Starting a business covers every range of emotion and experience imaginable. It can be exhilarating and rewarding, but also terrifying, challenging and incredibly lonely.
The nuts and bolts of building a business are the same. There’s the sexy side of developing an idea into a solution, branding and marketing your business and closing sales. Score a round of seed or series A funding, and your business looks even more glamorous.
But there’s another side as well, one that is equally important to whether or not you’re hitting your sales targets each month. Your business is a legal entity that must pay taxes and comply to local and state regulations. If you want to grow your start-up into a larger organization, you need to be compliant.
1. Make your company a legal entity
Around the world, businesses have their own legal entities. There are also a number of different types of corporations that you can register.
For example, in the United States, there are 4 different types of corporations.
- A C Corporation: Refers to any company that is taxed separately from its owners under US federal income tax law.
- S Corporation: These types of corporations elect their shareholders to carry corporate income, losses, deductions and credit or federal tax purposes.
- LLC: A Limited Liability Company (LLC) blends elements of partnerships and corporations and is more flexible than a C Corporation and an S Corporation.
- Non-profit: Non-profit organizations (NPOs) do not distribute profits or dividends. Any surplus revenues are reinvested into achieving the NPO’s stipulated goals.
There is also a Partnership, which is not a corporation, but a more informal business in which two or more individuals share the profits and liabilities of their venture.
It is important to incorporate your business because without it, you cannot apply for the business and operating licenses you will need, register for tax, register to pay taxes for your employees, open a business bank account, protect your name with a trademark or meet any compliance certifications required in your industry.
2. Open a business bank account
There are a number of reasons to open a business banking account, beginning with the simple truth that it’s just good sense to keep your personal finances separate from your business finances.
Here are 6 more reasons:
- Small business accountancy software integrates into your bank account and helps you keep your records organized, from how much cash you have in the bank to how many invoices are outstanding.
- To ensure you pay enough tax come tax season, it’s important to keep your records in order, and not to confuse personal payments with business financials.
- You can accept credit cards
- More than one person can have signing power on a business bank account
- You look more professional and you can build up a relationship with your bank, which is crucial if you ever want to access bank finance.
- You can shield your personal assets in case anything goes wrong in the business.
3. Set up a payment solution
In today’s Internet-based world there are many different options available to businesses when it comes to accepting payments, from cash to mobile point-of-sale solutions to a range of digital payment solutions.
Key questions to consider:
- Will your customers be transacting online in in a physical retail space?
- What solutions do your customers currently use and are therefore comfortable with?
- Have you compared different options?
Here are 3 digital payment solutions you can consider – but there are many, many more, so do your research.
- Square is a credit card processing solution that has removed the burden of carrying additional fees from small businesses. You can accept credit cards anywhere and only pay per transaction – no set-up or monthly fees.
To find out more, visit squareup.com/us/en
- More than 7 million businesses around the world offer PayPal to their customers. You can accept payments from anywhere in the world, and users can set up accounts with an email address.
To find out more, visit www.paypal.com/za/webapps/mpp/merchant
- Zohot Checkout. Zoho Checkout is more than simply a way to accept payments. Through Zoho Checkout you can build a custom, branded page within minutes and start accepting payments immediately.
To find out more, visit https://www.zoho.com/checkout/?utm_campaign=zohocheckout&utm_medium=cpc&utm_source=capterra
4. Register for tax
Every country and state has different tax laws, so it’s important that you find out exactly what’s required of you in terms of your geographical location, as well as where your customers are, if you are trading beyond your state or country borders.
Not paying the correct taxes can result in a business being fined or even criminally charged, so it’s important to stay up-to-date with both tax laws and your tax payments.
Because paying tax is a legal requirement for all businesses, the more you know about your local regulations and can plan for them, the better off your business will be. Speak to a professional and with the right planning you will be able to lower the amount of taxable income your business pays, reduce your tax rate and have greater control over when you will pay your taxes.
5. Determine which regulations are relevant
Most industries have self-regulatory bodies that require certain certificates of compliance. If you do not have certain certificates that you need to adhere to, there is a strong possibility that your customers do. From safety regulations to EPA (Environmental Protection Agency) mandates, there will be compliance issues that you need to consider.
Key questions to consider:
- Have you researched the regulatory compliance certifications in your industry?
- How costly are they?
- What are the results of non-compliance?
- Have you spoken to your customers to determine which certifications they require you to have?
- Have you factored these into your business planning?
6. Join a business association
The good news is that while all of the legal, tax and compliance issues associated with businesses can be daunting, there are many different business associations designed to help you navigate your way to success.
There are entrepreneur-led organizations and government and state-sponsored organizations.
For example, Entrepreneur’s Organization (EO) is an international network that is made of members and forums that support business growth.
Similarly, the Small Business Administration is a government-run organization that supports small businesses in all things business.
There will usually be a local chamber of commerce that can assist you as well.
The point is that you don’t need to go it alone – join business Facebook and LinkedIn groups in your area and get Googling to find out what’s active near you.
Mistakes to Avoid
When it comes to launching a business, there are a few key mistakes business owners make that you should be weary of.
Don’t wait too long to formalize your business. Many businesses wait to incorporate or get key certifications, and then miss out on a key contract because everything they needed wasn’t in place. The earlier you take these steps, the more you’ll save down the line, and the more you’ll be prepared for growth.
Don’t ditch your taxes. While taxes can seem a burden to a small business, non-compliance can be far, far more costly in the long run. Rather focus on all the state and government support available to small businesses, as well as the great amenities available to you thanks to your taxes.
Don’t keep you head in the dark. For many entrepreneurs, compliance and tax issues are too much. They are not why you got into business. If this sounds like you, the great news is that there are a lot of professionals out there whose business is assisting businesses like yours – don’t ignore the issue, but invest in the right knowledge and assistance instead.