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Allison Bishop
December 30, 2022
How to prepare your business for success in 2023
By Allison Bishop
It’s very easy to start a business in Maine. Other states require new businesses to register with the Secretary of State, but Maine has no such requirement.
Even though you don’t have to register, there are still practical steps you can take to make future compliance — and your personal finances — run more smoothly.
Separate your business and personal finances. Set up a business bank account. Using your personal account for your business leads to confusion for you as the business owner and could present problems down the road if your business is in debt; your personal funds may be at risk if they’re co-mingled with your business money. Another advisable step is to set up a business credit card so that you’re not using your personal card for business purposes.
Track your business income and expenses. Depending on how many expenses you have, you can start with very simple bookkeeping. Some people start out with Excel, or even pencil and paper. If you’d like something more sophisticated, there are plenty of accounting software packages available. If you’ll have payroll (paid to yourself or employees) you will need a payroll provider and will have to file employment tax forms.
Look ahead to tax season. To make your life easier, set up your bookkeeping from the beginning so that it aligns with the lines on the tax form. This will turn tax preparation into simple data entry rather than a headache. If you are on your own you can continue to file your taxes on your personal return, either as a sole proprietor, or as a single-member LLC. If you work with someone else you will report the business income and expenses separately, in which case you should make sure that the business is treated as a “pass-through” so that you do not get taxed twice.
Figure out when your business will break even. Projecting out your business income and expenses before you start your business is important. You will almost certainly have startup costs before your business generates any revenue at all. Setting up a website, establishing insurance, and perhaps rent and a security deposit all may be necessary early in the game.
If you do adequate research about the revenue potential and realistic costs, it will give you an idea of how quickly your business will become viable and how much it will cost to run.
It also gives you a way to measure your actual revenue and expenses against your expectation — and when it will turn a profit. Unless this is a side business for you on top of your day job, you will also need to figure out how much money you need for your personal finances and understand how you will cover those expenses until your business generates enough revenue to do so.
The most prepared business owners have thought about this far in advance. It is wise to set aside enough cash not only to cover the startup costs and a cushion for several months of business expenses, but also a year or more’s worth of personal expenses. This will allow time to get the business up and running. The more money you can save ahead of time, the more time you have to make your business a success.
If you think you may need a loan, look at your business through your banker’s eyes. Establishing credit for a new business is difficult. If you have good personal credit, you can likely get a business credit card for a few thousand dollars, but banks often require three years of tax returns showing positive net income before they will issue a small business loan. The exception would be if you can secure the loan with collateral, such as your house or business equipment.
Thinking about all these issues early will make the tax and financial part of your new business run more smoothly. Nearly all new businesses face roadblocks or unexpected costs, and preparing to the best of your ability will leave you with the bandwidth to handle those as they arise.
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