Business Start-up Tips

By Angela L.H. Sayers, CPA, MBA


The best way for a new business to ensure it comes out ahead during the tax season is to start out the right way. Here are a few professional tips for starting up a new business.

Accounting

When starting your business, first buy a simple accounting software package for your accounting records. Check with your accountant for the package that is best for you. The right choice can save you a great deal of money. Regardless of your financial training, anyone can learn to use these software packages, which can cost as little as $250. Including your CPA in the planning process will save you the most money and time. If you wait too long, then it is more difficult to get the records up-to-date. Also be sure to discuss good internal control with your accountant. Internal controls are important for everyone to follow. Businesses that do not implement internal controls are most apt to be victimized by fraud.

Entity Set-Up

Each situation is different. Many factors about a business are used to determine the best structure. Business owners need to talk with both their CPA and their attorney to make the correct decision. Settling on one structure over another has many tax and legal implications that need to be reviewed before making a final decision. For example, an entity that has real property may be better off being an LLC as opposed to a corporation.

You need to organize your new entity only in the state(s) in which you actually operate. Do not believe those misleading commercials about incorporating your business in Nevada, for example, as that may just get you into more trouble. You will not save any taxes by incorporating in the wrong state.

Incorporate only if there is a clear need. Many businesses can operate as a sole proprietorship without incorporating. You can buy insurance to protect yourself from litigation, so there is no need to incorporate just because you are afraid of being sued.

Required Licenses

A Federal Identification Number (FIN) is required for all entity structures except for a sole proprietorship. However, it is highly advisable that you get a FIN if you are a sole proprietor, as you will be required to give this out to your clients and vendors. Download form SS-4 from the IRS website (www.irs.gov), and complete the quick and easy form. Mail or fax it to the Internal Revenue Service to get your FIN back. You can also call the IRS and obtain it over the phone, but you may be put on hold for awhile. There is no fee required for the form.

Furthermore, you are required to register with the Employment Development Department before you hire employees. Download form DE-1 from the EDD’s website (www.edd.ca.gov), complete the form and mail it. You will have your account number mailed back to you. A payroll service will handle this for you as part of its fee, but it is a good idea to be aware of what those charges cover. There is no fee to register with the EDD.

If you sell items subject to sales tax (i.e. merchandise, prepared food, etc.), you are required to register with the State Board of Equalization before you open your doors to the public. It is unlawful to sell items subject to sales tax without a seller’s permit. If you download, complete, and mail form BOE-400, (Application for Seller’s Permit) from the SBOE website (www.boe.ca.gov), you will receive your seller’s permit. While there is no fee required with this form, the SBOE may require a security deposit. You will be notified if a deposit is required once someone has reviewed your application. If you find yourself in a time crunch, you can go to your local EDD office and obtain the seller’s permit that day, but you may spend a considerable amount of time in line waiting.

Register with the city in which you operate (i.e. have an office or home office) as soon as possible and obtain a business license. Again, this can be done in many cities by going to the city’s website and downloading a form. If not, you can call city hall and a clerk will mail you the required forms. You will be mailed renewal notices each year. Generally, you need to register in every city that you have an office. Paying for the license costs less than the fine imposed after you get caught without a license.

If you have personal property over $100,000 in your business, you will need to file property tax returns every year. Register with the County Property Tax Assessor’s office, and each year you will be sent a new form to complete for the personal property taxes. Personal property covers everything except real property and registered vehicles. Examples of personal property are computers, office furniture/equipment, and manufacturing equipment.

Your industry may have specific licensing requirements. Check with your local professional organizations to make sure that you are in compliance. Also check with the Department of Consumer Affairs to see if your industry has any licensing requirements for California. Professionals such as CPAs and Attorneys are not the only categories that require licenses.

Insurance

If you are in a business that requires any kind of insurance (liability, auto, property, etc.), get the insurance as soon as possible. The cost of a lawsuit is far more than the premiums. Find a reputable insurance agent who is familiar with your industry and use him or her exclusively. It is more important to get the right policy for you than the absolute cheapest policy that may not work for you.

Doing Business As (DBA)

If you are not doing business under your own name, be sure to comply with your DBA requirements. Call a couple of newspapers and the County of Los Angeles to get the best price for the coverage.

Business Advice

While seeking professional help from a CPA and an attorney can be very helpful, it is also a good idea to take advantage of SCORE counseling. SCORE provides free, personalized advice for setting up and continuing your business. This is an extremely helpful program and a must for anyone setting up a new business. Your local Chamber office is affiliated with a SCORE counselor, and he or she will usually meet with you to help.