Starting a Business Checklist

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Holly Magister, CPA

Holly is the founder of Enterprise Transitions, LP where she helps business owners who want to grow their business, plan for its ownership transfer to family members, key employees or to an outside party, or who needs help when it’s time to sell.
Holly founded ExitPromise.com as well as StartupPromise.com and so far has answered more than 3,000 questions asked by business owners about starting, growing and selling a business.

Latest posts by Holly Magister, CPA (see all)

• Startup vs Acquisition – Which is Best? - August 21, 2023
• How to Get Money to Start a Business - August 7, 2023
• How to Raise Capital to Start a Business - February 17, 2023

This post includes our comprehensive starting a business checklist for you to follow as you launch your startup.   Download your Roadmap to Your Startup here.

It includes the various steps you should take to protect your assets and income when launching a startup, how to streamline your record keeping and to organize your new responsibilities as a business owner in the first year. 

We developed this starting a business checklist / roadmap to provide you with the guidance and resources you need to succeed as you start your business.  

Do you have a question?  Ask at the bottom of this post.

One of our advisors will answer!

Protect Your Assets and Income With a Business Entity

In prior posts, I’ve used the image of a fence around your business as an analogy for the formation of a business entity (corporation, LLC or partnership) to separate and protect your personal assets and income.  

Building strong fences around your personal assets and income by forming a separate business entity is critical to protecting yourself when launching a startup. 

Forming a separate business entity puts a fence around your personal assets, investments and savings from certain business liabilities; however forming a separate business entity does not protect the business’ assets and income from liabilities within the entity!   

Preserve Personal Liability Protection as a Business Owner

It is simply not enough to file the business entity paperwork required by your state and set it aside.  Instead, there are several matters you should carefully consider as you start and operate your business in order to preserve your personal liability protection.

Set up and maintain your LLC Operating Agreement, Partnership Agreement or Corporation properly. Properly setting up and maintaining your LLC, Partnership or Corporation will go a long way towards keeping the fence separating your personal assets from most business liabilities in good shape.  

It is imperative for you to understand your LLC’s Operating Agreement (or Corporation’s Bylaws or Partnership Agreement) so you are able to meet its obligations as a business owner and document your compliance with what you’ve established.   

Streamline Your Business Record Keeping From Day One

Many business owners (new and those who should know better!) year-after-year create one hot mess when it’s time to file their business and personal income tax returns.  It doesn’t have to be that way and today, more than ever, there are many resources and tools available to help. 

The best resource is a bookkeeper who understands small business and is able to handle all accounting and tax-related tasks for you.  If you can afford one, hire the best you can find. 

Alternatively, if you like to work with numbers and are comfortable with using software and/or online tools, there are two options I recommend: 

• QuickBooks offers small business owners many options.  Their offerings may be sourced at Quickbooks.com 
• A new cloud-based company offers small business owners access to a very simple accounting software package called FreshBooks.  This software helps business owners invoice their clients, track time and business expenses.  Learn more about the differences between FreshBooks and Quickbooks here.

Hire a Payroll Processor

Unless you are an accountant by training and you love to prepare payroll, remit payroll taxes to the government and prepare payroll reports, delegate payroll processing to a company that specializes in these tasks.  I am a CPA and I don’t do our company’s payroll.  A payroll processor handles it for our business and it’s the best money I spend every single payday!   

Aside from the time freedom having a payroll company to process your payroll offers you, delegating this task will force you to pay your payroll taxes (both the employee’s payroll withholdings and your matching company payroll taxes) first!  This means you will be less likely to get behind on your payroll tax liabilities and find yourself cross-haired with the IRS.   

Regardless of the type of business entity you choose to form (or not), the payroll tax liabilities are one of the business liabilities which a business owner never escapes from personal responsibility!  Never.   

Keep Your Personal Assets Off the Business Books

One of the most risky assets owned by individuals is an automobile driven by the business owner, their spouse or children.  There is no reason for a business owner to buy an automobile and put it on the books of the business!  None.  Doing so serves only a plaintiff’s Attorney well.  It makes it very easy for the plaintiff to successfully convince a jury that the accident junior caused should be paid for by the business.  And worse yet, if the accident causes serious injury or death, the automobile driven by the business owner (or their family member) on the company books is a recipe for a possible catastrophic financial disaster.  

Keep Your Personal Expenses Out of the Company Checkbook

If you want to convince a jury that your business is a separate legal business entity, don’t use the company checkbook as if it were your own!  Do not pay your mortgage, utilities, or make gifts to others out of your company’s checkbook.  Keep a separate personal checking account to pay personal expenses and be diligent about taking distributions properly from your business.  

Utilize Insurance as Your First Line of Defense

Although forming a separate legal business entity for a new business goes a long way to protect a business owner’s personal assets from certain business liability exposures and there are ways to minimize the liability exposures within a given business entity by splitting assets and properly structuring debt and equity, the first line of defense for every business owner should be the use of various types of business and personal insurance.  Many risks may be managed or transferred if proper and adequate levels of insurance is purchased. 

