Episode 2: Transcript
Creating a solid foundation is the key to long-term success.
You’re not starting a business because you don’t like your current life. You’re not running away from the day job — you know that if you did that, your old devils would just follow you into self-employment! You’re starting your own business and leaving your 9-5 job because it’s finally time to go it alone and be your own boss. It’s time for you to shine, doing what you love most in the whole world. – and today we are going to make sure you are prepared to shine!
Today, I am going to talk about the details of what has to be in place before you start your business. About all the steps you need to take to ensure a solid foundation for the entity you are about to create! You know, all that boring stuff no other course talks about…because it is boring. So please stick around and listen because I will be covering some important topics like knowing your business structure, business banking, setting up your home office, and how to set boundaries for success. All things you will want to know.
I know that starting a new business very would be easy if you had a million dollars in start-up capital sitting comfortably in your savings account. That way you can just pay people to do all this uninteresting and boring work that needs to be done before you even start —but even then, without that great business idea, it wouldn’t go very far.
Here’s the good news: You don’t need to have a million dollars in your savings account. Countless entrepreneurs have “done it” on what is known as a shoestring budget, and countless entrepreneurs have done it from a position of desperation or lack.
The latter is not recommended and not ideal—but people who have done it will tell you there are creative ways around lack of budget: And if they’re successful, they will also tell you they knew what to plan for, and what to implement quickly as they started to make money.
The important thing, however, is to know what YOU need for YOUR start-up. Whether you can get started on one hundred dollars or you need one hundred thousand, make sure that it is a figure you can raise—without betting the farm on it.
If you’ve listened to the last episode, you should have done the research to ensure your business idea is sustainable and are ready to go with starting your new business. Now it is time to it’s time to demystify, simplify and take care of necessary house-keeping.
- Niching Down Your Business Idea
- Deciding on your company business structure
- Getting a BIN (Canada) or EIN (United States) for your business
- Setting up your business bank account and bookkeeping
- Preparing to set boundaries for your home office.
Is your niche narrow enough?
Selecting the RIGHT niche is a critical first decision to make for you and your business. Think about the type of niche that’s best for you. Ask yourself these questions:
- What are your passions and interests? (i.e. helping people, yoga, travel, etc.)
- What are your top skills? (i.e. accounting, teaching, photography, building stuff, etc.)
- What are your relevant experiences? (i.e. travelled the country, taught grade school, etc)
- Based on your passions, skills and experience, what niche markets appeal to you most?
What profitable niche markets fit well with your passions, interests, skills and experiences?
If you are planning to serve a broad niche (example: ‘weight loss’) you will be drowned in competition. Specialize, and find a specific small segment that you can serve. (example: ‘ovo-lacto-vegans’)
Is your niche sustainable and scale-able?
Once you’ve solved your customer’s problem with the specific product or skill you’re offering, is there someplace else for them to go within your business? Is there a natural “next step”? Can you create multiple programs and products for them?
Deciding on your company business structure
Now that you have your business identity and idea all mapped out, you have done the research and ready to go, it’s time to de-mystify, simplify and take care of necessary house-keeping. Including this disclaimer…
This Podcast is intended to help you start your new business on the right foot. It does not go into the legal aspects of starting a company, for jurisdiction reasons.
Please understand the importance of deciding where and how you plan to operate your business may require municipal, provincial (or state), and sometimes federal licensing and registration before you can open.
Although a business license is not required for all business types, registering your business with your city may be required.
For more information on what businesses are required to be licensed, and business tax information, visit your local municipality office or website.
Before you can decide what sort of business entity you want your company to be, you need to make sure you understand all aspects of your proposed business. Be sure to discuss your proposed business with a business lawyer and/or accountant.
How do you know which type to choose?
- Sole Proprietorship: – YOU ARE YOUR BUSINESS and intend for it to vanish when you decide to retire or walk away, then this is the right structure for you. Only consider sole proprietorship if you never plan on having partners, selling the business, hiring actual employees or seeking any sort of business loan. And be aware that, as a sole proprietor, you are legally and personally liable for actions taken against you or your company.
- Limited Liability (LLC) – If you DO plan to sell your business one day, hire actual employees, acquire a partner or seek out financial investors or loans for your business LLC is the only option for you.
Also, if you plan to be dealing with large amounts of money, services where there is some risk (however small) of someone getting injured (client or employee), again, this is probably the wiser choice. LLC stands for ‘limited liability corporation’; which means if your business goes bust, only the business assets are seized—not your personal assets.
Finally, if you have even one business partner (and I’m not talking simple JV partners), then you need to go LLC. Especially if both partners are to share equal signing authority in banking matters.
- Incorporation – If you don’t have a partner but you do plan to sell shares in your company, you will need to incorporate. Doing so gives you some liability protection and additional tax deductions over a sole proprietorship.
Do research into which is better suited for your company before you move forward. Once you have made the decision on your business structure, you need to look into business taxes and tax numbers.
Getting your BN or EIN
Once you have your business structure identified and your licence is in place, it is time to look into everyone’s favourite – taxes… There are so many rules and regulations in regards to business taxes – all dependant on where you live. Even from province to province and state to state.
Business Number (BN) – Canada
In Canada – it is simply called your Business Number (BN) is a 9-digit business identifier used in Canada to which businesses can register program accounts with the Canada Revenue Agency (CRA).
This number is basically your CRA Identifier when communicating with the CRA about your accounts you have or wish to register for. For example, if you would like to discuss your GST/HST account or you would like to register for a payroll account, you need to provide your BN.
