Small Business Toolkit

The decision to start a business is a rewarding experience, no matter your stage of life. It’s also one of the most confusing. You’ve likely come across data that most small business owners fail, for a number of reasons. It’s tough to get a new venture off the ground, and there are many reasons why ideas don’t pan out.

You need to make smart decisions about your business from day one. As an entrepreneur, one of the hurdles that you’ll experience is your endless to-do list. When you’re at a job, you may take for granted what happens behind the scenes: almost every successful company has well-run administrative processes.

These functions include accounting, legal, and finance. Small business owners often underestimate the challenges of these jobs. Especially if you’re a small founding team or even a team of one, it’s impossible to do everything that needs to be done, on your own.

Not to mention, you need to focus your time and attention on your core specialty. In order for your business to survive, your brain needs to be doing what it does best.

If you’re an e-commerce entrepreneur, you need to focus your time on operations, marketing, and fulfillment. If you’re a designer, you need to spend your time designing. The time that you spend doing anything else is an opportunity cost. When you do administrative work, you are losing money without realizing it.

It’s the QuickBooks team’s job to understand the needs of small business owners. A lot of research goes into building our software. Every day, dozens of smart people are behind the scenes, doing work, to create the best finance software on the planet.

Because of this perspective, we’ve seen many of the struggles that small business owners experience. We prepared this resource to help you prevent this challenge.

Set up Your Business Thoughtfully

Yes, small business owners fail. But let’s assume that yours will be successful. You’ll navigate many twists and turns, but you’ll get there. Along the way, you’ll need to make sure that your operations are running, impeccably. The last hurdle that you’ll want to encounter is a back office disaster.

It’s common for business owners to get sued, slapped with legal fines, experience IRS audits, and struggle with taxes. Do not underestimate the importance of every administrative detail. If you’ve worked for a well-run company, you may not know how much of a challenge it can be to manage operations.

That’s why you need to give careful consideration to your set-up. From choosing your entity structure to making sure that you have your accounting infrastructure in places, it’s important to get these details squared away, sooner rather than later.

This 5-day guide will help you finish the busy work faster, while also preventing the potential for a problem bottling up down the road. Here are the steps you should take in your first week as a small business owner.

Day One – Build Your Legal Foundation

If you don’t have the financial resources for a lawyer (for instance, if you were let go from your job or laid off), you can do your own research. Once your business picks up, you can hire a lawyer. In the meantime, keep your operations simple and rely on the already-published materials as a guide.

Check out the following:

• LegalZoom
• The QuickBooks Resource Center

Ideally, you can work with a lawyer in your industry. You can book hourly consulting to talk through the needs of your business. Some lawyers also have a startup package. The value of working with a lawyer is preparation. Every business needs to follow certain laws or carry insurance. There are many moving parts to managing a company, so you will need to build awareness.

“I have had several clients who failed to secure workers compensation insurance, had an

investigator from the Department of Industrial Relations conduct a site visit and perform

an insurance audit, and then need to pay $20,000 to $100,000 in penalties to the Department of Industrial Relations alone,” Hernandez explains.

The best way to avoid this situation is to conduct an assessment upfront. The outcome of this assessment will depend on the type of business that you have, the work that you need to perform, and the type of employees that you need. Depending on your business type and needs, your lawyer may refer you to or advise that you speak with an insurance agent to obtain the necessary levels of coverage for your business.

“In California, failure to obtain workers compensation insurance is a serious offense that can be published by jail time and a fine of at least $10,000,” says Hernandez.

