There are lots of exciting things to do when starting your solo business – websites, logos, marketing materials, and setting up your CRM. But whether you’re a freelancer, consultant, coach, contractor, or some other type of solopreneur, there are things that you may not be thinking about that can make a big difference.
Why aren’t you thinking about them?
Because they’re BORING!
So, hopefully you’re with me on doing these not-so-fun but crucial jobs when setting up your business.
Start With Show Stoppers
If there is anything that can prevent you from opening your business, you need to start with those. You don’t want to spend a bunch of money creating a website only to find that you can’t open your business.
Look at anything that’s out of your control like:
Then attach an approximate cost and assess the risk level of each. How likely is it that you are unable to get this item?
Then start working on the ones that are the high-risk, starting with the least expensive ones. you can work multiple tasks in parallel if it makes sense and isn’t too risky.
If you are going to fail, you want to fail fast and cheaply.
Incorporate Your Business
It’s very tempting as a solopreneur to become a sole proprietorship. That means your business and you are the same entity. The business operates under your social security number, and it is much simpler than having a separate corporate entity for your business. Heck, it has “sole” in the name, what’s not to like about this approach?
Pretty much everyone is better off forming a corporate entity than operating as a sole proprietor.
Being a sole proprietor is simple, but it is NOT a good idea because you are personally exposed to any lawsuits or other liability. The laws vary from state to state so this is a good place to get some professional advice from either an accountant or an attorney. Limited Liability Companies (LLCs) and other types of S-corps and are the best approach but do check with an expert and decide which corporate structure makes sense for you.
My dad owned restaurants and hotels. These are tough businesses where making a profit takes a lot of management and oversight and profit margins tend to be thin. He always said that if he increased profit by $1.00 he’d only keep about $0.60 but if he could save $1.00 in taxes, he’d keep all of it.
The point is, don’t just file your taxes… do TAX PLANNING.
Tax planning can put a lot more in your pocket in both the short run and the long run. It’s never too early to start and you need to do this before tax time, so start right away. I recommend you work with a professional like Hunter Boyd or TaxHub.
Your tax planner may or may not be your tax filer. You can do this yourself if you’re so inclined. I’d personally rather eat nails and I use a CPA firm for this.
Best bet, get a CPA that specialized in tax filing and has a good reputation.
Getting audited is distracting and a good CPA knows how to avoid the red flags and will be there for you if you do get audited.
Bank Accounts for Your Business
If you’ve taken my advice above, you’ve created a separate legal entity for your business and therefore it only makes sense to do so. In the event of a lawsuit, courts will only look at the accounts in the name of the business in the event of damages. But if you mix your business and personal accounts and this can open your personal accounts to the lawsuit.
Do not mix your personal finances with your business finances.
In addition, tax filing will be so much easier if you keep things separate. So will an IRS audit, should you be that unlucky.
For many solopreneur businesses, insurance may seems unnecessary. But, here in the US, we live in a litigation-crazed society, and anyone can get sued for anything. You may choose to not to purchase property insurance (which will insure your equipment). This is called “self-insuring” because if something happens, you buy the new equipment, not the insurance company. This may be a reasonable option because you can assess the risk and make an intelligent decision.
What you don’t want to skimp on is liability insurance.
Liability insurance protects you from getting sued by someone who claims you caused them damages. You may think that you can’t possibly cause damages, but you’d probably be wrong. Anyone can sue anyone for anything and the law isn’t always fair. Someone may get hurt (or pretend to get hurt) and sue you, even though it doesn’t seem to be your fault. Then even if you prevail, you’ll be out legal fees.
This is the boring stuff that few solopreneurs get excited about. But sometimes boring things are important.
Take the time to do these right and sleep better at night.