Managing a successful online business isn’t just about executing strategies, attending to daily tasks, and implementing appropriate changes when needed. You also need to be mindful of the requirements you have to fulfill to make sure your activities remain legal. As previously discussed in another chapter, one of the first things you have to do before you start a business is to define its personality.

This is Chapter 4.2 in The Beginner’s Guide to Starting a Successful Online Business.

A sole proprietorship is the easiest because you only have to be registered with the Department of Trade and Industry or DTI. You do not have to put up a Treasurer’s Account that covers deposits for a percentage of a company’s capitalization.

But a sole proprietorship is somewhat risky in that if you end up in debt, creditors can garnish even your assets.

On the other hand, a corporation has stricter requirements to fulfill. But being a corporate entity enhances your image to clients. It gives an impression of having the capability to scale. And if you get mired in debt, the extent of your obligation will only be covered by the extent of the company’s assets.

Translation: your creditors cannot garnish your 51” LED TV, Sony Playstation 4, J200 Gibson acoustic guitar, and your 2010 Toyota Altis if these are not recorded as your company’s assets.

This section will deal mostly with the requirements you need to fulfill if your business is a corporation.

1. Practice Accurate Record Keeping

One of the important aspects of running a business is organizing all of its transactions. It doesn’t matter if your business structure is a sole proprietorship or a corporation. You must have a system in place which allows you to manage your business efficiently and effectively.

Here is a checklist of organizational activities that you need to have in place for your business:

Get a filing cabinet

I would suggest purchasing a filing cabinet with a safe. Two (2) filing cabinets plus a safe would be ideal. If your budget can be stretched out, get a fire-proof safe. Remember, your business records will be maintained here. The safe can also serve to house your important personal records as well.

Create a filing system

Organize your records into the following:

  • Business papers, SEC articles, DTI certifications
  • Business permits and licenses
  • Tax records
  • Financial statements and audited reports
  • Bank records and statements
  • Utilities
  • Telecommunications
  • Personnel records
  • Payroll
  • Representation
  • Office Supplies
  • Business proposals
  • Client files, contracts, agreements
  • Client statements of account
  • Wholesaler file

Collect business-related transaction documents

This includes all receipts and invoices for gasoline, public transportation, food expenses, office supplies, utility bills, Internet and telephone statements, and other related expenses.

Maintain personnel records

If you have hired people, maintain a record for each one of them. Each file should have his or her Curriculum Vitae, required clearances, test results, and other pertinent documents.

Maintain accurate accounting of payroll

Even though payroll records are kept in the computer database, make sure you maintain a hard copy especially if you are paying personnel through direct bank deposits.

Maintain hard copies of your contracts with clients, wholesalers, and other associates

Personally, all of my contracts are notarized. I send a copy to my client or the wholesaler.

Having an organized system for record-keeping allows easy access to the information you need to keep track of how your business is performing. Your accountant, in particular, will need expense receipts, invoices, and other statements to prepare your income statement accurately. The income statement presents the profitability of your business. It measures your effort versus your productivity.

2. File Your Correct Taxes On Time

Unless you’re still studying, the month of April for business people represents more than just summer vacation. It is the time of the year that we file our taxes. Despite public disgruntlement of our taxation system and controversies on how the proceeds are being used, you have to do your share in following the laws of our land. Set aside your grievances because it will take more than a collective effort to institute changes in the tax system.

If you don’t pay accurate taxes, you are contributing to the problem. Do not waste your time and energy griping about a process you can never hope to change on your own. It may not be efficient, but it is the law, and we have to abide by it.

When you file your taxes, your accountant will have to do an audit of your operations as proof your procedures are in line with the agency’s guidelines. This is where it gets tricky.

Businesses need an Internal Auditor and an External Auditor. An Internal Auditor is the one who scrutinizes your books and records every month and prepares your financial statements. In short, he is the accountant you have on a retainer basis.

The External Auditor is a third party; he or she must not have any involvement with your business on any level. This is to ensure there is no conflict of interest. The External Auditor must be a Certified Public Accountant or CPA.

The cost of hiring an External Auditor will range from Php5,000 to Php20,000. It may be quite a large bill to foot for some businesses. The best way to fund this is to allocate an amount for this service every month. For a Php5,000 External Auditor, set aside Php 416 per month. For a Php20,000 External Auditor set aside Php1,666 per month.

If you have people onboard your company, clarify the tax withholding arrangements with them. Freelancers, virtual assistants, and telecommuters are essentially business owners, but they still have to pay taxes out of the fees you pay them. You may carry out the deduction for them and give them proof such payments were accurately reported and remitted. Or the other way around; just make sure they give you proof these were deducted and likewise paid.

Some online business owners do not go through these processes and file taxes themselves. This would depend on your business structure. If you’re a sole proprietor, you may very well do this as a Professional Services Provider. But for more complex models such as partnerships and corporations, the processes are more stringent.

Some of you may think that running an online business is just as tedious as working full-time or managing a brick-and-mortar establishment. You need to understand that when you run a business, you are contributing to the supply of money in the economy.

This generates employment, demand, and business activity which stimulates economic growth. The same goes for any business that operates in the country. Every enterprise goes through the same process.

Some people may prefer to take shortcuts in these processes, but I would highly advise against it if you respect and have great regard for your business.

3. Pay Mandated Benefits On Time

Similar to tax arrangements with contracted personnel, if you have conditions for mandated benefits make sure these are paid on time with the appropriate agency.

Freelancers, virtual assistants, and telecommuters as mentioned are essentially enterprise owners. You do not have to pay them mandated benefits such as SSS, Pag-Ibig, and Phil Health.