Make sure to ask your lawyer about the following:

• Insurance. Your lawyer will understand your exact insurance needs. Make sure to ask for referrals to reputable insurance carriers or brokers that service your industry.
• Employment Laws. There are numerous laws that you may not have insight into including the Fair Labor Standards Act, as well as legislation for Equal Opportunity Employment. Make sure to familiarize yourself with these rights (i.e. overtime laws), so that you avoid violating them and paying a hefty fine as a result.
• Contracts. At a minimum, you’ll need a service agreement for your customers, terms of service for your website, a privacy policy, partnership agreements, employment contracts, and co-founder agreements. Your lawyer will help you provide these. If you cannot afford to pay for these legal services, you can search for templates online. If you can, have a lawyer review them. If not, wait to hire a lawyer. It’s important to have an expert perspective, as contracts can create unexpected and unintentional loopholes.
• Trademarks and Patents. Depending on the type of business that you operate, you may have intellectual property that you need to protect.

Think of your lawyer as a risk-management consultant. This individual can help you take steps in advance, to avoid making a costly mistake. Your upfront investment will help you prevent problems down the road, as your company gets bigger.

Day Two – Choose Your Entity Structure

When you start a business, you need to build a track record for it. That means applying for an entity. To do this, you need to follow federal and state laws. A certified public accountant (CPA), a tax specialist, can help you choose the right entity structure for your type of business. You can also do your own research to make a judgment call. Keep in mind that you can change your entity structure in the future.

Ken Boyd, an accounting expert, and entrepreneur gives the following tips about choosing an entity structure:

When starting a business you need to first decide on the structure of your business. Here are some variables that may influence your decision:

• Simplicity: Sole proprietorships are the easiest to set up and operate, while a corporation requires a greater investment of time and documentation.
• Legal liability: C corporations offer the most legal protections, in the event of a lawsuit filed against your business.
• Adding owners: If you never intend to add more owners, a sole proprietorship structure can work for you. On the other hand, a corporate structure makes it easy to add new owners as your grow.

Here are the most common forms of business structure:

• Sole proprietorship: You are the only owner of the business, and setting up this type of entity is the easiest. However, you’re exposed to business legal liability, as there is no legal difference between you personally and your business. If you own a coffee shop, for example, and a customer falls and sues your shop for negligence, both your business and personal assets are at risk.
• Corporation: A corporation (or C corp) offers the most legal protection because the business is a separate legal entity from the owner. A C corp also makes it easy to bring in other owners by issuing shares of common stock. However, setting up a C corp and meeting the regulatory reporting guidelines can be time-consuming.
• Limited liability company (LLC): An LLC allows you to limit your personal liability for business risks, but not have to meet the same level of regulatory requirements as a corporation. There are several different LLC structures, based on your state’s tax laws.

A CPA can help you determine the pros and cons of each structure.

The decision isn’t always clear-cut and may impact the laws that you need to follow. In addition, your business structure will direct what types of taxes you’ll need to pay. Pay attention to local, state, and federal laws. It’s a good idea to work with an expert to structure your business and anticipate your tax liabilities, as soon as you can afford to do so.

Day Three – Fill out Your Forms

Paperwork is never fun, so it’s important to get your documentation out of the way. If you have the funds, you may choose to work with an attorney, paralegal, and/or CPA. Here is your to-do list.

• Get insurance. By now, you should have a list of your insurance needs. Work with a broker to begin your application process. Sometimes, there is a brief processing period. The sooner you get everything started, the faster you’ll be in business. That way, if you encounter hiccups (i.e. an insurer won’t underwrite your policy or a plan is unexpectedly expensive), you can keep shopping around for options.
• Apply for your EIN. An EIN number is used by the IRS to identify your business, you can apply online through the IRS website. Think of your EIN as a Social Security number for your business. It is important to use this number on business tax filings and other documents so that you’re clearly reporting on business (and not personal) activity. Every business should use an EIN, including sole proprietorships.
• Apply for your fictitious business name. In some cases, business owners choose to operate with a company name that is different than the name on the firm’s tax documents. You may notice companies that use the phrase “doing business as” or the abbreviation “DBA”. If a company operates multiple businesses under a common business structure, the firm may use fictitious names to differentiate their operations. You can register a fictitious name through the secretary of state’s office in your state.
• Get a business license. Depending on where your business is located, you may need to apply for a business license. Visit your city’s website or read the municipal code for more detail. Many cities also have a business license department, division, or office. If you can’t find information online, pick up the phone and call.
• Register with your county. Depending on where your business is based, you may need to register your business with the county in which you’re operating. If you’re not sure, you can get in touch with a local government representative online or by phone.
• Register with the state. In addition to filing paperwork with local governments, you’ll also need to get registered in the state(s) in which you’re operating. Make sure to do your research, to make sure you’re in compliance with state laws.

