by Rachel Rodgers
So its been a year or two (or three) since you started your business but you still haven’t done some of the key housekeeping required to give your company a solid foundation from which to grow, have you?
I know, I know. Its scary, confusing and you’ve been doing okay ignoring it, right? How long do you think that’s gonna work out for ya? Not long, my friend!
The fact of the matter is that “most women-owned businesses are not able to grow their businesses past $50,000 in annual gross revenue.” The main reasons for this are that women often do not have access to financing and that women business owners see themselves as “chief multi-tasker” instead of Chief Executive Officer.
Setting your business up the right way is the first step (of many) in creating a highly profitable enterprise that enables you to obtain financing (should you ever need it) and simplify managing the business so you can focus on growing.
So here are the 3 essential tasks you need to implement right away:
The first B is for Business Entity.
Whether or not you’ve formally formed a business entity, you do have one. Sole proprietorships spring into being, without filing any legal documents, the moment you start selling something. General partnerships also spring into being when one or more persons begin working on a business together. There are a myriad of pluses and minuses attached to each business entity which may include: increased or lowered taxes, shielding of your personal assets from creditors and even your partner’s ability to acquire debt in your name. This is not something that a quick visit to a legal document prep website can fix. You need to consult with your attorney and accountant to determine which entity is the best fit for you and your business. (What’s that you say? You don’t have an attorney, yet? Well, now is the time to get one, sister! Call up your entrepreneur friends a get a referral stat!)
Even if you formed a business entity back when you started your company, such as an LLC or S-Corp, if you have hired employees, seen a significant increase in revenue or experienced other major changes in your business since then, it’s time to reconsider your business structure. Having the wrong business entity can mean paying more taxes and having less protection for your personal assets.
The second B is for Bookkeeping.
This one is a hard lesson I had to learn. I used an excel spreadsheet to track my business expenses and income for most of the first year. I dabbled with one or two software systems, none of which seemed to really work for me.
Eventually, I broke down and implemented Outright accounting software in my business. This is something I definitely wish I had done from day 1. Of course, on day 1, I thought it would be a while before I obtained more clients than I could comfortably manage in my spreadsheet but it happened sooner than I expected. I want to spare you the hell I experienced when I had to enter an entire year’s worth of expenses and income into my accounting software. That is not what you want to spend your weekend doing!
Spend the few bucks it takes to get good accounting software now — there are many options such as Less Accounting, Xero and Wave. Trust me, you’ll thank me later. Or even better? Hire a bookkeeper to manage your books — it can be very cost effective. There are virtual bookkeepers who can manage the books of a low volume business for under $100 per month.
Peter Drucker said, “What gets measured, gets managed” and its so true. When you are paying attention to where your money is coming from and going to, you can manage your business better and make sure the money continues to flow.
Plus, you know what’s more expensive than accounting? Forensic accounting.
And from a legal perspective, keeping good records is essential to protecting yourself from vendors, clients, the IRS and others with whom legal issues may arise.
The third B is for Business Bank Accounts.
Bookkeeping becomes much harder when you don’t have a business account and you’re commingling funds from personal accounts into the business.
You need to set up an account solely for business income and expenses. This is not only good for managing business finances and bookkeeping but from a legal perspective, commingling funds between a personal account and a business account is a surefire way to lose the liability protection from any business entity you have created. This is often referred to as piercing the corporate veil.
Piercing the corporate veil happens when courts find that a business entity and its owner are not actually two separate entities but one in the same because of the way the business is managed. This means that business creditors can come after your personal assets. Not good. That defeats the whole purpose of having a business entity such as an LLC or S-Corp.
So whether you’re just getting started with your business or have decided that 2014 is the year you get your bases covered, these 3 B’s are where to begin.
Disclaimer: This article is a resource guide for educational and informational purposes only and should not take the place of hiring an attorney. No information in this article creates an attorney-client relationship between the reader and the author.
Rachel Rodgers is an intellectual property attorney, business coach, and published author. Rodgers started her career working for state and federal judges, nonprofits, and even Hillary Clinton.
Today she’s the owner of a multi-million dollar business, mother of four, and visionary featured in publications like The New York Times, Women’s Health, Forbes, Entrepreneur, Fast Company, and on hit programs like Good Morning America, E! News and The Drew Barrymore Show. She is the founder of Hello Seven, a company dedicated to helping historically excluded people make more money.
Her nationally bestselling book, We Should All Be Millionaires: A Woman’s Guide To Earning More, Building Wealth, And Gaining Economic Power, is a powerful guide to creating abundance in your life. Rodgers shares how she went from growing up low-income to glowing up as a self-made millionaire, and how you can do it too.