If you have an idea for a new business, one of your first conversations should be with a certified public accountant. A CPA can teach you how to start a small business with a solid plan right from the start. Gail Rosen, CPA, a shareholder with Wilkin & Guttenplan P.C. and a small business tax specialist, returns to explain the ways a CPA can help get your business off the ground.
1. Evaluate Your Business Idea
When a client comes to Rosen with a new business idea, she evaluates the viability of their plan. "Starting a business is not a decision you can rush. An idea might sound good, but you need to determine whether you can actually be profitable."
Rosen recommends that you and your CPA start by looking at costs, since they're easier to predict. Make a list of your startup costs as well as the ongoing, monthly costs it'll take to run the business. "These expenses can catch people off guard. It's like a home renovation — doesn't it always cost more than you think?"
This information also allows you to see how much you'll need to sell per month to break even and, at the end of the day, whether you can realistically make money. From there, Rosen recommends figuring out how to finance your business. Will you take a bank loan? Use your own savings?
2. Pick a Business Entity
If a business idea makes sense, your CPA will figure out what type of business entity you should use — C corporation, S corporation, LLC, sole proprietorship or partnership. "Once you pick a business entity, it can be difficult to reverse, so get this decision right the first time around."
The right entity for you depends on how you expect to run your business. Do you need liability protection? Will you have business partners? Can you budget for estimated taxes? After considering these points and others, your CPA can help you determine how to structure your business.
3. Figure Out Your Tax Responsibilities
Your CPA will also let you know all your various tax responsibilities. These aren't always obvious. You might not realize you missed a tax until you get a bill, including interest and penalties, from the government.
If you plan to hire employees, you need to set up payroll and collect payroll tax. Will you be doing business in other states, and will this lead to other taxes? Do you have to charge sales tax? You should get these answers from a CPA before you open your business.
4. Set Up Your Bookkeeping
A bookkeeping system keeps track of your business transactions, like your sales and expenses. Your CPA can set up a system that's organized and easy to use.
"I recommend each business have a separate business bank account," Rosen said. "Don't mix business spending with your personal bank account."
5. Plan Your Deductions
Finally, your CPA can figure out your deductions. What's tax-deductible? According to Rosen, most ordinary and necessary expenses for running your business — things like your phone, office supplies, advertising and accounting fees.
They can also help you qualify for more complicated deductions. You might get a larger deduction for your auto expenses, for example, but only if you track of all your automobile costs, not just the mileage. Your CPA can teach you how to qualify.
Starting a new business is an exciting prospect. But instead of rushing in, take the time to learn how to start a small business the right way with the help of a CPA.
For more insights and tips, download our complimentary guidebook, How to Start a Business.
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