The following does not constitute legal advice nor does it replace nor override advice given to you by a licensed attorney. It reflects the analysis and opinion of me and me alone so take it with a grain of salt.
Establish yourself as a Sole Proprietorship
Sole Proprietorship is the easiest, no frills, quickest way to open up shop. Most states do not require you to register your sole prop nor register a Doing Business As/Fictitious Business Name with the county if your last name is in the business name (ie Jones Communications, Ana Ruiz Accounting). Your Federal Employer Identification Number (EIN) will be your Social Security Number (SSN), but if you’d like an extra layer of privacy you can apply for a separate Federal EIN for your sole prop so that you don’t have to put your SSN everywhere. Once you apply you will automatically get a digital letter with your EIN which you should use on all official documents.
Open an online bank account (or several)
Online banking is set up to allow for easy online management of your finances. If you’re going to go the one-account route I would suggest either Novo if you have no need for paper checks or BlueVine if you would need to write out checks often. I personally use a modified “Profit First” system so I have several bank accounts to effectively “hide money” from myself so I have enough for taxes and continuing education courses in the future. Here is the breakdown of the accounts I have:
- Income Account: 100% of the money that comes into my business funnels through this account
- Operating Expenses: I transfer 65% of income every 2 weeks into this account. This includes the money I use to pay myself.
- Taxes: I transfer 20% of income into this account, but if you’re a sole prop I recommend 30% given how you will be taxed at the end of the year.
- Profit / Owners Compensation: I transfer the remaining 15% into this account. This is the money I use to expand the business or try new things.
Apply for a Business Credit Card
This is entirely optional, but ever since learning the points game I can’t NOT use my credit card for day to day expenses and get that cash back. I personally use Chase Ink because of their intro offers, no fees, and 0% APR introductory offer and chose the right credit card for me (the 1.5% unlimited) because of the nature of my practice, but choose the right one for you. After the first 6 months when I was more established I started paying down my card every month so that after the intro 0% APR expired I was in the habit of paying it down and not incurring interest fees, something I HIGHLY suggest doing if possible.
Get accounting software
Do not - I repeat DO NOT - try and manage your accounting in a spreadsheet. If you are not an accountant by trade you just do not have the skills to properly manage your bookkeeping in a way that a CPA can use at the end of the year to file your taxes appropriately. Wave is a free accounting software that is similar enough to Quickbooks that it will meet all your needs as a small business. Connect all your bank accounts and credit cards if applicable so that all your transactions are automatically uploaded and make sure you categorize them appropriately depending on your type of business. It also lets you upload your receipts and attach them to specific transactions so if you ever get audited all the evidence is right there. I’m of the philosophy “prepare for the worst, hope of the best” when it comes to financial and legal compliance so I make sure to set aside a few hours every 2 weeks to keep my records up-to-date.
Find the right payment processor
Unless you deal in cold hard cash, you will need a payment processor. You have many options to choose from these days, and you can actually have multiple depending on how you choose to run your business. That said, I suggest KISSing (Keeping It Simple Silly) it and going for one. If you want the most options to start with, Square is your best bet. If you need to use another scheduling/inventory/online store system, do a lot of “Card On File” business, or want to run everything through your own developed website, then Stripe is the way to go. Below are options to choose from depending on what’s easiest for you:
- Easiest Set Up: Square
- All-In-One Shop (Appointments, Online Shop, Inventory Management): Square
- Lowest Card-On-File Transaction Fees (2.9% + 30¢): Stripe
- Lowest In-Person Transaction Fees (2.6% +15¢): Square
- Easiest to Integrate with Other Apps: Stripe
You need insurance - period. My go-to for all types of liability insurance (general liability, product liability, etc.) is HISCOX because it’s easy, affordable, and has an A+ rating which many landlords will require (if you’re brick & mortar). Your individual insurance needs will depend on your business type and may go beyond the scope of HISCOX, so figure out what needs your business has by talking to an insurance agent.
Apply for all of the appropriate licenses
This depends on your state, county, and city. You might need a business license (even if you have a home-based business), a Seller’s permit, or any other license your business and location require. You can find all this information on your city and county’s finance department websites.