There are several types of insurance every business owner should consider buying when they start a new business.  Certain insurance policies are mandated by law and others are simply necessary in today’s litigious environment. 

If you hire employees, most states will require you to purchase a Worker’s Compensation Insurance Policy.  This coverage is tied to the states in which an employee resides so it is possible that a given new business which has several employees residing in various states will need to secure coverage in multiple states.  

Be careful here.  Ask your insurance agent if the policy covers each employee and verify it is so when you examine the insurance policy.  The fines for not covering employees with a worker’s compensation insurance policy are steep. 

You may want to explore an Employment Practices Insurance Policy also if you have hired employees in your business.  This type of policy covers the business should an employee make a claim in the future that the business owner or its other employees have mishandled or mistreated them while employed.  I’ve observed an uptick in these types of claims in my work with business owners and several have commented they were very happy to learn their employment practice claim was covered under this separate insurance policy! 

If your business involves work by its employees where an error or omission may occur and cause another party harm, you may want to consider purchasing an E&O Insurance and/or Professional Liability Policy.  The need for this type of insurance is dependent on the type of business you have so speak to your insurance agent about this form of risk and insurance.  Also note, not all insurance agents sell E&O insurance policies so you may need to seek this from another source such as your trade association. 

Your business should consider purchasing a General Liability Insurance Policy (aka a Business Owner Policy—BOP) and its coverage limits are dependent on the size of your business and its particular risk profile.  If you are leasing real property, your lease will likely require coverage and specify its minimum coverage. 

Two other business insurance policies I believe are important to consider in today’s litigious and technical society are Director’s and Officer’s Insurance and Cyber Liability Insurance.  The former covers your corporate officers (managing members and partners) and the latter covers losses associated with cyber-related crimes.   

And last, but not least, every business owner should consider purchasing an Umbrella Insurance Policy through their personal insurance agent!  I can’t emphasize this enough.  This type of insurance is a policy which covers your personal assets from the risks which may be excluded from coverage elsewhere.  That’s powerful and should bring comfort to business owners who truly want to have complete coverage.   

Additional care must be heeded here.  Many insurance agents discount the need for this type of coverage.  I will reserve my opinion regarding the reason I believe this is the case.  What’s important here is to understand it’s possible to cover your personal assets with umbrella coverage to reduce the risk associated with your personal and business assets.  An umbrella policy won’t pay your commercial lease if you go out of business, however it may help you defend if a disaster occurs at your plant when those involved sue you personally.  If there is a disaster, there will be many parties in line to sue your business and you as well.

Properly Execute Legal Documents as the Business Owner

In another post I covered the topic of business owner’s titles and roles and officers of each type of business entity.  The reason for doing so is so you may be prepared to properly execute legal documents which will be used as you start, grow and ultimately sell your business.   

It’s very important to use the proper title as an owner or officer of your business when you sign your name to legal papers.  Doing so ensures that all parties involved know you’re acting on behalf of your business entity and not as an individual.  This is especially important when you are signing agreements with others which include guarantees and indemnification clauses, etc.  Your business entity should be the party providing the guarantee and indemnification, not you as an individual. 

Do not sign your individual name to a legal document, contract, agreement, etc. if you are not clearly identified as the officer acting on behalf of your business.  

For example, if you are the managing member of your LLC and you are signing a lease for your business, your individual name should be accompanied by “Your Company Name, LLC, Managing Member”.  Your business’s legal name and your proper title should accompany your individual name and signature.  Executing documents in this way will notify all parties you are acting on behalf of your LLC business, not as an individual.   

There are exceptions to this—especially when a bank lends a business money.  In today’s credit environment, it is rare for the business owner to not be expected (and required) to sign a loan guarantee for their business loan or line of credit.  When another party is asking you to exclude your company’s name and your title, be certain to seek legal advice before signing.   

Conclusion

In summary, we have reviewed seven steps you can take now and in the future to further protect your personal assets and income from potential liabilities and they include:

1. Properly set up your business entity and document what you do to maintain your business in good order; 
2. Utilize either a bookkeeper or software to keep your financial records;
3. Hire a payroll processor;
4. Keep your personal assets (such as cars) off the business books;
5. Keep your personal expenses out of the business checkbook; 
6. Utilize insurance as your first line of defense; and
7. Execute business agreements properly! 

Before I share the Starting a Business Checklist with you, there are two key takeaways I’d like to emphasize: 

1. When it comes to defending yourself against a lawsuit, employee claim, IRS or other tax authority, the devil is in the details.  Do things the right way from the inception of your business and document the steps you take along the way. You will be glad you took the time to do so.

