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Small Business Help Line – Keeping Records as a Sole Proprietor

Small Business Help Line

Keeping Records as a Sole Proprietor

Question: How do I form a sole proprietorship and start doing business?

Answer: Forming the sole proprietorship is the easy part. You simply start engaging in the activities of your business. No formal documents are required.

Of course, if the business involves activities subject to government regulations, then compliance is a necessary part of the formation process. This includes paying employees or collecting and paying sales taxes.

It’s best to open a business bank account separate from your personal bank account. Although a bank account isn’t necessary with a sole proprietorship, it will help keep track of your business income and expenses.

Although a sole proprietorship does not have to maintain documents showing how management decisions are made, you’ll still need to keep books and accounting records, listing income, expenses, cost of assets, and inventory acquired.

These records will not only help you track the progress of your business, it will also help you prepare your tax return and prepare the depreciation schedule for assets used in the business.

You may conduct your sole proprietorship under your own name, without registering it, as long as it does not infringe on the trade name of another business. You can also use a name other than your own, but in this case a certificate must be filed.

Some jurisdictions require that the information must be published in a general circulation newspaper. This is known as a doing-business-as certificate, assumed-name certificate, or a fictitious name statement.

Even if you file a fictitious name statement, you do not have the right to use a trade name or logo already used by a competitor. If you intend to invest substantially in a trade name or a logo, you should first do extensive research to ensure your prospective name isn’t already being used.

Answered by Aubrey Morrow, CFP, president of Financial Designs, Ltd., and former chair of the local chapter of the Financial Planning Association.

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