, the first thing you do is with your personal budget. Take a look at how much you're bringing in currently and how much do you need to live on, and if you need to live minimally for a little while maybe fine tune your budget just while you're getting off the ground with your business.  And cut costs temporarily so that you can make this happen. Until you start generating some revenue. But I think it's super important to nail down that personal budget because then you know where you stand as far as being able to fund…and being able to get by timing wise. You’ll know how long you have until you really need to start making money. With your the business side, it's gonna be a little harder at first because you don't know what you're gonna be making and that's gonna vary and you're not sure how long it's gonna be before you start turning a profit. But you can kind of guess I mean just look maybe at what some other people in your industry are doing when they first start out. Let's say you're a fitness coach you're gonna have like a couple people that you know of. Well, you know what you're gonna charge them. So, you have a pretty good guess of what you're gonna be making and what your costs are gonna be so you can form a budget that is pretty realistic. And it can be hard if you really don't have clients yet or you don't have any idea of who's buying your products or what it is you're selling and if it’s gonna take off. So just do your best guessing and then you know, projecting out, okay based on if I sell this much product or if I get this many clients, I will make this. Just so you have a realistic idea of how much your profit could potentially be and how much it costs. So, I like to say, your budget is your financial GPS. It’s going to be your roadmap to navigate you to your goals. You may just have a side hustle where you're like hey whatever comes in is just kind of gravy on my lifestyle. If you’re doing it for fun and you don't want to get that crazy with it, it's still a good idea just to jot things down in a budget just so you have an idea of what's going on and you can track it. But if you want your business to be your livelihood, this is going to help you map out your goals. So, let's say you have a goal that in six months you wanna be turning a profit of a few thousand dollars a month so you want that two thousand dollars to be in your pocket in six months. You can map out your goals and say okay well I need to sell this much product and I need to have this many clients sign on in order to make that happen. And then when you have it down and those solid numbers are in your budget you can look at it and have a clear picture of where you're going and what you need to do to get there.

One other thing that I suggest doing is taking a look at your business plan and does it require you going into debt. So as far as that goes, I do not recommend going into debt. If you know that it's just a very minimal amount and you can easily pay that back, not as concerning. But I really think that that starts you off on the wrong foot, and you've you're kind of starting off on a shaky financial footing. That adds even more stress and pressure to a new business. And you don't want that to dampen your spirit whenever you're trying to get going. So, if you do have to go into a little bit of debt, then have a plan work that into your budget have that repayment plan worked out and have a clear picture of how long it could take to pay that off.

And one thing you also need to think about is: can you cover it personally? If the business doesn't work out, is that going to strap you with a bunch of debt? Because it all flows through into your personal expenses. So, you just wanna make sure that you're being smart about that and you're considering what that looks like for you. I highly recommend avoiding debt at all costs. I work with chiropractors a lot. Say you're a chiropractor and you're buying a practice and you really know that if you buy a certain piece of equipment, you're gonna get an ROI on that very quickly and you're gonna be able to pay that off very quickly because you have an idea of the profit you're gonna turn from this practice, then it might not be as concerning. But you still want to project that out. You still want to make sure you have a plan for repayment and that you're very clear on what that looks like timing wise. And how that's gonna effect your bottom line.

If you're investing a lot of capital out of your personal funds ..and by capital I just mean money that you're putting in personally into your business ... If you're having to invest personal money, just make sure you're tracking all of that. We talked about tracking expenses and having those in a spreadsheet or written down somewhere in detail. You wanna do that if it's just like a lump sum of money That you're putting into your business you also wanna track that…because…you're gonna want to have that in your bookkeeping. And if you wanna pay yourself back you wanna track that also. 

So, we're gonna move on next to number four which is financial tools and systems. There's a lot of stuff to think out when you're starting out of how you're gonna manage your money and navigate everything. The next thing after you start your business entity and you decide how you're gonna get set up is you're gonna want to get a bank account. Typically, when you're getting a business bank account you need your entity set up first, so you need that documentation from the state saying that you're an official business and they'll have, your organizational documents is what they call them. So, you'll have a letter of organization or something along those lines that they give you from state and the bank is gonna wanna see a copy of that. You're going to want to have all that all that up an order before you get your business bank account. One thing that I recommend when you're getting ready to open a bank account is you're gonna wanna ask them at the bank if they allow for more than two or three accounts. Usually, you have your standard checking account and a savings account, but I recommend having a few other checking accounts on top of those because it's super important when you have a business to set money aside for taxes. So, you want an account for tax savings and then you also want an account just for regular savings that you're saving as a cushion or a reinvestment. And then also I recommend having sinking funds just for any bills that you pay. I know that most software’s and subscriptions and whatever you're purchasing will give you a discount for paying annually. I always recommend cashing in on that if you can. It's not always a lot but it really does add up. So, for bills like that that you're paying annually, I recommend saving for them on a monthly basis so that when that bill comes around next year, you're not like uh oh I need this huge chunk of money and I don't have it set aside and you kind of forget about it that's when sinking funds come in super handy. And if you've never heard of a sinking fund, that's basically just a fund your you're putting money into that you're it's accruing so that you can pay a bill and you can take from it eventually when you need it. And so that is something you wanna incorporate into your budget as well. So, maybe create a list of all of your bills monthly and then figure out which ones are annual and divide by twelve and there you go, that's your monthly savings and you can put that into your budget each month.

