A Financial Checklist for Starting Your Business

Your first year in business is bound to be a rollercoaster ride. While there’s no crystal ball that can tell you exactly what’s going to happen, there are several things you can do to set yourself up for financial success. 

Use this helpful checklist to start a business that is financially fit from day one:

1. Develop a Business Plan

A business plan is the first step to making your vision a reality. When you seek funding for your business through loans or grants, you’ll use the financial portion of your business plan to show investors how you plan to turn a profit.

New businesses without any existing financial transactions should include goals and estimates for sales and expenses. This can be a challenge for new businesses, as there is no existing data to refer to. Essentially, your projections for costs and revenue will be an educated guess.

It is crucial to be realistic as you complete the financial portion of your business plan. Banks and investors will be able to spot any improbable forecasts. And, most importantly, a realistic financial projection will help you spot potential pitfalls so that you can be sure your ideas are sustainable.

Ready to start writing? The Small Business Administration has an excellent business plan guide for first-timers, and ZenBusiness has a guide to business plans, too.

2. Register Your Business and Obtain Your EIN

You’ll need to choose a business name that is not already in use by another entity and register with your Secretary of State or the agency that handles business registration in your state. (If you’re a sole proprietorship or partnership, you will likely not need to register with the state unless you’re operating under a name other than your personal, legal name.) This involves preparing your Articles of Organization (for limited liability companies), Articles of Incorporation (for corporations), filing all the required documents, establishing a Registered Agent, and managing correspondence from the state.

Additionally, your business will likely require an Employer Identification Number (EIN) from the IRS. Depending on your business entity type, you’ll use your EIN to file taxes, and you may also need it to open a business bank account. 

To help you manage all the paperwork, deadlines, and red tape, you can use a filing service that handles the whole process for you.

3. Apply for Any Licenses or Permits You May Need

If any of your operations are regulated by a federal, state, or local agency, you’ll need a license. Some examples of business activities that may require licenses or permits are distribution of alcoholic beverages, food preparation and sales, operation of heavy vehicles or equipment, retail, and even vending machines.

4. Open a Business Checking Account

Having a separate checking account for your business is a requirement for any business operating as a different legal entity from the owner. Put simply: If you operate your business under a legal entity that is separate from you, you are legally required to separate your company’s and personal finances. 

Not only does a business checking account keep you safe from potential liability, it also makes business accounting (monitoring income and spending) much easier. 

Unlike personal checking accounts, most business bank accounts will involve monthly or annual fees. The best business checking account will have no limits on transactions, mobile banking capabilities, and a debit card for easy spending.

5. Fund Your Business

With your business plan, registration, and checking account in order, you’re officially ready for funding! The two most common ways to finance a new business are loans and grants:

• Business loans are typically secured through banks or through the Small Business Administration. If your loan application is approved, you’ll receive a sum of cash with the agreement that you’ll repay the amount over time (plus interest).
• If you secure a grant, you’ll receive funding for your business with no repayment obligation. Grants are provided to small businesses because they help stimulate the economy and meet needs within an industry or community.

6. Address Your Accounting Needs

It’s estimated that accounting difficulties are responsible for around 29% of business failures. Accounting involves things like tracking and paying invoices, managing spending and cash flow, paying employees, and keeping records for tax purposes.

We aren’t going to sugarcoat it — unless you happen to have a passion for accounting, bookkeeping will likely be a challenge, especially in the beginning. Fortunately, there are software solutions and accounting and bookkeeping services that help simplify the daily process.

7. Keep an Eye on Cash Flow

Lack of sufficient working capital (another word for cash) is the number one reason that small businesses fail within the first year. Keeping cash on hand requires adequate funding, an eye on expenses, and successful sales to bring in revenue. 

Your business checking account is a useful tool to help you understand how much cash you have coming in, and where it’s going. It’s important to ensure that you have enough funds to cover any checks you’ve written, and upcoming expenses (like utilities, rent, etc.).

Running out of working capital can cause serious issues in your operations. For example, you may be unable to pay employees or purchase materials. These issues can quickly spiral into irreparable pitfalls if you are overspending or underearning.

8. Prepare to File Quarterly Taxes

Your careful accounting will come in handy at tax time. And as a new business owner, tax day now comes FOUR times a year. Filing taxes as a business owner is quite a bit different from filing as an individual. Here are the basic steps:

• Gather Documents and Records: The IRS is most interested in your business’s earnings and your expenses. All your sales should be accounted for, as well as receipts for expenditures from your business checking account.
  
• Identify and Complete Forms: The form you use to report your earnings to the IRS depends on the type of business you operate. For example, sole proprietorships and individual owners of an LLC can use a schedule C attachment to their personal tax return. Corporations will use form 1120 or 1120S. 
  
• Meet the Deadlines: Quarterly tax deadlines can be confusing. They fall on the 15th day of the fourth month following the close of the tax year. Check irs.gov to ensure that you are prepared for upcoming filing deadlines.

Managing your business’s finances takes some effort, but it doesn’t have to be a headache. Check back for more resources from the experts at ZenBusiness. We’re here to help!