If you’re looking to launch a service-based business, congratulations! Whether you’re about to start an online coaching business, offer graphic design services, or anything else, you’re about to take an exciting step in your entrepreneurial journey. But before you dive into serving your customers and scaling your business, there are a few key legal and accounting steps you need to take to ensure your business is set up for success. In this post, we’ll cover everything you need to know about getting your business legally and financially ready for launch. Let’s jump right in!

Part 1: Legal Steps to Launch Your Service-Based Business

The first thing on your to-do list is making sure that your business is legally registered. You want to protect yourself and your personal assets as you grow your business, and setting up the right legal structure is the way to do that.

1. Register Your Business Legally

There are three main types of business entity structures you can choose from when registering your service-based business:

• Sole Proprietorship: This is the simplest structure where you and your business are one and the same. While it’s easy to set up, it doesn’t provide protection for your personal assets, so if something goes wrong, your personal property could be at risk.
  
• Limited Liability Company (LLC): An LLC is a popular choice for many entrepreneurs because it provides personal asset protection while being relatively easy to set up. With an LLC, your business is a separate legal entity, which means that your personal assets are protected from business debts or lawsuits.
  
• Incorporation (Inc.): Incorporating your business offers the most protection for your personal assets, but it also comes with more legal requirements and paperwork. This structure is generally used by larger businesses or those planning to go public.
  

Each type of structure has its pros and cons, so it’s essential to consult with a lawyer or a legal expert to determine the best one for your specific business.

I personally recommend the LLC for most service-based businesses. It’s simple to set up, offers great protection for your assets, and doesn’t require a ton of paperwork compared to incorporation. That said, you should always consult a professional to make sure it’s the right choice for your business.

2. Understand the Legal Documents You’ll Need

Once you’ve registered your business, there are a few key documents that will come into play during the process. If you’re registering in the U.S., these are some of the documents you’ll need:

• Employer Identification Number (EIN): This is like a Social Security Number for your business. You’ll use it when filing taxes and to establish your business identity with the IRS.
  
• Operating Agreement: If you’re registering an LLC, you’ll need an operating agreement. This document outlines how your business will operate, including who is in charge, how decisions will be made, and what happens if there are multiple owners.
  
• Articles of Organization: This is the official document that you file with your state to create your LLC. It includes basic details like your business name, address, and the names of the owners.
  
• Bank Letter or Resolution: This is a letter from your attorney that authorizes you to open a business bank account under your business’s name.
  

These documents are essential for making sure that your business is operating legally and properly.

3. Don’t Forget About Beneficial Ownership Information

In the U.S., there’s a new requirement that came into effect on January 1, 2024. The U.S. Department of Treasury now requires LLC owners to report beneficial ownership information. This means that when you set up your LLC, you’ll need to disclose who owns the company and what percentage they own. It’s an extra step to make sure everything is transparent, but it’s important to get this done to avoid any legal issues down the road.

Part 2: Accounting Steps to Launch Your Service-Based Business

Now that you’ve got your legal foundation covered, let’s talk about the next essential piece: setting up your accounting systems. Keeping your financials organized is key to staying on top of your business and avoiding any headaches later on.

1. Open a Business Bank Account

One of the first accounting steps you need to take is opening a business bank account. I cannot stress how important this is! Mixing your personal and business finances is a recipe for confusion and mistakes, especially when it comes to bookkeeping and filing taxes.

Once your business is legally registered, take your business registration documents (like your EIN and articles of organization) to the bank and open a separate account for your business. This way, you can keep your personal and business expenses separate, which will make managing your finances much easier.

2. Set Up Your Payment Processing System

In today’s world, you’ll likely be accepting payments online. To do that, you’ll need to set up a payment processor, which will allow you to accept credit card payments, direct debits, and more. Some of the most popular payment processors are Stripe and PayPal, both of which integrate easily with online platforms if you’re offering digital products or services.

Setting up a payment processor is crucial to streamline your income and ensure that your clients can easily pay for your services. Both Stripe and PayPal have low transaction fees and offer great customer support.

3. Keep Accurate Records and Bookkeeping

Once your bank account and payment processing system are in place, it’s time to focus on keeping accurate records of your business income and expenses. You’ll need to track things like:

• Client payments
• Business expenses (software, marketing, office supplies, etc.)
• Taxes

Using an accounting software like QuickBooks or Xero can help you stay organized and keep track of everything in one place. If you’re just starting out and have a simple business model, a spreadsheet might even work fine—just make sure to keep everything updated regularly.

4. Consult a Professional for Tax Planning

Taxes can be tricky, but getting ahead of them is important to avoid surprises later on. Once your business is up and running, I recommend scheduling a consultation with a tax professional to help you plan and optimize your taxes. They can help you understand deductions you’re eligible for and advise on the best way to file based on your business structure.

In Conclusion

Starting a service-based business is an exciting journey, and setting up the legal and accounting side of things is a crucial step to ensure you’re building a strong foundation. By registering your business, choosing the right legal structure, and setting up proper accounting systems, you’ll be well on your way to creating a business that runs smoothly and is ready for growth.

Remember, it’s always best to consult with professionals like attorneys and accountants who can guide you through the process. While it may take a bit of time and effort upfront, you’ll be grateful for the clarity and protection you’ll have in place as you serve your clients.

Good luck, and here’s to your success!

Have you taken these legal and accounting steps yet? Let me know in the comments! If you have any questions or want more details, feel free to reach out. I’m here to help!