The next decision…and tool that I recommend you looking into getting is a cloud-based accounting system. The one that I recommend is QuickBooks online. I use that exclusively in my bookkeeping business and I think it's the most user friendly. I love it and I don't like to jump around between different systems, so I've only use QuickBooks online. I highly recommend their app as well. I think it's user friendly for tracking mileage and snapping receipts. So if that's something that you think you would use, It's a great tool. I do have a link where you can get a discount that's more significant than if you bought it online so I'll link that in the show notes today. If you do plan on getting QuickBooks online, that will give you a nicer discount. Starting out I know a lot of people’s funds are very limited for what you can spend in your business and that might be one of those things you're like well maybe I'l do that down the road when I have a little bit more money. One thing that I highly recommend, and I urge business owners to do is get it from the start. You are able to track everything and do a P&L, which is income minus expenses, in a spreadsheet but the one thing that's so great about having a cloud-based accounting system is it's gonna automatically save everything for you and then it's going to be tracking your data from the start. So, you have all of this historical data that you can fall back on. You can run reports and you can compare year to year in QuickBooks from day one which is very nice because then you have all of that data to look at and you can see trends in your revenue and if you don't do it right away, it's gonna be a little bit harder to open up one of one of those accounting software systems later and then get your information inputted in there. If you want to, it's possible but it's gonna be a lot more difficult and you'll save yourself some headaches if you just get the tool from the start and you have all your data and you're tracking it from start. So, you can talk to your CPA about that too.

If you're planning to outsource your bookkeeping from the get-go, I highly highly recommend doing a cloud based soft where especially in that situation because most of them or all of them allow you to invite a bookkeeper or CPA. So, you can all see your books online, and it saves in real time Versus like a QuickBooks desktop which is just on your desktop computer, and it saves locally so one person could be working on it and they're not getting an up-to-date file. Now there are ways you can get around that and you can purchase storage and there are certain things you can do but if you have a cloud-based software it's just a lot easier to do all of that and be on the same page with an outsourced bookkeeper or your CPA.

We're still at number four, by the way, financial tools and systems. So, we talked about debt a little bit and we're gonna talk about getting a business credit card and I feel the same way about carrying credit card debt as I do with any other debt. I think it can be really good to have a credit card in your business and use that for all of your bills. However, my big caveat with this is you have to know yourself you have to know your behavior. So, if you get a credit card and you know you are an over spender and credit cards make you spend more, that's bad news. Don't get one…just use your bank account and don't get a credit card. But if you know you can pay that off every week or month, go for it!  One thing I also recommend is making sure of our bank account or credit card you get links into QuickBooks online. It just makes it really easy to have everything flow electric electronically right into your bookkeeping software. And some of the smaller banks and credit unions…and smaller…credit card companies or banks that are linked up with them do not flow easily into online accounting software It can be a real pain in the butt when you're having to input those through a spreadsheet. Just something else to think about when you're starting out and choosing those accounts. While we're on the topic of starting a bank account and having those start cost and everything that that entails, something that I'd really like to drive home is keeping business and personal expenses separate. It's super important to do this any chance you get like don't commingle if you have to in the beginning because you have to pay out of pocket for business expenses before you have revenue. That's okay. And you can do that but and you can account for that properly but moving forward as a general practice. It is best if you just have business expenses coming out of business accounts and you don't commingle. Especially if you have an LLC for legal protection, or any corporation for legal protection, it's called piercing the corporate veil If you use your business accounts personal expenses and that can really mess with the shield that you have set up. And the whole purpose of getting that legal entity…is to set you up so you're not at risk of losing your personal asset. So that is something to keep in mind moving forward and it also has some other benefits just cleaner bookkeeping less mistakes, and it's easier to track…just business expenses coming through. And then if you ever wanna sell your business or take a loan out in your business, that's gonna look really unprofessional and it's also going to confuse things.

