The Financial Steps to Take When You Start a Business

Set up the legal and tax basics

Choose a business structure, register the business, and get an Employer Identification Number. These steps make separate banking and credit possible.

Your structure affects taxes, liability and paperwork. A sole proprietorship is simplest, while an LLC or corporation separates personal and business liability to a degree. Talk with an accountant or attorney before choosing. Our guide on choosing a business structure covers the options.

Then obtain an EIN from the IRS, which is free to request directly, and check state and local license requirements. See business tax ID numbers for the details.

Separate business and personal money

Open a dedicated business checking account on day one and run every business transaction through it.

Mixing funds creates messy books, weakens liability protection and makes tax time painful. A dedicated account also builds the bank history funders ask to see. Keep a business card or debit card for business spending only.

When you take money out for yourself, record it as an owner draw or a payroll amount, not random transfers. Read how to separate business and personal finances for a clean system.

Budget the startup costs honestly

List one-time costs and monthly costs separately, then add a cushion of several months of expenses before revenue becomes steady.

One-time costs often include equipment, deposits, licenses, branding, a website and initial inventory. Monthly costs include rent, insurance, software, utilities and marketing.

• Add a 15 to 20 percent contingency to your estimates.
• Include your own living costs if you will not draw a salary.
• Estimate how long it will take to reach break-even sales.

See business startup costs and the break-even point formula to size your target.

Price for profit, not just to be competitive

Your price must cover direct costs, overhead, taxes and a profit. Underpricing is one of the quickest ways to run out of cash.

Illustrative example: a product costs $40 to make and deliver. Overhead adds $15 per unit at your volume. If you sell at $60, you earn $5 before taxes, which leaves almost no room for mistakes. A $75 price gives $20 of margin.

Compare against competitors, but do not copy a rival whose costs may be lower. The complete guide to small business pricing walks through the methods.

Pick bookkeeping tools and a tax routine

Use accounting software from the first month, categorize transactions weekly, and set aside money for taxes as you earn.

Catching up on twelve months of records is slow and expensive. A weekly 30-minute routine is much cheaper. Save receipts, reconcile your bank account monthly, and move a percentage of revenue into a tax savings account. Your accountant can suggest the right percentage and tell you about estimated payments.

Start with startup bookkeeping and consider hiring a bookkeeper once volume grows.

Plan how you will fund growth

Most new owners self-fund at first. Outside funding becomes realistic after you have operating history and steady revenue.

Personal savings, friends and family, and startup-oriented programs are the usual sources before revenue exists. ROI Funder does not place startup loans for businesses under six months, so it is built for the next stage: 6+ months in business, $20,000+ monthly revenue and 500+ FICO.

At that point, working capital or a line of credit can finance inventory, hiring or equipment when the payback is clear. Funding ranges from $5,000 to $5,000,000, with a soft credit pull to apply. Before then, read about how to get startup funding.

Whatever route you take, write the plan down: the amount, the use, the expected monthly return and the date the money should pay for itself. A page of numbers like this keeps early spending disciplined and makes any later conversation with a funder or advisor much easier.