You can register for a business number via mail, phone, fax or online on the CRA Website.
Visit the Government of Canada website for more information on when you need a business number or another program account.
Employer Identification Number (EIN) – United States
It goes without saying that if your business resides in the US or US Territories, you will need to get an EIN number which stands for: Employer Identification Number (EIN) is also known as a Federal Tax Identification Number, and is used to identify a business entity.
Generally, businesses need an EIN. You may apply for an EIN in various ways, and now you may apply online. This is a free service offered by the Internal Revenue Service and you can get your EIN immediately. BUT you must check with your state to see if you need a state number or charter first.
Where ever you are – inside or outside of North America
Please check with your country’s, State, or Provincial government website to determine your specific business registration needs.
Setting up your business banking.
Before you decide how to run your business banking, you should have identified how much start-up capital you have and have some idea of the income you plan to make, and what you intend to budget. At this point, a ballpark or projected figure is just fine! We will move into business planning and future goals in future goals, financially at a later episode.
It’s always best to talk to your accountant and/or lawyer before setting up legal entities like bank accounts, but at the very least, very least, you will need a separate bank account dedicated to your business. Not separating business and personal finances is the number one mistake that entrepreneurs make. (According to Corey Whitaker and Parker Stevenson of Evolved Finance.)
A tip from one of their recent webinars: “If you move money from your personal checking to business checking, you need to realize that you are giving your business a loan—make sure it’s not mistaken at tax time for income—very important to specify this amount in your bookkeeping as a ‘loan’. You are literally lending your business money from your personal account. So, if you realize that if you move money from your business account to your personal account, write it down as a payment to yourself. (The government expects you to pay yourself.)
And all income HAS to go into your business account straight away before you do anything else with it.
If you prefer to do all your banking online and/or you are worried about bank fees (if you’re starting out on a shoestring), Canadians – check out Tangerine, it is who I use and is completely fee-free. One great thing about Tangerine is it is an online branch of Scotia Bank and if you use a friend’s “orange code” or referral code, you each get $50 deposited directly into your accounts! (Let me know if you want my code! Who doesn’t like referral cash?)
My American friends, and a great one, check out Spark Business Banking, which is completely fee-free. It is a totally online branch of Capital One, and many entrepreneurs have reported satisfaction with this system.
Set up Your bookkeeping
The best way to cut down on any future headaches, confusion, and accounting/bookkeeping costs. Choose how you are going to post business entries now, then make sure when it is time, that you do so daily—don’t wait till you have shoeboxes stuffed with receipts to try and sort them out. Get into good money tracking and reporting habits right away, and you’ll make it painless for yourself, your bookkeeper AND your accountant at tax time.
Before you do anything else, talk to your accountant and run your projected bookkeeping spreadsheet by her, to make sure you have created all the right fields for your unique business. AND, if you have a bookkeeper, be sure to check with her to see if any software you want to use is compatible with hers.
A few things to remember when it comes to your bookkeeping:
- An accountant deals strictly with tax-related issues and prepares your income tax
- A bookkeeper does your day-to-day recording and posting of transactions
- THAT ALL revenue and income from your business HAST to go instantly to your business account before you disburse or use any of it!
- Proactively save 20-40% of all income for your annual tax bill, because you will have a tax bill.
Be sure to check the show notes for a link to the most common small business bookkeeping categories for your spreadsheet. As well as some other great financial resources.
Office equipment and other nitty-gritty details.
As a new business owner, you will absolutely need a quiet, distraction-free (or at least a dedicated) place to work. Ideally, it is a separate room in your house (with a door that shuts) or a space such as a room over your garage…but many online entrepreneurs have started out with a nook in the kitchen or even just a laptop on the back porch! (Actually, who am I kidding? The laptop on the back porch is my favourite place to work in the summer…) And, personally, my “dedicated space” is the smallest wall in our basement. Technically, I have a “cloffice” My desk is squeezed into a cubby that was a wet-bar and I have a bookshelf beside me.
While my husband’s “office” is on the wall opposite and the treadmill is directly behind my desk like a fake wall separating us.. I get it – you do what you gotta do when space is limited, which is why at least having a dedicated and distraction-free place to work is ideal. When it is recording time for the podcast – I have to request to be alone and kick hubs out – he’s okay with it…so far but this IS only episode 2…ask how it’s going come episode 20…
But – I digress, if you do end up working at your dining table or living room, you will quickly want to adjust this once your business starts to roll and money comes in. It’s nice to have dedicated bookshelves, a paper shredder, storage, reference books close by, a place for office supplies and maybe even a file cabinet, at the very least—and, depending on your business, you may need other specialized tools or equipment such as a postage meter if you ship goods, a feature wall or backdrop for videos, or a massage table if you are Spiritual Healer who does hands-on Reiki Sessions. Start thinking about this now – make a plan and start implementing the changes that are needed.
Besides, having your own office, distraction-free and decorated to your taste helps you feel confident and competent, it signals you are a professional to a visitor, provides you with a place from which to do your podcasts, webinars or videos—and helps ‘train’ other family members that when you’re in your office, you are AT WORK! Because those boundaries are going to be very important moving forward.
Well, there you go, everything no one ever talks about in a podcast or in their online business programs. It is long – it is not pretty – it is boring and quite frankly, not many are even interested in any of that stuff.
BUT – that stuff is all very important when you are starting your business. Much like anything else you have ever done, creating a solid foundation is the key to long-term success and your business is no different.