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.

Other considerations

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.

Don’t forget to follow Rabbit Funds on Twitter for more articles like this one!

Also, this article was featured in the Carnival of Personal Finance #321.

I had an interesting experience with Hubspot about a week ago which leaves me a bit disenchanted with them as a result.

I completed the HubSpot Inbound Marketing University last summer, which I do recommend and have recommended to many friends and colleagues. After completing the course, I joined Hubspot’s LinkedIn group for alumni of the course.

On March 12, Hubspot posted a call for video testimonials of the course. I emailed the contact saying that I would create a video and gave a short three paragraph testimonial.

I was somewhat anxious to see the reply specifically because of one statement that I had made in my email. I wanted to hear what Hubspot had to say.

To my surprise, I received a templated reply with instructions on how to make and submit the video with a deadline of March 16 (only a few days). Not only did the issue I raised to Hubspot go unanswered, but I’m fairly certain that Hubspot didn’t read past the first line of my email after seeing that I was willing to make a video.

Confirming my suspicions of a copy and paste response (which is a big annoyance when I take the time to ask specific questions or raise specific issues), I saw that the exact content of the reply email was later posted in the same LinkedIn group.

I understand that Hubspot employees are busy

But guess what…so am I.

I was willing to take time out of my day to help, only to find my willingness to connect shut down. I’m not angry, just disappointed.

This experience has helped me understand one simple lesson. For Hubspot, inbound marketing is about making money and finding new clients, not about connecting with individuals and building a community. I normally wouldn’t care since the goal of business is to make money, but Hubspot is a vocal proponent of connecting with potential leads.

Until now, I’ve been a potential lead.

I think I’ll remove myself from that list for the time being.

UPDATE: I’ve had the pleasure of corresponding with Rebecca from Hubspot through email ;) about my experience and am happy to say that she has quickly and handily addressed my concerns. I look forward to a continuing relationship with Hubspot.

I like marketing. I market my website. I market myself to potential employers. I marketed myself to my wife and she fortunately bought. I believe marketing helps us gain knowledge of products, services, and opportunities that we might not have otherwise known about.

I believe marketers spend everyday trying to open our heads and rewire us to buy their stuff. I’m not cynical and I don’t think they are evil or bad people. However, as consumers we need to understand that they want our money and that it is Us vs. Them. My six reasons.

1) Discount pricing is a marketing ploy

I spent some time working at a major, national retailer. I’m not interested in pointing fingers, so let’s just call it Brand X. While working at Brand X, I was involved in many pricing conversations and observed the pricing process. We all know that stores use discount pricing as a means to incentivize you to buy now. I didn’t understand how deep that really runs though. For example, if a shirt or sweater costs the company $10 and they know from historical reports that consumers typically will only buy it at a price of $20, then they price it at $40. That way, they can discount it at 50% (oh my gosh! oh my gosh! oh my gosh!) and it will sell at the expected price of $20. Meaning, they don’t even expect you to pay $40! If you do buy it at $40, then you just lost. If you purchase at $20, not because you need the item but because you can’t pass up that great price, then you just lost.

2) They make us ask permission to buy from them

I’m borrowing this reason from Dave Ramsey and don’t take the credit myself. Banks, car dealerships, etc need us to buy from them in order for them to make money. And yet, we find ourselves asking them, and almost pleading at times, to take our business. They tell us that we’ve been “approved” so that we feel part of the club. “Honey, great news! The bank approved of us.” They put on a great dog and pony show to make us anxious that we might not get the “deal.” Stop and realize what is really being sold. Often, what’s being sold is enslaving amounts of debt. Liabilities, like cars, that masquerade as assets don’t make you happy. Money in the bank and peace of mind make you happy. Walk away next time someone tries to get you to say, “Please, can I have your stuff? Please, can I buy some debt?”

3) Research, research, research

Marketers spend a considerable amount of time learning their trade and then studying consumers’ behavior. Any good professional would. They track and analyze your buying and browsing behaviors, study psychology, and attempt to gain an intimate understanding of you. This is a double-edged sword. For example, Zappos.com is very customer centric. They are almost obsessively customer centric. They use an intimate knowledge of customers to better meet customers’ needs. But at the same time, these marketing departments use this knowledge to optimize the entire buying process to get you to buy. So what am I saying? Simply that marketers are constantly gaining new information about us and using that information to create extremely enticing advertisements. Just to put this effort into perspective, advertisers are expected to spend $242 BILLION on ads in 2009 alone. They have to recoup that investment and they expect to have us, the consumers, foot the bill. Don’t buy just because of the shiny ad.

4) They use fancy or technical names that confuse the issue

As the title suggests, a rowing machine is now a “1205 Precision Rower,” which sounds much cooler. Another example is the 12b-1 fee charged by some mutual fund companies. Rule 12b-1 was adopted by the Securities and Exchange Commission (SEC) in 1980 and allows fund companies to pay for sales and marketing activities by charging you a fee. This is in addition to the normal or stated expense ratio. It bothers me that fund companies charge consumers a marketing fee but don’t call it that. I understand that the name is derived from the SEC rule, but it is misleading to novice investors who are just starting out. Just call it a marketing fee so we can decide if we want to pay it.

5) “Where’s the pain?”

Another double-edged sword. A good marketer asks and answers the question, “Where’s the pain?” If a marketer can understand the problem a consumer faces, then he or she can develop a campaign or product that addresses that problem. Target pharmacy bottles are an excellent example of a marketer adding value to a product. Several years ago, Target redesigned its pharmacy bottle to make it easier to open, identify the prescription, and know to which family member the prescription belongs using color coded cap rings. The added convenience is worthwhile. On the other end of the spectrum, think about all of those late night infomercials. They offer solutions to common problems via their products. But stop and think to yourself, “Yes the Magic Bullet makes life a little easier for me, but my blender works just fine. So I don’t really need it even though it is newer, nicer, faster, etc.” In other words, they may be offering something that solves a problem, but you just may not really need the problem solved (at least not at the expense of your retirement). So next time you go to buy a product that you really don’t need, decide to put the money into your retirement account instead.

6) Illegitimate or illegal marketing schemes

I don’t want to dwell much on this topic since my purpose with this post is to address legitimate marketing efforts. However, there are a lot of marketers of ill repute out there attempting to bypass the law and cause you to lose your money. If you suspect that an offer is too good or just doesn’t seem right, please avoid it. Also, you can check sites such as Scam.com, ScamBusters.org, Snopes.com, or the Better Business Bureau to see if others have reported the offer as a scam.

Conclusion

Let me reiterate an important point – I have nothing against marketers. I know a lot of them. They have families, homes, dogs, and probably some consumer debt themselves. But buyer beware. Every institution, firm, corporation, etc must maintain a healthy revenue stream and that revenue has to come from someone. See it as a game. You are allotted X number of dollars each month to support yourself and your lifestyle. Marketers setup storefronts where you can choose to spend your dollars. At the end of the game, the person or store with the most dollars wins. The more you keep to yourself, the greater your odds are of winning.

Let me know in the comments if you agree or disagree.