New Business Checklist

Transcription

1 New Business Checklist When starting a new business many things have to be done before the startup, once the business is in operation and on an ongoing basis thereafter. The following checklist is designed to provide guidance as to the major actions to take. Before start-up. Choose management advisers an accountant, an attorney, a business consultant and a banker. Develop a business plan, including cash flow projections. Using the business plan, establish a relationship with a banker. Possible bank services include: Credit card merchant account. Business checking account. Working capital loan. Equipment loan. Lock-box services. Select the legal entity and year-end. Evaluate the liability exposure inherent in the business and identify ways to minimize this liability through entity selection. Consider the advantages of C corporation status, focusing on the interplay of the C corporation issues of double taxation and the favorable tax rates that apply to relatively low levels of C corporation taxable income. Evaluate the advantages and disadvantages of S corporation status, focusing on the relatively inflexible rules on the number of shareholders, types of permitted shareholders, and the oneclass-of-stock rule. 1

2 Review the advantages and disadvantages of partnerships, focusing on the flexibility to tailor ownership interests with varying rights to cash flow, liquidation proceeds, and tax benefits. Consider the tax and nontax advantages and disadvantages of limited liability company (LLC) status, focusing on the lack of legal certainty regarding the extent of liability protection offered by LLCs. Evaluate the advantages and disadvantages of limited liability partnership (LLP) status for professional practice businesses, focusing on whether the practice can operate as an LLC rather than as an LLP. LLC status is generally preferable if it is available. Consider the advantages and disadvantages of sole proprietorship status for the business, focusing on whether liability can be adequately limited via insurance and other measures, rather than using a corporation, LLC or LLP to operate the business. Consider whether the choice of entity creates opportunities to minimize FICA or SE tax (or both). If incorporating tax-free, ensure that the shareholder does not receive debt securities in exchange for property transferred to the corporation in a Sec. 351 transfer. Debt securities are classified as boot received. If liabilities exceed tax basis of property transferred to an entity, consider ways to prevent owners from recognizing gain on the transfer. If the shareholder has a net operating loss (NOL) or capital loss carry forward, consider having the shareholder sell any appreciated assets to the corporation rather than contributing them in a tax-free incorporation. Consider using owner debt in combination with owner stock equity to capitalize a newly formed C corporation. Owner debt provides a way to bail out corporate profits and reduces the problem of double taxation. 2

3 If owner debt is being used to fund a C corporation, consider ways to ensure that it is not reclassified as owner equity. Evaluate the need to comply with the straight-debt safe harbor if there is S owner debt. Attempt to qualify any stock issued by a C corporation or an S corporation as Sec stock. Shareholders with Sec stock are allowed ordinary loss treatment on the sale or worthlessness of that stock. If Sec stock is issued, ensure the company maintains a worksheet in its files that records all appropriate information related to the stock issuance. Determine whether it makes sense to qualify the company's stock as Sec qualified small business stock. Consider the need for front-end tax planning for partners or S shareholders. Establish a system for tracking adjustments to an owner's tax basis. Also, identify ways to maximize cash flow distributions to owners with minimal tax consequences. If considering self-employment (SE), consider the tax advantages and disadvantages. Also, be aware of the many tax and nontax issues involved in the switch from employee to sole proprietor. Structure related-party transactions to minimize FICA and SE tax. Determine whether the activity is possibly subject to the hobby loss limitations. If it appears the hobby loss rules may apply, consider steps to help avoid them. Identify investigation and start-up costs. Distinguish them from organizational expenditures. Note the special planning considerations for handling start-up costs. Ensure that the costs are amortized over not less than 60 months beginning with the month in which the business begins. Find a location for the business. 3

4 Negotiate a lease. Design the layout of the business facility. Prepare all the necessary legal documents as applicable: Partnership agreements. Articles of incorporation and first organizational minutes. Bylaws. Federal identification number (SS-4). State and local license applications. Sales tax identification number. State unemployment number. Industry specific license. Obtain quotes for and then order office furnishings and equipment. Order office supplies. Order business cards and business stationary. Order office telephone number. Purchase adequate insurance: Health. Malpractice. Liability. Workers' compensation. Life. Fidelity bond. Computer and equipment. Umbrella. Register the business name with local and state authorities. Start-up. Establish prices for your goods and services. 4

5 Promote the business's opening through: Press releases to local and national media. Advertising. Social media. Direct-mail announcement. Other. (This depends on the target market defined in the business plan. For example, a restaurant or retail store might send special coupons for discounts to local residents or present a grand opening event and send invitations to prospective customers, or a manufacturer or supplier of office supplies might offer special discounts to local businesses.) Seek, interview and make offer to job candidates. Select and implement a financial recordkeeping system. Aspects of recordkeeping include: Accounts payable. Accounts receivable. Inventory tracking. Order entry. Ongoing operations. Develop personnel policies and procedures. Prepare quarterly payroll returns and verify timely tax deposits. Prepare quarterly or monthly financial statements. Perform year-end tax planning, at least one month before the yearend. Prepare annual federal, state and payroll returns. Develop employee job descriptions. Review existing insurance coverage at least once a year. Prepare and maintain personnel files. 5

6 Establish a petty cash fund and policy. Establish an answering mechanism for after hours. Join industry associations and groups. Verify listing in the yellow pages of area phone directories. Register trademarks (word, name, symbol or device) that indicate a unique identity on which your business is building. Contact us in Cedar Rapids at (319) or Iowa City at (319) to discuss these and other items related to your business. Cedar Rapids: nd Street SE (319) Iowa City: 2225 Mormon Trek Blvd (319) info@tld-inc.com 6