Starting a business is an exciting time filled with many questions that need to be answered. Check out the first article in this series where I talk about what questions to address first. Once those questions have been answered, you really need to stop what you are doing and think about your business finances.
For the small time operate out of your home business owner, chances are you will be able to handle the financial aspect on your own. However. Please don’t think you know it all. In my experience with consulting companies, the first mistake most owner’s make is they think they can handle everything. While this may be true in the beginning days, there will come a point that you need to consider handing things over to a specialist.
If you are a do it yourself-er, don’t make the mistake of thinking you need some expensive software. Quicken is an adequate program to use, and as money allows, you can always upgrade to Quickbooks. For the companies that I work with, I always set them up on Quickbooks. For my personal finances, I use Quicken, which has added categories for business income and expense. Both programs are very user friendly, and show you the information you need in making business decisions.
If you are providing a service to others, you are considered an independent contractor. When you are a sole proprietor, if you receive over $600 annually from someone, they are required, by law, to furnish you with a 1099 at the end of the year. No taxes are taken out by anyone, but you. So, do it. Purpose 25% of incoming revenue to taxes. If you are disciplined enough, stick it in a savings account that will yield you some interest. If you are not disciplined, get it off to the IRS on a monthly basis. You will want to include the payment with the form “Estimated tax for individuals” found on the IRS website.
When you are selling goods, you will also want to watch those gross receipts – again, it would behoove you to set aside about 25% of your income for taxes. And, don’t forget to check your local and state regulations regarding sales and/or use tax!
For the larger companies – and, by larger, I mean the numbers, you will want to think about hiring a bookkeeper. If paying the business bills takes up a few hours a week, or you have no idea how to organize your papers, do yourself a favor and call in someone to help. Be forewarned, though – make sure you are hiring someone “above board”. This means do your research, check their references, their work experience, everything. It is not uncommon to have a bookkeeper be the source of “lost funds”. A lot of this responsibility lies on you, though, as well. Don’t just hand over the books to someone and trust that things are good. Take the time to read the reports that are being generated, check the books yourself ever so often. You will save yourself a lot of hardship in the long run.
Coming up next – managing the evil paper monster!