Five Tips For Small Business Owners
While being stuck at home during the pandemic, many people began working on hobbies in addition to working their regular jobs remotely. Those same hobbyists realized these interests could be very lucrative, leading to a large number of entrepreneurs.
When it comes to starting a business, there are many formalities that you have to get through to maintain compliance. You want to make sure that you’re well informed of your reporting requirements and properly registering or incorporating your business, as needed. While many entrepreneurs would be able to handle parts of these processes themselves, we strongly recommend connecting with professionals who can assist you with maintaining compliance so that you can focus on your business that you’re passionate about. Here are some pointers people can follow if they plan on starting, or have recently started, their own company.
Tip #1: Formalize Your Business
Right off the bat, it’s best to formalize your business by either a formal business incorporation (corporation, S-corporation, or partnership) or by applying for a DBA (doing business as). Once this step is done, you’re able to receive an Employer Identification Number from the IRS (EIN) and apply to collect sales tax (if your business requires it). This step is extremely important and directly impacts the following tips. It might be challenging to determine if your business needs to be a formal entity or if you can just report it on your personal tax return since all businesses are different, however, speaking with experienced professionals can help ease the burden of this decision.
Tip #1: Open a Separate Business Bank Account
Separating business finances from individual finances is absolutely vital to the long-term success of your business and in order to have that separation, a business bank account is mandatory. In order to open a business bank account, you’ll need an EIN (as discussed in tip #1). Not only does a separate bank account allow you to easily identify business expenses and income, but it also greatly simplifies year-end reporting. Accounting software like QuickBooks allows you to link bank accounts to it and will automatically input transactions as they occur, giving you a clear view of your business’ successes or shortcomings. If the need ever arises to prove an expense in the case of an audit, you’ll be able to quickly locate and prove the necessary transactions.
Tip #2: Track All Business Mileage
When running a business, you should be tracking every possible expense; this includes miles driven. Each year, the IRS will announce the current business mileage rate (recently ranging from $0.51 to $0.585 per mile), which is the deduction you can take for every business mile driven. This includes miles driven in your personal vehicle, as long as the trip was for business purposes. Each trip to a store for supplies, to the post office to ship sometime, to a restaurant to meet a client, and so on, needs to be tracked separately from your personal miles. These miles add up to potentially significant deductions against your business’ income. In 2021, driving 5,000 business miles would result in an expense of $2,925!
Tip #3: Keep Organized Records
Keep track of every document you receive regarding your business, especially those sent from the IRS and your home state. Certain documents, such as your EIN letter, sales tax registrations, and S-corporation election confirmations will not be sent more than once, and getting a duplicate copy can be very difficult. These documents may be required in the event that the IRS doesn’t properly update your business’ organization structure, creating headaches when trying to file your tax returns. Other items such as incorporation documents, bylaws, notices, licenses, etc., should be kept in a safe and secure location. You’ll also want to keep copies of bank statements and proof of expenses for at least three years after the due date of the tax return they were used for.
Tip #5: Be Time Efficient
When you start something, you want to give it the time it deserves. Time needs to be allocated between all the possible moving parts of a business from maintaining records, bookkeeping, manufacturing/testing products, providing tangible services, meeting with clients and vendors, designing promotional materials, running websites, shipping physical goods, honing skills and processes and the list goes on and on. Focus on what you’re best at and accept that it’s okay to search for help when needed and to find the right team to help make your business as successful as possible. The last thing you want is to be spending time on processes that don't make sense or frustrate you. You should be talking to people who are looking to assist with the parts not directly connected to running a business but the important operational stuff that makes it all happen. Reducing your time spent on behind the scenes processes frees you up to focus on your strengths.
If you’re searching for a Certified Public Accountant to help with the behind the scenes operations, connect with Conlon & Company. We have assisted our clients with accounting, tax, bookkeeping, and consulting services for over 30 years. We help them with the nuances of running a small business while aiming to be a key member of their management team. There are many challenges that most people don't consider when they’re running a business, and we can work with you to take that off your plate so you can focus on the stuff that matters most. To learn more about the services we offer, please click here. If you want to connect with us or think that we can help your business reach new heights, please click here.