But you may have clients that require this to maintain good people in your team. I have had clients that even included a health card at US$30 per month per head! If this is the arrangement, you will have to ensure accurate and timely reporting for these benefits.

If this is the arrangement your client wants with those in the team, stipulations or conditions for these have to be crystal clear on their contracts. You should include conditions for suspension or termination of payment that are tied to their performance for the campaign. These agencies are very strict on deadlines, and the penalties can be severe.

Basically, as the legal entity in the country, you become the employer of the contracted workers. You become accountable for the prompt remittance of these benefits.

If you are delayed in paying SSS benefits, for example, you will cover the cost of penalties which is upwards of 25% of the total amount payable.

There is some contracted personnel who may quit once the benefits have been fully paid up. This is the importance of having a minimum 30-day notice of resignation stipulated in the contract.

4. Update Your GIS with the SEC

If your business is a corporation, you have to update its GIS or General Information Sheet with the Securities and Exchange Commission or SEC every year.

The GIS contains all up-to-date information about your company. Whether you changed directors or not, you have to file the GIS regularly with the SEC. You can download the GIS at the SEC website.

If you do not update your GIS with the SEC regularly for five (5) consecutive years, the agency could revoke your certification as a corporation.

5. Update Your Business Permits and Licenses

As a corporation, you will also need to update your business permits and licenses where you are holding business.

As a home-based business, you have to register an address in your SEC filing. There are office spaces that offer theirs as a business address.

Their office becomes the receiving address for all of your company mail. The cost of using this business address ranges from Php1,500 to Php3,000 depending on the conditions.

If you do lease a business address, the lessor will need a copy of your permits for their records as well.

6. Renew Your Web Hosting Agreement

Lastly, do not forget to renew your web hosting agreement. You would not want inbound customers to click on your website, and an error message shows up. That would immediately send a bad impression to your prospective customers.

Most web hosting service providers will send the notice for renewal one to two weeks in advance to give you enough time to make payment.

Golden Rule: Avoid Suspicious Business Offers

In this last section, I will discuss the importance of remaining vigilant when running an online business.

The Internet is a breeding ground for opportunities and opportunists. Because they operate in the virtual world, these opportunists feel empowered to prey on honest, hard-working businesses that only want to build an enterprise. These opportunists are scammers on the Internet. Their purpose is to extort or swindle money from you through deception.

Here are a few experiences I’ve had dealing with scammers:

  • I received an e-mail stating that my company was selected as a service provider for a client from Europe “Ireland Communications.” The e-mail only requested my SEC papers and a time to chat with the client. It guaranteed no upfront payment but assured me that I would receive a one-month advance payment to cover capital expenses.
  • I received an e-mail from an awards committee in Spain advising my company was selected to win an award as “Top Services Provider.” Also, I would receive a $10,000 cash prize. I would just need to fill out some forms, and firm up travel and hotel arrangements with their affiliate company. Under their “special arrangement”, total expenses for travel and hotel totaled $3,500.
  • I received an e-mail from a Middle Eastern company that offered me a consultant position with their company. The perks included:
    • Housing
    • Company Car
    • Club Membership
    • Free schooling for my child
    • Grocery allowance
    • $15,000 salary plus quarterly bonuses

All I had to do was fill out forms and firm up travel arrangements with their agency.

  •  I received an e-mail about a “business opportunity” from Florence, Italy. The sender requested a call at the indicated number. He did not give any other details.
  • I received an e-mail from a British company that was looking for a services provider to manage their campaign. It sent me a CIS or Customer Information Sheet that I had to fill out. The CIS required details of my bank account. The sender said it was part of their due diligence process.

In all of these instances, correspondence was made via e-mail. You could be thinking, “Why won’t you do due diligence first?” My policy is if I know the sender is not part of or affiliated with my network, I automatically trash the e-mail.

Here are the reasons why:

Reason #1. Scammers will say there is no “upfront payment” but will require a “reservation fee.” The scammer will make the offer too good to be true; even refer to their “clients” so you can check. But these clients are also part of their network. Scammers will get to you if you course networking through brokers.

A scam can be elaborate that they can connect your company with a previous crime their group did on another victim.

Do not deal with account brokers! You would be surprised that some of these brokers are your countrymen.

Reason #2. Remember the saying “if it’s too good to be true it probably is”? Wiser words have never been more relevant for those who run an online business!

When you receive these flattering notices of an award and a job offer, the first thing that you should do is keep your ego in check.

What did you do to deserve such an offer? Then trash the e-mail. If you pay for the travel and hotel accommodations, you will make the scammer very happy and quite wealthy.

Reason #3. Any company that requests your bank account number will use your account as a conduit for its illegal laundering activities. This is prevalent in London.

Some people misrepresent themselves to unsuspecting victims; usually the elderly and get them to invest in financial placement. They get their money and route it to your account and then to other offshore accounts before it goes back to them.

The service providers who agree to these become willing participants because of their greed. They forget that the Central Bank can track every dollar that comes into the country. Not to mention, you will put your bank at risk of participating in money laundering activities.

Due diligence is an important part of building a business. But suspicious e-mails do not deserve the benefit of my time, and neither you.

There is quite a lot of work that needs to get done to keep your business going. The key is to have the system in place before you launch your business.

The organization is crucial for every business. You do not want to waste precious time looking for documents at the time you need them.

Maintaining the legality of your business is important to secure clients or accreditation from wholesalers and other associations. It saves time when a wholesaler asks for copies of your corporate papers.

In business, time is an opportunity, and opportunity is money.

Finally, it will give you peace of mind to know you are managing a business that conforms to the laws of the land. Your enterprise is not only generating a healthy income for yourself but also for the economy.

Next read: How to Secure Your Website and Business