So you’ve had this great idea for some time...a burning desire to go out in the big world of working for yourself and make that paper! GREAT! But before you make that first sale, there are a few steps you need to consider.
These 3 steps will not only ensure that you are compliant but that you are well positioned to start your business on the right foot.
Register the business
In Trinidad & Tobago and most parts of the world for that matter, any commercial activity is considered a business and it needs to be registered with the relevant authorities.
Registration of the business can take 3 structures:
Limited Liability Company
The name itself gives a very big hint to what this is. A “sole” person carrying on a “trade”. This is a singular person conducting a business for themselves.
A partnership is a business with 2 or more owners. A simple partnership can be 2 or more sole traders coming to work together because of common interests or synergies within their businesses. A more complex model can be a law or accounting firm that is in an incorporated partnership with legal status similar to that of a limited liability company.
Limited Liability Company (LLC)
A business that is incorporated under the Companies Act. The business identifies itself with “LTD” at the end of its name. It is on the other end of the registration spectrum when compared to a sole trader in that it is a separate legal entity from the person/s who own it.
All business types must be registered with the Companies Registry (Ministry of Legal Affairs) and the Board of Inland Revenue (Ministry of Finance). If you are a sole trader, your existing BIR registration is used for the business. If the business is a partnership or LLC, a separate registration is required.
Open a business bank account
Under banking regulations personal bank accounts are not allowed to be used for commercial activity. This is called commingling and it is not allowed. But apart from not being allowed, it is just generally not a good business practice.
If business transactions are being tangled up with personal transactions, the business owner will never get a true picture of how the business is performing. There won’t be clear information that the business owner can use to make decisions on the business. And if decisions are being made on bad or incomplete data that could mean trouble for the business.
Do a cashflow projection
It cannot be underscored how important this step is.
The projection details how the business is going to perform. As a new business, especially a small business, cash is your number 1 asset. Without credit terms from suppliers or a bank, your obligations will need cash to be settled.
A cashflow projection will help you plan for when cash is needed to be spent and then match it to incoming cashflows from sales activities. The aim is to have more months with “surpluses” rather “deficits”.
Surpluses means that you received more cash than you paid out. Deficits means that you have paid out more cash than you received. In the months that there are deficits, it would mean that you would either have to reach into your personal pocket or use previous months’ surpluses.
By having this type of information at the start of your business, you are better equipped to plan your activities. For eg if the projection is showing certain months where sales are low, you can plan to do a special promotion to increase sales. Or if you are seeing where you might have surplus cash, you can plan to buy a new piece of equipment or hire an employee.
It aids in planning your business and you cannot run a business without a plan!
Which leads to a bonus point.
Do a business plan
A business plan is the formal approach that is taken to running the business. It outlines the strategies that will be taken in sales, marketing, finance and basically every other part of the business.
It provides a level of focus towards your business activities because activities are centered around a plan. Activities with such a focus means that resources won’t be wasted. Especially in the first year of business when sales are hard and money might not always be flowing, wasted efforts and resources can mean losses for your business.
Implementing the above steps can help start your business off in the right direction with compliance, clarity and purpose. They give structure to the business and provides the right framework for growth and development.
Andrea Ragoo is a professional accountant in Trinidad & Tobago. Follow her on LinkedIn