2. Many risks associated with growing a business may be transferred through the use of proper insurance coverage. 

Starting a Business Checklist

Pre-Startup Checklist

• Research Business Idea and it’s Industry

• Define your Startup’s Competitors
  • How will your business differ?
  • Why will your business be successful?

• Research Name of your Startup
  • Is the URL available?
  • Is the name available in your state?
  • Is there a Federal tradename or trademark registered already?

• Explore Leased space, if applicable

• Determine How Much Capital your Startup needs to launch

• Create a Three Year Cash Flow plan for your Startup

• Develop your Startup’s Business Plan

• Develop your Startup’s Marketing Plan

• Discuss with all business owners in the Startup their respective roles and responsibilities.  Upon consensus, put it in writing and incorporate it into the official, legal documents.  Include owners’ compensation and expected contributions of capital and unpaid working hours, if applicable.

• Discuss with all business owners in the Startup how your Buy-Sell Agreement will work in case an owner chooses to leave the business, dies or becomes disabled. 

• Interview and hire a CPA or Enrolled Agent — discuss with them your choice of business entity and whether you want your business entity to be alternatively taxed as a C Corp, S Corp or partnership.  

• Interview and hire a Business Attorney

Business Formation Checklist

• Choose the State in which your Startup will be formed or established:
  • Corporation 
  • Limited Liability Company (LLC)
  • Partnership or
  • Sole Proprietor

• Draft the Corporation’s Bylaws, LLC’s Operating Agreement or Partnership Agreement

• Register at the State’s Corporation office the business entity chosen or file for a fictitious name for the Sole Proprietorship

• Obtain a Federal Employer Identification Number (EIN) once you receive official notification from the state that your business entity has been successfully registered or your fictitious name is successfully registered

This step is necessary for all business entities even if you never intend to hire employees in your business.  The EIN will be used as an identifying number when your business files its federal and state income tax returns, state sales and employment tax returns and will be needed to open a business bank account. 

Federal Form SS-4 is accessible online here:  https://sa.www4.irs.gov/modiein/individual/index.jsp

Upon receipt of your Notice of EIN Assignment from the IRS, find a safe place to keep it for the future.  This notice is used as an ‘official’ document and will be requested by third parties in the future.

• If electing a different entity classification for your LLC or Partnership for federal tax purposes, file the IRS Federal Form 8832 within 75 days of the effective formation date of your business entity.

• If electing S Corp federal tax status for your Corporation, file the IRS Federal Form 2553 within 75 days of the effective formation date of your business entity.

• Register your Startup as a Foreign Business Entity in all states where your business will have established a physical presence known as nexus — by having employees or sales representatives, an office or plant, any tangible personal property or inventory located in another state.  You will have to file business income tax returns in these states in the future.  You will also likely have to file and remit employment and sales taxes in these states.  

• Apply for Sales Tax Licenses in the state in which you’ve formed your business entity and any other state where you’ve established nexus

• Purchase the Domain name for your Startup

Establishing Business Checklist

• Apply for Licenses for your Startup:
  • A Federal license may be necessary (however, it’s not common).  If your Startup involves selling alcohol, tobacco, firearms, meat or drugs, or it offers investment, broadcasting or transportation services, apply for a federal license.
  • A State License may be required if your Startup is involved with professional services or it sells certain types of products.  Contact the state in which your Startup is formed and all states where nexus is established to determine if a state license is necessary.
  • A Local License may be required as well. Contact your local municipality, town, parish or similar governing body to determine if you need a license to operate your business within its borders.  This applies to home-based businesses as well.   Many local governing bodies have zoning requirements for both commercial and residential properties that address business licensing and may restrict home-based business operations.

• Open a checking account with a commercial bank.  Check in advance with the business banker what will be needed to open the bank account.  The requirements vary widely between commercial banks.
  • Order business checks even if you intend to make all payments in digital form.  There will be times when you will need to have a check.

• Set up a bookkeeping system or hire a bookkeeper

• Negotiate and sign a lease, if applicable

• Create a business logo for the Startup

• Purchase a Host with an SSL Certificate and Build a Website

• Establish Social Media accounts for the Startup 

• Hire Employees

• Hire a Payroll Processor

• Purchase Inventory, if applicable

• Order Business Cards

• Draft a Cross-Purchase Agreement for your business co-owners

• Obtain Business Insurance for your Startup:

• • Workers’ Compensation Insurance (if you have employees)
  • Employer Practices Liability Insurance (if you have employees)
  • Errors & Omissions and/or Professional Liability Insurance (best to have if in a professional services business)
  • General Liability Insurance (BOP)
  • Directors and Officers Insurance
  • Cyber Liability Insurance
  • Personal Umbrella Policy for business owners

Often we’re asked how we get paid for doing what we do here.  In the spirit of transparency, the site has various affiliate and partner relationships from which we may earn a commission if you ultimately choose to buy through certain links on our site or hire one of our partners.  

Please know, doing so costs you nothing additional.  Many thanks for your support!