| Step 1 Define Your Business Intro
This mini-course will explore the reasons and benefits of creating your BUSINESS PLAN, will provide templates and examples, and guide you through the process of defining your business.
Ideally, you should complete this process PRIOR TO STARTING WITH ANY BUSINESS ACTIVITIES.
It is important that you begin recording your expenses and income IMMEDIATELY! This can be done with pencil and paper, with free tools like Google Sheets (a spreadsheet program), Microsoft Excel, or using an accounting package like Quicken or QuickBooks.
UNTIL YOU HAVE MADE YOUR FIRST SALE, all of your expenses up to that point are considered STARTUP EXPENSES, and the Internal Revenue Service (IRS) has very specific rules about what would be considered legitimate startup expenses and how they are treated in accounting and tax reporting.
The question of LEGAL STATUS and LEGITIMACY comes into play so it is important that you get any business licenses and permits PRIOR to conducting any business transactions.
The next issue is satisfying an ACCOUNTING ISSUE on how to transition from STARTUP status to NORMAL BUSINESS. This important point here is that you are considered in STARTUP until you make your FIRST SALE. It is very important to earn your first dollar of REVENUE because all expenses up to that point should be CAPITALIZED, which means that those expenses are AMORTIZED over a period of years.
Why is this important?
MONEY. CASH IN YOUR POCKET. PAY LESS IN TAXES, LEGAL LIABILITIES
Since we have talked about MONEY, you MUST keep your PERSONAL assets and expenses separate from BUSINESS assets and expenses FROM THIS DAY FORWARD. Even with a sole proprietorship, your BUSINESS is a SEPARATE LEGAL ENTITY. You should record when personal assets are used in your business, because they are to be treated as EQUITY in your business.