If you don’t have access to a CPA and/or attorney to set up your business, you can go through the process yourself. Services like LegalZoom have packages available for new entrepreneurs, to help you get up and running.

Keep in mind that it may take your business a few weeks to get up and running with the right licenses, registrations, and certifications. That’s why it’s important to go through this administrative process as soon as possible. Sometimes, customer contracts are contingent on your business having documentation available. Get your paperwork out of the way, to prevent potential delays in your operations. Avoid the potential for unpredictable, hefty fines.

Day Four – Figure Out Your Accounting Needs

By now, you’ve taken the steps necessary to create your entity, apply for insurance, understand your legal needs, and obtain relevant registrations. With your paperwork filed and under-evaluation, you have one more milestone you need to hit, to get up and running: build your accounting infrastructure.

You’ll need a business bank account to manage your funds Although you’ll need to wait until you have your state business registration forms, EIN, state tax ID, and any fictitious name documentation. In the meantime, you’ll need to figure out a system for record-keeping.

Make the investment in an online accounting software package right from the start. If you purchase software and set up your system correctly, you’ll have accurate records on file from your first day of business. Here are some specific tasks you’ll perform:

• Chart of accounts: Your chart of accounts is a listing of each account and a corresponding account number. Your software package will start you off with a standard set of accounts, including cash, inventory, and accounts payable- the basics. You can add, change, and delete accounts, based on your company needs.
• Beginning balances: This step is the most important reason to hire an accountant. Once you set up a chart of accounts, you’ll input your beginning balances into the accounting system. If, for example, Julie invests $10,000 in cash into her Ridgeview Graphic Design business on June 1st, the accounting records need to include an increase of $10,000 cash and a $10,000 increase in owner’s equity (Julie’s ownership).

Many business owners start off keeping hard copy records and then attempt to post data into an accounting system later. This process leads to errors, so use accounting software from the beginning. Software can also help you manage the following:

• Paying employees. Payroll is complicated and time-consuming even if you have a single employee.
• Luckily, software like QuickBooks offers a payroll system that can do all the calculations, cut checks, and even pay taxes and file the documents with state and federal agencies.Even better, it integrates perfectly with QuickBooks to keep your books in order. QuickBooks Payroll now has 24-hour direct deposit, which means you can approve your direct deposit by 5 pm PST and still make payday the next business day. Being able to hold onto that cash for an extra day can be critical for employers.There are many moving parts to filing documents and managing the compliance process.
• Software automates this process off the bat, to reduce the potential for error. QuickBooks can help you:
• Schedule paydays based on an agreed-upon schedule
• Issue checks
• Pay payroll taxes to the government
• File necessary tax forms on a quarterly, monthly, or annual basis
• Calculate wages, withholdings, and taxes
• Outsource payroll entirely, so that you can minimize the risk of a potential error
• Schedule reminders for when taxes are due

Software will help you avoid errors that are common with manual human effort.

Whether you use QuickBooks or another option, choose a trusted, vetted solution that

minimizes the need for human effort. Your attention is better spent elsewhere than crunching numbers in spreadsheets.

• Managing invoices. An invoice is one of the most important documents that your business creates. In addition to functioning as a receipt, it is also your accounting paper trail—it’s an instructional document that guides your customers through the process of paying your business.

That’s why software makes the invoicing process easier. Let’s say that you send 10 invoices per month, and the process takes you 10 hours. This is time that you could be using fulfilling services or generating new business. Using software, you can trim your invoicing time down from 10 hours to 1 hour. You can standardize your templates, quickly query information about payments, and answer customer questions as they come up.

