In the first part of 6 Steps to starting a home business, I wrote about generating ideas, selecting your legal and taxable business structure, and creating a legal, taxable business entity. In this second part, I’ll cover the next three important steps.
Step 4: Setting up bank accounts
It’s extremely important to keep you personal and business bank accounts separate. Besides easier accounting, it helps protest your personal assets in the event of a lawsuit. Often in lawsuits, the person suing will try to “pierce the corporate veil.” What that means is that they’ll try to prove that you should be personal held liable. If they are able to get to your personal assets, then that completely defeats one of the prime reasons for setting up a Limited Liability Company (which is designed to protect your personal assets).
So how do your bank accounts affect whether or not someone can pierce the corporate veil? If you deposit the business’ money directly into your personal account or make personal purchases from your business account, then you have “co-mingled” funds. Meaning, you have blurred the line between what is personal and business. The person or company suing will claim that since you blurred the line, the business entity is invalid and you should be held personally responsible.
Do not make this mistake. You should always keep your personal funds/purchases separate from your business funds/purchases. Speak with an accountant or tax attorney more about this.
To find a good bank, I recommend starting with the bank where you do your personal banking. If you like them for your personal accounts, then you will probably like them for your business accounts as well. Make sure to review all of the fees as many business checking and savings accounts carry fees that personal accounts don’t have.
Step 5: Keeping an accurate accounting of all your income and expenses
First, understand that accurate accounting is important. For example, you don’t want to miss the opportunity to write anything off. Second, tax preparation will be much easier and faster if you have good records.
I could write several posts just on accounting for small businesses. But I’m going to just keep it picking some accounting software. Here are a few options to consider.
Quickbooks: If you know a bit about accounting and are comfortable with figuring out a somewhat unintuitive program, then Intuit’s Quickbooks is a leader in accounting software. I personally use it and don’t love it, but it works pretty well. It offers a lot of functionality, though you often have to pay for the additional functionality. Quickbooks has both a desktop (one time purchase but is outdated after one year) and online version (always up-to-date but is a monthly subscription). Also, pretty much every accountant uses Quickbooks. So you can easily send your file to your accountant for taxes or other work.
Outright: If you are looking for something that is 100% online, cheaper than Quickbooks and more intuitive to use, then Outright.com may be a great option for you. It connects to thousands of banks to download your transactions and has a pretty easy to use interface. The cost is $9.95 per month after a free 30 day trial. Though, the lower price means that you sacrifice some functionality. But, you may consider that an advantage if you don’t love diving into accounting.
AccountEdge: This is for all you Mac users. Although Quickbooks has a Mac edition, it was first and foremost designed for PCs. AccountEdge is premium accounting software designed for small businesses who use Macs. The feature list is pretty impressive. It is desktop software and although comparably priced with Quickbooks, it is actually cheaper since getting the same functionality (such as Payroll) requires paying more to Quickbooks. I strongly recommend considering AccountEdge.
Step 6: Marketing yourself
This is my favorite step. I’m a marketer by trade.
Notice that I titled this “Marketing yourself” and not “Marketing your business.” The number one thing you are selling, especially when starting out, is you – not your product or service. Your product or service is untested and unproven. So customers are buying you, not the product. So very first, be the type of person that you personally want to do business with. Correct all of the customer service issues that drive you insane when dealing with other companies.
If your business can benefit from online marketing (which is pretty much every business), then there is a lot that you can do from free or cheap. Here’s a list of free or cheap marketing resources for small businesses. Though, I specifically recommend checking out Inbound University (not an actual university or school), which teaches online marketing for free, and Hubspot’s Internet Marketing blog. They offer tons of free information about online marketing.
No matter how you decide to market yourself, understand that you need to create a very compelling story about your brand. Being the cheapest or best isn’t good enough anymore because there is always going to be someone cheaper or better just behind you (unless you are Wal-mart). Besides, people are willing to pay a premium for a brand that they feel connected to. Just consider Apple for a moment. Apple products are more expensive than its competitors’ products and yet they are the market leaders. Why? Because people
worship love Apple. Here’s a case study about building an awesome, easy to share brand story.
So build a brand that people are willing to pay more for because they feel connected to it on some emotional level. For more info on building brands, read Seth Godin.
These two posts are just a very basic outline on how to get you up and running. A few things not covered here that you need to consider are: what’s your business plan? where is funding going to come from? what’s your exit strategy if things going poorly? what’s your exit strategy if things going really well? what is the demand for your service (really)?
Watch for a post in the coming weeks with some specific businesses that you might want to start. Also, add your thoughts below on what you think are crucial steps in starting a home based business.
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Also, this article was featured in the Carnival of Personal Finance #321.