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Business bill format for Security

[Music] welcome back to the sense of security podcast I'm Cassy Clement senior manager of SEO and content and interactive brokers and today I'm your host for our podcast Our Guest is elizabth aola nerd wallet's personal finance expert starting a business can be fun and exciting but the financial aspects can seem daunting there are so many things to establish and to keep track of in this episode we'll explore some of the best practices to keeping your startup business on track financially and key performance indicators to stay well informed about welcome back to the show Elizabeth it's always a pleasure to be here so let's just Dive Right In Here um you know the biggest deal I guess you could say for the past uh I want to say almost a decade business reality television if you will something like Shark Tank people are so enamored with it they love the idea of a startup um it's also obviously a huge buzzword when it comes to finance and the business world and banking um but just to go in here you know what exactly constitutes a business as a startup before we dive into the more important stuff yeah it can seem like gray area right so to dive into that any business that's in the incipient stages of operations can essentially be classified as a startup so startups usually have an end goal of establishing a repeatable and also a scalable business model and they want to do that as quickly as possible and they trying to make a dent in their industry um another way to describe the difference is that startups are more focused on rapid robust growth and want to go from startup to company as quickly as possible but that may not be the case for small businesses yeah and those startups it's important to um realize for our listeners you know some of the ways that they may be funded it's not that it's one size fits-all there's a lot of different funding whether it's um you know different types of investors or venture capital or maybe it's um almost like an incubator type situation from another business there's a lot of ways but the financial ideas when a Brand New Concept comes into play a lot of the key metrics and documents people should have generally stay the same and not to harp back onto the Shark Tank thing but if you ever watch an episode there's a lot of repetition in what they ask for from the people that are on the show and it's usually different metrics and documents that um a bank may also ask you for if you're looking to establish a loan for your company so to get into that aspect when we're looking at the financial metrics for your financials and your startup idea or even if you are a startup currently you know what are some basic metrics and documents that someone should be aware of when starting their business or maybe starting out the business yeah so that's a good point there are a few things that come to mind that people will need or may need and that includes an EIN choosing the right business structure is something I think sometimes people don't think about getting the right licenses having a business bank account and then also business credit card if you want I can go into a bid in each for you or we can move on if you feel it's a self-explanatory no I think that'd be great let's go right into that I I can riddle off some of the more accounting type uh documents that also could be helpful for the listeners because you kind of need one of those to establish the other absolutely absolutely so starting with an a for anyone who doesn't know it's essentially just a 9 digit number that identifies a business for tax purposes and also an important distinction to make is that it creates a separate entity in the irs's eyes between your business and yourself um so an EIN can help with opening business bank accounts it can also help when applying for licenses and also when you're filing your tax returns now for anybody you know who's listening who is thinking about starting a startup um it's awfully usually necessary if you plan to hire employees and set up payroll in the future so at nerd wallet we suggest that every business get an EIN um unless you happen to be a side Hustler and you don't have any plans of expanding or growing your business now in terms of business registration and structure this is a really important one because the legal structure of your business can essentially affect everything from your taxes to what you're liable for and both of these things impact your finances as well right um so common business structures as some of us may know is a sole proprietorship a partnership um an LLC a C Corp and escorp um but I will highlight that many startups tend to start as a CT or rather establish their business structure as a CT um because it has the strongest protection so if you think of a business like Google for example they are usually structured as a c cor right um so yeah those are some things to be aware of in terms of your business structure for anyone who's wondering like how do I choose which business structure to go for it's a good idea to educate yourself by reading through each it's a bit long to go through each um on this episode we do have resources on nerd wallet and seeing which best aligns with your long-term goal and also how much risk you're willing to take right for licenses and permits that's pretty self-explanatory and that's going to vary depending on the industry that you're in but you want to do research and make sure you have the right licenses and permits to run your business so that you can avoid running into trouble now as somebody who is you know a oneman business owner business bank accounts and business credit cards are two of my favorite things to talk about in terms of things that you need because it really really helps you separate again your personal finances from your business finances and this can be critical because you want to avoid something called comingling which is when you mix both your