I recently wrote a post/series of posts (check out the first one by clicking here) about the things you absolutely need to setup your practice and get you through the first 90 days or so. I wanted to also write about some of the items I think you DON’T need to invest time and money on yet.
1) Accounting/Bookkeeping plan
One thing i don't think you have to have on the day you make this change is some sort of accounting or bookkeeping plan or complex system. It's very helpful to have your own bank account -- a separate bank account for all your business expenses even if it's a personal bank account, as long as you can show a clear segregation that these are business expenses and these are not.
When you take a client out to lunch you can use your other checking account or debit card or credit card. The main point is to keep them separate and distinct so it's easy to show if and when asked or more importantly the in the short run when you start you start to do your first tax return as a self-employed advisor.
So the reason I don't' think it's critical from day one is because you can always go back and pull the history to do the necessary reporting and that's assuming you set up your own separate bank account or it's easy (or credit card) so that one step is important but it's not something you absolutely have to do before day one.
I like Quickbooks Online and a lot of existing CPAs would prefer the Quickbooks -- non-online versions or the desktop version. Find a good bookkeeper or CPA if you don't have one - but it doesn't have to be done day zero or day sixty.
I think you can kick that down the road a few months, again depending on what type of attacks you're making in this move. I'm recording this in June of 2016 so if someone wants to make a move right now they're gonna have a good eight to nine months before there's really any hard impact of what they're doing tax-wise.
Again, that's partially personal preference, I would wanna focus on making sure clients come over -- it's what I always recommend to people. But if it's gonna bother you certainly get on top of it earlier but I guess I would just say there's time to get that away if you don't have a perfect form the get-go.
2) A Legal Entity
I don’t think you need a legal entity for your business established on day 1. My view is that you don’t HAVE a business until you move your clients over to your new firm. Many people-- especially attorneys who get paid to create them--might say an LLC (limited liability corporation) or other entity is a necessity from the absolute beginning.
I disagree on both from observations, reading, and my personal experience. I don’t think that's necessary at day one because most of the liability we're gonna take on is covered by or lot of it by E&O insurance so if we have a typo on a trade and put too many or too few shares there could be a cost to that trade when it's updated, but typically those cost are very reasonable.
I have heard of cases where you have large trade errors and actually caused a problem but those are not the liability protection that an LLC provides, it's not gonna do much good in that situation. It's not gonna absolve you from a trading error so I think at least you can definitely do business as a sole proprietorship which in a sense is what you're doing if you don't have an entity.
If you wanna get in LLC set up and you have enough time before it, that's great -- go ahead and go for it but I would say wait ninety days and see how things go then figure out how you're gonna address your legal structure and get advice from business professionals that you respect.
3) Marketing/Growth Plan
And then I don't think you have to have any kind of hard and fast marketing or growth plan. I know a lot of people that are gonna go independent or set up their own practice or move firms at all - They want that to supercharge their growth and that's fine and exciting and if you want to I'd say you go for it -- it's your practice.
But I would just make sure people realize you don't have to have that. One of the great things about an independent firm is if you're doing half what you did last year but it still pays your bills no one's gonna bother you and you don't have to pretend to have some goal to triple your business in eighteen months to make a move.
So that kind of thing again is to be dealt with afterwards just like the bookkeeping and accounting and the entity formation.
So those are few things that I don't believe are think are mission critical before you establish your business. I'm sure there are others that aren't critical and maybe some others that you might think are critical.
Let me know what you think at sean@indyFA.com. I hope this was helpful, again it's a very basic checklist in some ways. If you're already independent or probably was a bit simplistic but if you're looking at making the change, want to really break down to the key highlights, I'm sure there's just not that much to it.
It's a lot of work to make sure you're ready to take on your clients and learn a new system….it's not easy, but it is is actually fairly simple.