With all the excitement and the mountain of day-to-day operational tasks that go into starting a small business, some of the less tangible aspects of getting up and running may fall by the wayside.
And once you’re up and running, it can feel like there’s no time to take a step back to assess whether all the legal and financial pieces are in place. But not doing so could have serious implications for your business, for your employees and for you.
- Determine Whether You’re Structured Adequately
Most small businesses begin as sole proprietorships because they’re easier and less expensive than alternatives, requiring no business formation paperwork to be filed with the state. As a sole proprietor, though, you and your business are considered to be the same legal and tax-paying entity.
On the other hand, LLCs (limited liability companies) do require formal registration with the state. To establish one, you’ll need to complete formation documents, register with the state and pay a fee to file your business, as well as adhere to state laws governing LLCs, which could include annual fees, reports and meetings.
Establishing an LLC also provides a layer of protection for business owners, since an LLC is considered a separate legal entity from its owner. That means that if, for example, someone should file a lawsuit against your business, you as an individual may be protected from accountability.
Not so in the case of the sole proprietorship, where the business owner is personally responsible for all of the business’s legal matters. If you’re sued as a sole proprietor and your business’s assets can’t cover the suit, your money, property and personal assets are at risk.
For most business owners, separating themselves from the business via establishment of an LLC is the smartest move to make.
- Create a Strategic Cash Flow Plan
Cash flow is key not only for business growth, but for remaining in operation as an ongoing concern. Even if your income statements indicate profitability, you can still experience cash flow problems that impact your ability to pay employees and vendors or continue investing in your business.
To get a handle on the state of your current cash flow and ensure you’re moving in a positive direction, you’ll need to surface key financials, including cash sales, cash paid out, business expenses, accounts payable and receivable, and other critical data affecting your cash flow. (If you’re not already using an accounting software that keeps track of this information, you can download a usable template here.
Once you understand your current cash flow, look for ways to improve it by working with your accountant or financial advisor to evaluate your pricing, vendor relationships, supply chain management and credit usage.
- Secure Adequate Insurance Coverage
Small business insurance is absolutely critical for protecting yourself, your employees and your company – from accidents that occur on site to external damages to your property to legal action. It’s impossible to safely run your business without insurance coverage.
But almost as damaging as not having any coverage is not having the right coverage. So how do you know what the ‘right’ coverage is?
Purchasing adequate insurance coverage for your business starts with knowing the value of the business itself. Without an accurate understanding of what your business is worth, you can’t guarantee that it’s protected properly, and gaps in coverage can leave you vulnerable to unforeseen expenses and business risks.
BizEquity’s online valuation software not only generates an accurate business valuation, it also delivers an insurance value report with recommended coverages for your business.Once you know what your business is worth, you’ll be in a far better position to make sure it’s protected.
To learn more about how BizEquity can help keep your small business protected, click here.