personal and your business finances and as a business if you ever get audited by the IRS and you are found co-mingling this could nullify any liability protection that you have if you're an LLC esort C cor and basically leave you pretty vulnerable yeah and I mean those pieces that you mentioned they're very important to think about before you you're launching and making sure that you have all of your ducks in a row now upon launch there's obviously going to be different things that you want to be aware of whether it's to secure more financing to grow your business to understand structure and your model we actually did a a podcast recently on intro to business models which is kind of the same thing you know how are you making your money what are your profit streams are you subscription based are you service based um are you a franchise what's what's the style here um but really it's important to make sure that you have a good grip on you know what's your profits and loss your balance sheet do you have a tax return yet which kind of goes into the Ein scenario or do you have any reports that at this point are kind of out of order they're too old you know can you answer quickly like net income what your capital is do you have a profit margin quick type of items that are really important in those early stages because as you mentioned if you do end up making the mistake of comingling any of the finances it's incredibly crucial to understand those key metrics because now you got to figure out how to pull that out to separate it especially if you're going to grow uh it's a lot harder going into that um after the fact then slowly maturely adding bits and pieces um so you mentioned that that whole idea of okay if you're going to go into launch you may think okay it's might start up as my side Hustle but if you do at any time feel like this is a long haul you know you want to make sure that um you keep the finances on track for the business that you are starting up so what are some best practices that you can think of that startups may not think of or maybe just it's a good thing to keep in mind when they're starting to operate or even right before they start to operate I will say especially as a small business owner bookkeeping is essential so I know this is probably not revolutionary but it is something that is so easy to lose track of and I know when I first started my small business I was comingling did not have any bookkeeping system in place and what would happen is tax season will come and I'd be scrambling trying to you know decipher which was a business expense which was a personal expense what did I even spend money on so it's important to have a bookkeeping system in place I do understand as a new business a startup small business whatever it is um you may not have the finances to hire someone but an alternative could be to hire a virtual bookkeeper if you can afford that and if you can't uh the good thing is that there are software systems out there that you can use accounting software systems um that are both free and ones that you can pay for that can help you to stay organized um as I mentioned earlier it's extremely important to separate your business and your personal finances and the simplest way to do that is through business bank account and even a credit card or a debit card uh to help you to separate those so now that I have done that I can easily see all of my expenses because I you know make sure not to basically co-mingle and I can see what I spent throughout the year um it's also extreme important for people to understand their tax liabilities again and certain softwares can help you keep track of this as well but some people do not budget um you know for their taxes and what happens is they get hit with a huge tax bill and this could lead to penalty by the IRS if you underpay as well so something I had to also get on board with doing is paying estimated taxes um and what that is is you essentially pay a certain amount amount of taxes each quarter and you're estimating what you think you might earn so this way you can say away from Uncle s radar when it comes to penalties and fees and things like that yeah totally I mean in my research um some of the things that people may tend to forget at least in the stages because it is exciting you know you're starting a business and you're getting out there and you're trying to explain all the pros um but you know you don't want to lose sight of those financial goals um the estimating of your expenses is huge budgeting is even bigger if not very similar you know you want to make sure that you're able to limit the expenses early on you don't want to overshoot it um you want to make sure that those Revenue targets are actually you know going to potentially or are being hit um especially when it comes to budgeting um if you have to on the side for what your tax bill may become yeah um because that cash flow can start to shrink a little bit once you start to uh factor in some of those other pieces yeah um so some things that um people may not have thought of when it comes to the financial items or pieces or documents or conversations even that go into a startup what are some of those things that you can think of in my research and at least in my experience I had you know companies will start out or maybe they're small like you said will designate them small business and a hypothetical and they may need to explain how they're going to adapt their financial model because the business scale that they thought was going to happen is not happening or the business landscape is changing one of the big biggest things that people tend to forget is how do you present your financials if you didn't make a profit or you have no Revenue yet it is Major um you can have the greatest idea ever you could be an incubator you could have the most the greatest investors or you can have no investors but you have a great idea if you don't have some idea of presenting those financials and what you need before