An invoice is an important transactional tool with extremely functional applications. That’s why it’s important for small business owners to create them in a way that is error-free. You can learn more about how to create an invoice, in this article.

• Processing customer payments. Your payment processing service will be a valuable piece of technology in your suite of finance tools. The right platform will help you meet your customers where they are, based on their needs. You can offer payment solutions such as the ability to pay via credit card, PayPal, debit card, or wire transfer.

Not all payment processing technologies are created equally. It’s essential that you understand your business need thoroughly so that you can choose software that meets your unique operational goals. The following resources can help bring you up to speed:

• What Are ACH Payments, and Why Should I Accept Them? The most efficient way to accept payments is through the transfer of cash. ACH provides a dependable, compliant, and efficient system for receiving payment. This article walks you through the basics of this type of transaction, so you can determine whether it’s right for you.
• Understanding Customer Payment Options. This article walks through the basics of accepting payments online. When choosing a payment processing service, you need to make sure that you understand the different methods by which your customers can transfer funds. This resource walks you through the different options.
• How to Reduce Credit Card Processing Costs. Getting paid can be expensive. Pay careful attention to the potential costs that come up, so that you can minimize or avoid them. For instance, accepting an ACH payment will always be less expensive than taking credit cards. You may conserve resources by asking your customers to pay you in cash, whenever possible.

Especially as your business evolves, managing your books will become time-consuming. Make sure that you set up your operations with efficiency in mind. If you’re feeling stuck, don’t resort to using spreadsheets. It may be tempting to manage your account operations manually, but what happens if the IRS randomly selects your business for an audit? Software helps ensure that your finances are always on track.

Day Five – Figure Out Ways to be More Productive

Now that you’re a business owner, time is your most valuable asset. As momentum picks up, you’re going to run into bottlenecks.

As soon as you get started with your operations, even before you bring on your first customer, you need to figure out ways to be efficient. Here are a few resources to help you become more efficient and create good habits, off-the-bat:

• This list of 106 business tools: The QuickBooks team created a comprehensive list of tools and resources to help you stay productive. Especially if you’re working by yourself, it can be hard to hold yourself accountable to milestones and goals. Time management, focus, and discipline are a must. These resources can help you work smarter.
• This guide to securing your data: As a business owner, you’re responsible and liable for the protection of your key systems. You’re also in a position of vulnerability because you do not have the infrastructure that a large company has, to ward off cyber attackers. As your business grows, you’ll need to process more transactions, access databases, and store more files. This resource walks you through the basics of storing and protecting important documentation online.
• 20 ways to get clients to pay their bills and invoices faster: After your operations are up and running, you need to make sure you get paid. This process is tougher than it seems: managing your cash flow is an art, and one of the most awkward situations you’ll encounter is reminding your customers to pay you. When there’s money involved, there’s also a potential for conflict. This guide will help you avoid the situation of becoming cash constrained.
• The Top 5 Customer Rated Time Tracking Apps in the QuickBooks App Store: By understanding where your time is going, you can make the most of it. Hold yourself accountable by tracking and categorizing where you spend your time. This process will help you see where you’re investing your efforts—and how you can best make improvements to your operations. By identifying time sinks at the beginning, you can run a more efficient business off-the-bat.

It’s easy to get stuck in a busy-work trap without realizing that you’re being unproductive. You have a finite time in your day, and you need to make sure that you’re making the most out of it. When your business moves from set-up into growth mode, it’s easy to get stuck in a cycle. In fact, routines will help you move towards new milestones. Make sure that you’re establishing good habits, off the bat.

Final thoughts

Give your business the strongest possible foundation—as your operations pick up, you’ll be thankful that you made these decisions early on in your journey. The first weeks of running a new venture can be tough: you can’t establish routines yet, and you’re building all of your infrastructure from the ground-up. The intent of this 5-day plan is to provide you with a structure that you may not otherwise find. In a few years, you’ll be thankful that you ironed out these details early on.