Congratulations! If you followed last week’s blog, you are well on your way to becoming an official business. One that is registered by the county, state, possibly collecting taxes on the goods that you are selling, and on your way to operating an official business. I know you may still be waiting on getting some paperwork with official stamps of approval from the various agenices, but you’re doing it.
So what’s next?
If you haven’t already done so, you need to research online or contact an accountant. Why? Because you need to keep great records for your business. You need to determine how much of the record keeping you want to do versus paying someone else to do it. Even if you do the daily records, you may want to contact an accountant to do your small business taxes at the end of the year. You may also want to consider a consultation or training so that you know what expanses and such you need to be tracking now instead of scrambling on April 14th to find records.
Why do I need to do this now when I should be growing my business? 1. Because you are running a business and sometimes it includes doing some not so fun stuff like keeping up with money. Otherwise, you do not know if you are making money. If you are not making money, or project to be making money in the next few years, you are just officially operating a hobby.
2. If you wait until the end of the year to find out you are losing money, then you’ve wasted a year to become profitable. You are a business owner and need to know “the business”. You can change course and make decisions based on real numbers, not what is actually in the bank account.
3. With the recent tax changes and the possiblity for future changes, it may be easier to use an accountant who is alwys up to date on the latest rules. That way, you know what expenses you can deduct and which ones you cannot. For example, if you wait until next April to find out that you can deduct milegae on your car for driving to conferences or business meeetings, you will possibly be out a few hundred dollars because you did not keep the records. A few hundred dollars is a big deal for a small business!
4. An accountant may also tell you that you need to pay your sales and use tax monthly or quarterly to the state, not at the end of the year. Remember that you are collecting the sales tax on behalf of the state and that you are simply “passing through” these taxes back to the state. If you are selling wood signs or other goods, you should have gotten a state tax number to collect taxes. This is probably different than your EIN or business number. Now, you need to know how often you need to pay the state the taxes that you owe. Research and find out what is required in your state.
5. Your accountant may advise that you keep 15%- 25% (or another amount) of your business revenue in the bank so that you can pay your business taxes. Business taxes are kind of like personal income taxes. You pay taxes on the amount of money that you generate. Once again, the state may require you to pay monthly or quarterly. Once again, this will vary on your location, your tax bracket, and business type.
6. What if I have employees? Yes, your accountant may help you with this too. You probably have to pay payroll taxes and other items monthly. Your accountant can help you with this too since it all depends on your state, business, and other factors.
Whew! That’s a lot of stuff that I don’t know! Yes, but remember that running a small business is a process. There’s a lot of stuff you have to pay for. You may need to go back and run the numbers on your spreadsheet to make sure your profits and pricing will sales plan will keep you profitable.
I am not an accountant and do not know all of the ins and outs of accounting and small business taxes for Tennessee, let alone every state in the U.S. That’s why there’s not a lot of specific blogs out there because the laws and regulations can vary by each zip code. So, find someone local that can help you. I posted in a previous blog about SCORE offering free services and also joining a local entrepreneurship organization may be worth your money. I have met Melinda Drennan, a CPA and owns her own accounting firm, Drennan & Associates, and I have been reading her blog for a while now. Subscribe to her blog at her website. It contains the meaty accounting information for small businesses that are applicable on a national basis. I am not endorsing her and not receiving any payment.
7. The next major step is to use software to keep track of your expenses and sales. Your accountant may offer suggestions. PC Mag from January 2019 has a nice checklist of the top accounting software programs for small businesses. Most are online. Some offer apps on smartphones which may be helpful to keep track of receipts too.
If you are feeling overwhelmed, take a few breaths and get started!
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