Accounting Checklist for Starting Up Your Consulting Business

Photo by Courtney Dirks on FlickrYou’ve made the decision to start your own consulting business. Congratulations, because that takes courage and a willingness to work hard, and to work through uncertainty.

You have some big ideas. But before you make any moves to land your first client, there are some important housekeeping steps you must take that will serve as the foundation of your practice – and help you manage it as it grows.

Decide How You’ll Structure Your Business

Will you operate as a sole proprietor, LLC, or corporation? Your structure will determine what taxes you must pay and how you have to pay them.

Quick tip: If you’re not sure which is right for you, read our post about sole proprietorships, LLCs, and corporations.

Get a Federal Tax ID Number

If you’re going to operate as a single sole proprietor (so without any employees) or, in some cases, as a single member LLC, you can use your Social Security number. However, if you plan on hiring employees or will structure your business as a corporation, then you need a federal tax ID number.

Quick tip: Check out the IRS website to find out whether or not your consulting practice needs a tax ID number. If it does, you can apply for one here.

Get a State Tax ID Number 

Some states mandate it, others don’t.

Quick tip: You can get all the requirements for your state here.

Establish Your Accounting Procedures

How will you maintain your records? Where will you keep all your receipts? How do you plan on paying vendors or invoicing clients? You’ll need to determine how you’re going to create and maintain thorough accounting records.

Quick tip: The easiest solution is to go electronic (rather than manual) and purchase a software package where you can manage your books all in one place.

Open Up a Business Bank Account

Keeping your business and personal finances separate is crucial. The good news is that opening up a business account is usually a pretty painless process.

Quick tip: You may be eligible for special rates or rewards if you maintain a business checking account and a personal checking account at the same bank.

Get Insured

Each state has different insurance requirements for businesses. At the very minimum, you may want to obtain professional liability insurance (also known as errors and omissions insurance).

Quick tip: Connect with an insurance agency to determine the appropriate coverage for your business. The SBA is also a great place to start when researching insurance; it provides a wealth of information about your options.

Obtain Licenses, Permits and/or Certificates

Depending on your location, establishing your consulting practice may be as simple as going to your county clerk’s office, filling out a form and writing a check to obtain a business certificate.

Quick tip: To find out what’s required for your location, contact your county clerk and your Secretary of State’s office.

Pick Your Business Partners

Do you have a banker, an attorney, an insurance agent, or an accountant you plan to work with? Working in conjunction with these kinds of professionals will not only help ensure your practice is properly set up, but they can serve as business advisors as it grows and evolves.

Quick tip: Ask your colleagues for referrals and set up meetings to find partners you’re comfortable with. Be sure to look for those with small business experience.

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