Guest Author - Kate Woods
This question or a variation of this question is something that I’ve been asked over and over again over the life of my career. People from all walks of life come into my office or call and say they just started a business doing whatever it is that they are doing and that they don’t know what they have to do to run it on the up and up. It is a sad but true fact that many people have skills and talents that are quite marketable and worthy of them building their own business around them but the business of running a business is not for the faint of heart and not for those who cannot keep up with the paper tiger end of the game. By this I mean, you must either have the ability to do the associated paperwork and keep the necessary documentation or have a significant other who has the ability to handle these tasks or have the financial ability to hire an administrative person who can handle it for you. This should not be the last consideration if you are starting a business, it should be one of the first considerations.
My answer to this question usually is not an answer but a series of questions.
•Have you discussed this with an attorney?
•Have you determined what your business entity will be? Are you operating as a Sole-Proprietor, an LLC, a Corporation, an S-Corporation, or a Partnership? If you don’t know the answer to this question in all probability you need to speak to an attorney before you speak to an accountant or tax preparer.
•Do you have employees? If you do not have employees, will you have employees?
•Do you know if you need a federal EIN? Have you applied for one?
•Are you selling a product or a service that is taxable for sales tax purposes in your state and or local area?
•Have you completed any official paperwork, such as registrations with the state, etc., on your own?
•Do you understand the concepts Gross Income, Net Profit, Business Deductions, and Taxable Income?
Only once we have covered these questions and answers am I able to answer their first question and the answer is usually a laundry list of what they have to do before they can actually say they have legitimately started a business.
•Determine your choice of business entity with or without the help of an attorney.
•Determine who you will use as your business attorney and your business accountant going forward and contact them so that they can assist you as needed with the remaining tasks.
•Determine if your products or services are taxable for sales taxes by checking with the state and local taxing agencies.
•File all necessary registrations at all government levels.
•Keep track of every penny that you take in for goods or services as well as documentation as well as every penny that you spend in business expenses while you determine who your administrative person will be. Payments received by check, money order, credit card and cash are all taxable.
•Once you have identified who will do your administrative work schedule an appointment for you and your administrative person to meet with an accountant regarding setting up your bookkeeping system. I generally suggest Quickbooks and also suggest that they consult with me on the version and setup or take the time to research this on their own to make the right choice. At this meeting you should also discuss your tax picture going forward including any requirements for estimated tax payments that may need to be made on an ongoing basis.
Now if after reading all of the above you still want to be an entrepreneur and run your own business then get to work with your eyes wide open and the realization that there’s more to running your own business and being your own boss than knowing how to do something really well or having a product that people will buy. Being your own Boss is a lot of work that sometimes pays off and sometimes doesn’t; but your chances for success are greatly improved if you don’t shortcut or overlook making important business decisions and doing appropriate set-up procedures from the moment you decide that you’re THE BOSS.
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