#8 - Business 101: Everything You Need to Get Started
Oct 23, 2023
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In this podcast, Mitchell and Scott discuss the essential steps to start a business. They highlight the importance of focusing on finding customers and building a viable business before getting caught up in legal and administrative tasks. They also cover topics such as choosing the right entity type for your business, opening a bank account, incorporating for liability protection, using accounting software, and the benefits of employee leasing companies. They touch on the challenges of hiring and the importance of having smart competitors in the market.
The customer should be the primary focus of a young entrepreneur, even before the product.
Opening a separate bank account and using accounting software are essential for financial management.
Insurance and proper documentation are crucial for protecting the business and handling potential legal issues effectively.
Deep dives
Setting up the business
To start a business, you should open a separate bank account and put aside enough funds to cover the first few months of expenses. This will help you track your finances easily. Consider getting an LLC and elect the appropriate tax treatment. Insurance is important for protecting your business, including general liability insurance and workers' compensation. Accounting software, such as QuickBooks or Better Bookkeeping, is necessary for managing your finances.
Payroll and Employee Leasing
As your business grows and you start hiring employees, you may need payroll services. You can choose to use a payroll service provider like ADP or Paychex, or consider a professional employment organization (PEO) that handles payroll and provides additional benefits like liability protection and employee handbooks. A PEO serves as the legal employer of your employees, and they take care of payroll, benefits, and compliance.
Insurance
Insurance is crucial for protecting your business. Consider getting liability insurance, workers' compensation insurance (if required in your state), and additional coverage like errors and omissions (E&O) insurance for your specific industry. It's important to find a reliable insurance agent who understands your business needs and can provide the right coverage at competitive rates.
Accounting and Record-Keeping
Having proper accounting software, like QuickBooks or Better Bookkeeping, is essential for maintaining accurate financial records. It enables you to track income, expenses, and generate reports. Additionally, establishing good record-keeping practices, such as regularly reconciling bank statements and organizing receipts, will ensure you stay organized and have necessary documentation for tax purposes.
Importance of Reporting Inappropriate Workplace Situations
It is crucial for businesses to have a policy in place for employees to report inappropriate workplace situations. This ensures that potential legal issues are documented and addressed promptly. By having a designated reporting system, such as a dedicated phone number, employees can anonymously report incidents to a third party. This creates a record of the situation and allows the business owner, along with the assistance of a Professional Employer Organization (PEO), to effectively address and resolve the issue. It is important to note that most of these cases are often spurious, and having a proper reporting system and documentation can protect businesses from false allegations and potential lawsuits.
The Value of Outsourcing and Seeking Professional Help
Running and scaling a small business successfully often requires seeking help from external professionals in various aspects. This includes hiring fractional CFOs, recruiting personnel, and HR professionals. By outsourcing these functions, businesses can leverage the expertise and experience of specialists in these areas, while saving time and resources. As the business grows, attempting to handle all these functions in-house can lead to inefficiencies and significant costs. Hiring a team of legal, HR, accounting, and property management experts can burden a business with high expenses and only makes sense if it has the volume and demand to support such infrastructure. By utilizing external professionals, businesses can focus on their core operations and achieve better results without getting overwhelmed by administrative tasks.
Mitchell and Scott outline the basic things you need to get a business going: which legal entity to pick, how to register for it, how to setup a bank account, and more. As Scott underlines, the most important thing for starting a business, that comes before anything else, is a customer! In Scott's view, the customer comes even before the product, and should be the primary focus of the young entrepreneur.
Mitchell agrees. Many people get hung up on setting up an LLC, opening a business bank account, and other legal and administrative tasks before they even have a viable business. As he explains, while those things are very important, you have plenty of time to set them up after you've started making money. Since you may change your product or service, and maybe your whole business model, after getting into the market and interacting with customers, you shouldn't let legal tasks block you from just starting.
Mitchell and Scott's list of items, in order of importance and complexity:
A customer
Incorporation, EIN, tax status (S Corp vs C Corp vs Partnership)
