5 Important Financial Considerations When Starting a Small Business

In today’s gig economy, many people are starting a small business from home or turning a hobby into a part-time job. What do you need to know about business finances when you are just getting started? These are the five financial aspects of running a business you must consider.

5 Important Financial Considerations When Starting a Small Business

1. Business Formation

Consider whether you need to form your business as something other than a sole proprietorship. Organizing and registering your business as a corporation separates you and your personal finances from the business and shields you from any liabilities the business incurs, whether it is debt or a money judgment from a lawsuit.

It’s always best to stay on top of your finances right from day one. If you’re new at managing business finances, you should consider talking to wealth management experts to find out the secrets of managing it all, from taxes right through to where to spend your profits. If your product or service has the potential to harm others, consider incorporating.

2. Keeping Track of Operating Expenses and Sales

You can use something as simple as an Excel spreadsheet or an accounting software to help you in properly categorizing your business expenses, but you must keep track of both expenses and sales.

When logging expenses, do not forget the following, especially if you operate your business from home:

  • Utilities (partial, considering the space you use and for how long each day)
  • Internet
  • Cost of website and domain name
  • Cost of software
  • Office supplies
  • Postage, if not paid by the customer

3. Do You Need Insurance?

Whether or not you need insurance depends upon whether you offer a product or service that has the potential to harm others in any way and whether you allow customers or clients on your business property.

Premises liability insurance will protect you if customers, clients, or passers-by are injured on your commercial property. Product liability insurance will shield your business from liability for harm from the product you make or sell. Professional malpractice insurance, also called Errors & Omissions insurance, will protect you if, while performing your service, you cause harm to your client.

4. Do You Need to Collect Sales Tax?

The answer to this question will depend upon what service or product you offer and what state you operate your business in. Even if you operate your business virtually, you may need to collect sales tax on sales in certain states.

Be advised that sales tax is one of the few debts you cannot discharge in bankruptcy.

5. Do You Need to Pay Quarterly Income tax?

If you were surprised by owing a substantial amount of income tax this spring, chances are the IRS will require you to pay quarterly income tax. The IRS will supply you with a packet of invoices based on last year’s earnings, and you will simply write them a check for that amount each quarter and mail it.

If you want to make doubly sure you are getting this right, and that you are keeping within the law more generally, it’s always advisable to get hold of a business attorney. They will be able to move you in the right direction to ensure you don’t land your business in trouble. Of course, you should make sure that you choose them carefully as well.

6. Finding Funding And Financial Support

Funding is a necessity for all new ventures. Without funding, you won’t be able to invest in the necessary equipment and build the infrastructure your business needs. Funding can come from any number of sources, including personal savings, loans from family, friends and business partners, angel investors and crowdfunding. And there are several different types of business funding available to small companies, such as; 

  • Existing cash reserves.
  • Contributed equity (owned by you).
  • Newly raised capital (via loans or investments).
  • Crowdfunding.

Before selecting a funding option, it’s crucial to understand how each one works and what’s involved. Knowing the difference between obtaining funding and receiving a loan is also important. Some creditors will ask for collateral; others do not. Some lenders insist on an interest rate; others do not.

If you’re unsure, seek financial support from an experienced professional like a trusted accountant. They can help you choose the best solution when you don’t know where to turn. 

About the Author

Veronica Baxter is a legal assistant and blogger living and working in the great city of Philadelphia. She frequently works with David Offen, Esq., a busy bankruptcy lawyer in Philadelphia, PA.

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Entrepreneur-Resources.net is happy to provide guest posting opportunities for small business owners. This article was created by one of our contributors.

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  1. Thanks for sharing. I have started my new business of garments. And these will really help me to manage my finances

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