The last thing I wanna talk about under number four the financial tools and systems needed is going to be a payroll processing company…if you need one. If you are just operating by yourself you're just a sole proprietor and you don't have any employees that you're paying that our W2 employees, you do not need a payroll process thing company. If you're just paying a contractor, you can just pay them by check or you know pay them whatever way you're going to pay them. But you don't necessarily need a payroll processing company to do that. If you have a W2 employee, you will need a payroll processing company to process their wages and take out the proper taxes And if you are operating as an s corporation you are required by the IRS to pay yourself. So, you would also need to have yourself on the payroll. So those are some important things to think about and I highly highly recommend ADP.

As a payroll processing company. They're easy to work with, have great customer service, and they have a really user friendly dashboard where you can run the payroll yourself and set everything up. I will link that in the show notes as well if you wanna check them out.

If you are a sole proprietor and you wanna pay yourself, it's simply a transfer from your business account to a personal account. And that's called an owner's draw. Now if you're an S corporation and you're paying yourself as a W2 employee. You do that and then you can also take owner draws on top of that but talk to your tax professional about what those amounts look like. If you do have to pay yourself as a w2 you need to pay yourself a reasonable salary and they can help you figure out what that is.

And moving on, we are finally at number 5 professionals to think about hiring. So, we talked a little bit about this already. You're gonna wanna talk to a professional first and possibly a lawyer if you have a little bit more of a complicated situation, but definitely a tax professional. They can advise you on you know might be a good entity to set up. They can advise you If they do bookkeeping and you wanna outsource your bookkeeping they can that for you or send you in the direction of a good bookkeeper. One thing to note if you are going to outsource your bookkeeping, whether in the beginning or down the road, you wanna make sure you are getting monthly reports. You want a balance sheet and a profit and loss statement and you want someone who's gonna go over them with you and make sure you understand them. The key is when you're hiring any professional in your you want them to be an open, clear communicator who isn't afraid to explain things to you or take the time with you. The last thing you want is someone who's supposed to be in your corner helping you be talking at some higher level and just being arrogant or just not somebody who's gonna spend the time with you to make sure you understand what's going on. So that is super important to keep in mind from start

Just to summarize our five key actions or decisions. Number one entity type. You're gonna wanna figure out first how you're gonna be set up as a business. And you might want to talk to your CPA or your lawyer to do that Number two Startup cost you're likely gonna have some cost associated with starting up your business and you're gonna have to pay for those out of pocket So make sure you're documenting all that on a spreadsheet or wherever it's convenient for you and your…marking the date the amount the business purpose and who you paid. Number three budgeting. You definitely wanna set up a personal budget as well as a business budget. And I recommend using every dollar as a tool It's a free app on your phone They also have it you know on your browser, on your computer that it's very user friendly. And number four, financial tools and systems, and that was a little bit more information under that category you wanna make sure you're finding a bank account with at least two or three accounts that you're able to have. Um

you're gonna want a bookkeeping system. I recommend a based accounting system like QuickBooks online. Um if you're going to get a credit card make sure you are not…

Carrying a balance on there make sure you can pay it off monthly…and make sure your bank account and your credit card both funnel into QuickBooks online. You want to maybe have a payroll processing company if you need that. Um and one thing I forgot to mention is if you're bills You can do that you know probably for free through your bank account Or you can get um a service like Melio or Bill.com where you can send invoices and collect money through there You can also use quick online and you can set it up so you can do your invoicing through which I think is pretty user friendly so I recommend that…

And then number five is gonna be the professionals that you need to hire So definitely without a doubt a tax professional possibly a lawyer depending on your situation, possibly an outsourced bookkeeper maybe not from the start but maybe down the road when you have the funds to do that. Um, but I'm working on some DIY bookkeeping resources so stay tuned for that because I know a lot of people like to do it themselves and need to in the beginning and just need a little help with that. So just a lot think about in the beginning stages of a business for sure. But you've got this, and you have what it takes to be successful.

And props to you for learning and jumping into podcast and I hope it helps.

 I have a PDF resource attached to this which is just a checklist of all the things we talked about and a guideline for you so you don't have to worry about having it all written down or taking notes and listening to this again You can just use that as your guideline.

But just know that I am cheering for you and I'm excited for you and you've got this.

Have a great day and I'll talk to you soon.

Disclaimer: This content is for educational and informational purposes only. Please consult with an accounting professional for direct advice based on your specific business situation.