Things to Consider When Starting a Business
Janie Frederick, CPA – 816-718-3206 – DJF Enterprises, LLC
Things to Consider When Starting a Business – by Janie Frederick, CPA
Note from Karen Harrison: Janie is available to help set up your business accounting and give you business advice. Contact her! She helped me set up my business years ago and has helped me in many ways over the years. I trust Janie!
Once you have chosen a business and determined that you really do have something to sell that people want and you are willing to put the work in to make it work – a good place to start is creating a business plan and following some specific steps to make success a real possibility. You might want to line up a couple of investors. Plan for success!
Create a business plan. A business plan is necessary for many reasons. Like a to do list, it will keep you on track and give you check points along the way. It does not need to be elaborate, but it should be a clear map for you. You need to be able to sum it up in a couple of sentences and then put the detail you need behind those couple of sentences. You need to ask yourself questions and write down the answers and keep those answers handy.
- Start with the “why” then move to the “what” then determine the “how”. Why have I chosen this business? Who am I serving? What am I selling? What will I gain? What will my customers gain? How will I sell my product or service? How will I fund this business before I make my money back? Is there a clear path to get there? Can I operate this business all by myself or will I need to hire support staff? Will I need investors?
- Fortunately, you have an organization behind you that wants you to be successful. Your Reiki community provides resources for you through the Reiki Membership Association if you choose to join. You should check out licensing requirements specific to your state and city – like does Reiki constitute Massage? If Reiki is considered a subset of massage in your city or state, you can contact William Rand, who is a member of the National Health Freedom Coalition, which is working to help keep Reiki free from being regulated by massage. You need to know the rules around Reiki before you get started and you need to include that in your plan. You also need to have resources for marketing because you need a plan to market your product. Call on your teacher and colleagues for advice and knowledge.
- Keep in mind that a Reiki business lends itself to other types of business that can be operated in conjunction. Like the sale of essential oils or crystals or other relaxation products and books. Your business plan will help you stay focused and not get too much on your plate when you are just starting out.
Do the Analysis – I am a CPA and I think in terms of money and compliance with the law. So, I cannot stress this enough. This is where new businesses get into trouble because they did not expect to have to spend the money they did or they did not know they needed a business license or they had to declare their business property. Ignorance of the law does not excuse you from complying with it. And money spent without purpose is counterproductive.
- Know what your Federal, State and City obligations are regarding your business. What licenses do you need to have? What types of taxes are you expected to pay and at what frequency? What are the thresholds for standard insurance? The small business administration in your state will be a good resource.
- Crunch the numbers
- Calculate what your business going to cost for real. What are the risks? In general, you can expect to spend about $500 on various insurance requirements – specifically business liability insurance and professional liability insurance. The professional liability insurance is available through Massage Magazine and you get a discount if you are a member of the Reiki Membership Association. You might have legal costs and professional fees for which you need to plan. Expect to spend about $1000 on your entity set up and the start-up analysis. How much will your software cost? What business supplies and equipment will you need and how much will they cost?
- You also need to know what you are selling and at what price and how much that product will cost you. If you will need to hire people, you need to know the competitive wages to pay and how many hours you will need them. Ask yourself what it is going to cost you to create what you are selling? If you are selling a service what does continued training cost? How will you get it? What will your licenses cost? If you are selling a product how will you acquire the product? How much will it cost and how much do you need to sell to make back your money? Will you need to hire people to help?
- Brainstorm about all the numbers – put them in a spreadsheet. Do the research? Keep in mind what you think it will cost you and then add at least another 10% on top of that to be realistic. These are questions of analysis that you really need to have clear. Once you have done the analysis you will want to create a budget and stick to it as much as possible.
Separate yourself from your business – organize your business as a separate entity (LLC, Partnership, Corporation, S-Corp) and keep your personal expenses/funds and your business expenses/funds separate. Do not intermingle them. Open a checking account and a credit card under your business name and buy liability insurance for your business using your business accounts.
- There are many advantages to separating yourself from your business in this manner
- Your company tax returns are separate from your personal tax returns and any business losses can be taken off your personal income.
- Business loans and purchases belong to the business and the liability of the owners in lawsuits and audits is limited.
- Do some research to determine what kind of business structure is right for you. LLC’s/LLP’s are the simplest form in today’s business world. You can set yourself up as a disregarded entity if you are the single owner, a partnership if there are more than one of you or if you organize with your spouse, or a corporation/S corp using the LLC organization type. You may have investors and want to have a more formal business structure.
- There are many advantages to separating yourself from your business in this manner
Have a solid marketing plan – Get on Linked in and social media and create a website. If you want customers – you must put yourself out there. I am not a marketing expert but there are plenty of people who are, and you can access them through associations and small business organizations. And make certain that you are selling something people want to buy. Just because you believe there is a need and you have a great idea does not mean people will buy it. You need to be solving a problem and filling a need for your customers to create value in their lives.
Keep track of all your income and expenses – I will reiterate that you want to keep business money separate from personal funds and don’t let your accounting get away from you. Start out right. And you want to create a budget and stick to it. You need to have your bank accounts and credit cards reconciled on a regular basis. Even if you do not do any of the other things I have recommended, understand your inflows and outflows! Cash Flow is critical. You need to know how much is in your bank account at any given moment and not just what you see on your online bank account. You need to know how much your investments are and what your liabilities are. You need to know who owes you money and to whom you owe money.
- Purchase a good bookkeeping software – preferably one that allows you to download your business expenses (bank feeds) and income (Square, credit cards and deposits) and can provide you with organized reports. QuickBooks or Xero are good choices and relatively inexpensive and have various apps you can add that make the organization of your information automated.
- Hire a good bookkeeper who can help you with this. If you do it yourself make sure you sit down at least once a month and reconcile your accounts and run business reports. And if you are not showing a profit, know the reasons.
- The IRS will give you a pass on business losses for about two years. This is the difference between working for yourself and creating an ongoing business. Ongoing businesses have systems set up to support the business and can track their investments and know if they are paying for themselves.
Be ready for roadblocks – They happen – What is stopping you from starting and running your own business successfully?
- Often the first roadblock to overcome is your own motivation and your own procrastination. That is the purpose of the things we have talked about here. If you have thought about creating your own business and have a good idea, but you have never really moved forward with it – it may not be for you. It is OK to acknowledge this. Starting and keeping a business is hard and you can expect it to be work. Make sure it is something you really WANT to do.
- There are risks and there will be things that stand in your way and you need to be prepared to overcome them. I recommend you talk to other business owners. Join business organizations and chambers of commerce. Check out the Small Business Administration in your community. The website https://www.businessknowhow.com has some really helpful articles and checklists.
- Finally, be diligent in developing good advisors and good employees. But always remember, you are the ultimate advisor for your business, and you are responsible for your own research. Not all advisors can be trusted to give you the best advice or take you in the best direction. Not all employees have your best interests at heart. Allowing yourself to be led astray can cost a lot. I have too many examples of businesses that made the wrong choices starting out or failed to listen to what their intuition was telling them, which was something other than what their “trusted advisor” was recommending. You need to make sure that the road you take is the right road for you. Even the things that I have recommended here today must be scrutinized by your keen eye before acting on them.
Some things to ask yourself:
List the reasons you want to go into business for yourself
Are you willing to work long hours even if this business doesn’t make money immediately?
Have you ever worked in a similar business?
Have you ever worked as a foreman or manager?
Have you taken any business courses in school?
What is the minimum amount of money you need per year to meet living expenses?
Could you make more money working for someone else?