This economy has spurred many to open their own small business because their income decreased, their employer closed down, or they were laid off. Whatever the reason, here are some tips:
- The first question I ask a married person starting their small business is, “What does your spouse do for a living?” The first 1 or 2 years of a new small business can be tough, and that second income can be the difference between you closing your doors, or seeing year 3. If your spouse can shoulder the major financial burden for a year, try reducing her salary tax withholdings. Your small business income will probably be lower than the previous year, creating a smaller tax liability.
- Do you know what kind of legal structure you want? Sole proprietor, C Corporation, S Corporation, LLC? If you have a partner who is the money person, and have unequal distributions, an LLC may be your best structure for a new small business.
- If you are a professional, what restrictions are there imposed by the licensing board on your choice of entity?
- How is your overall personal debt? If it is high, you may want to pay it off before making the leap into a new small business. You will need cash for your small business. Cash is king.
- How are you going to issue payroll? QuickBooks has a good payroll function for a small business, but complicated payroll issues can take a lot of your time.
- In regards to payroll taxes, do not use the government as a bank. This is so common in small business. I have seen small businesses and medium-sized businesses pay the net payroll, but not the taxes withheld. Be very careful, because criminal penalties can arise if you spend the money.
- Insurance? Don’t forget. You don’t want your small business to be the source of legal liability on your personal assets. It could mean the difference between you paying a deductible of $5,000 or losing your house. Make sure to consult an attorney on this point before starting your small business.
- How are you planning to market your small business? This is a constant effort. Start by looking at other professional organizations that compliment your business. For example, I only go to CPA functions for continuing education. I prefer to meet at lawyer’s functions, contractors, entertainers, and other persons that I can introduce myself for additional business.
- If you are hiring employees, check the workers comp rates. In manual labor small businesses, this seems to be a large chunk of the budget.
- A few other tips are to budget your expenditures, create a web page, and match your costs to your job.
There are many things to consider.