you even have that first dollar you know it's so important and of course finally at least this is just my little list the the power and the help that networking can offer you as a small business I hate to to sound like you know the the person on the street at the holidays ringing the bell but it's like you know any bit helps if you can go to any networking event or any small business or Commerce area and and talk to people in the space or connect you know it's it's really powerful and it's so helpful for your business as it starts to grow I mean from your perspective as the personal fin expert you know what are some things that people may not have thought of initially I think something people may want to explore more I know when I first started my business as well I thought the only funding options were myself or a personal loan right um and then there's that conundrum if you don't have business credit well how do I take out a business loan so I think it's important for people to explore funding options and there are so many different ones out there there are SBA microloans and those specifically cater to startups so they can provide up to $50,000 of working capital that can go towards inventory supplies Furniture fixtures machinery and equipment as well also there are grants there are so many grants especially if you happen to be in some kind of a niche so maybe if you're a woman veteran um you're a minority or just there's so many different niches for Grants out there as well that you can find um on Government Agency State organizations as well as in private corporations can find those grants as well yes I would say that and then also trade marking is one that people should think about as well so not everyone necessarily needs to trademark but as a startup if as we said you're thinking about you know big rapid growth then trademarking may be something that you want to think of so you can trademark a name a phrase a logo or a symbol um and not trademarking if you're wondering well should or shouldn't I it could lead to someone you know copying your idea or it could lead to you being sued if someone feels like your idea is too similar to them so these are protections that you also want to have in place as um a business owner yeah totally I mean something else that I think um we didn't totally touch on but we can briefly because it could be its own podcast and then of itself um but if you are a small business or startup that is investor based and you did raise a significant amount of money you may want to look into something that some vehicle where you can invest that that money can gain interest before it immediately goes back into the business whether it's you know something that's high yield or Etc um you don't have to spend everything immediately and always because you don't want to burn your cash flow so if you do have you know the opportunity where you're able to stagger some of the investment you know there's a chance that oh maybe there's something High interest or something like that to help out absolutely what you said is spot on and this is why it's so important I think sometimes business owners startup owners just have this idea that they have to do everything and figure everything out on their own and it's so important as you go along especially if you are lucky enough to have those funds to build an efficient team of people who can help you with those legs so you're not necessarily expected to know as a startup owner as you mentioned what you should invest in or exactly how to manage the money but what you do want to avoid is the mismanagement of funds so this would be a great time to speak to a financial advisor to hire a CPA or a team of financial professionals who can tell you um different options of what you can do with that money because as we mentioned earlier one of the main uh points of a startup is to scale and is to have that exponential growth and it's difficult to do that if you're not managing your finances properly and you're burning through all your cash so that would be a great time to get a financial advisor um to give you advice about what to invest in where to house your money or even just where to spend that money um that's going to lead to growth for your startup or your business yeah absolutely I mean it's so important to remember what matters um financially for scaling business rather than um comparing yourself to something that's a little bit more of a uh established Behemoth if you will because everyone has super high in the sky dreams which is great love it um but the reality is there's a lot of in the trenches if you will before you get there so you have to make sure that you know you don't run into the inaccurate projections or you have issues with your books or things like that because it can lead to a much more uh bumpy road than you necessarily need you hit the nail on the head if there is a resource out there for you whether it's via networking or if you do find an accountant or something like that that fits your needs um you don't have to go at it alone and um you know you could still reach a full potential with a little bit of help absolutely I think it's important yeah well thanks so much for joining us today Elizabeth thank you for having me and I hope this helps uh someone who's trying to start a business or already has yeah awesome thanks so as always listeners can learn more about an array of financial topics for free at the ibkr campus follow us on your favorite podcast Network and feel free to leave us a rating or review thanks for listening everyone the analysis in this material is provided for information only and is not and should not be construed as an offer to sell or the solicitation of an offer to buy any security to the extent that this material discusses General market activity industry or sector Trends or other broad-based economic or political conditions it should not be construed as research or investment advice to 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