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Business Basics

You’ll get the basics on how to read the main financial statements so you actually know what your numbers mean. We’ll also cover what you need to get a business up and running and the simple tax stuff you should stay on top of.

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The three main parts of running a successful business that we can't stress enough:

  1. You must love what you do

  2. You must get your business visible to others

  3. People must want what you offer

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If you don't love what you do, your customers will feel it in your voice, your posture....everything.  If they don't know about you, they won't buy.  And if they don't need/want it, they won't buy.  Remember, offer them something they're need OR want and enjoy what you do.

Business Types

Owner-Operator

aka "Sole-Proprietor"

Best for kitchen-table businesses and tiny start-ups.

Uses your social instead of an Employee ID Number (EIN)

Partnership

Can be a traditional partnership or "LLP".  For more than 1 owner and the LLP creates the same S-Corp protection and benefits, but for multiple owners

**Note:  Some states treat married couple owners as 1 while others treat them as partners

LLC

aka "Single Member LLC"

Best for smaller businesses, with liability shifted away from the owner in most cases.  Most shift to "Minor" or S-Corporation depending on net earnings.

Uses an EIN

"Big" Corporation

Not common for small businesses.  These are more costly to create and maintain, where both the business AND the owner(s) are taxed.

Necessary for some businesses (think stock market)

"Minor" Corporation

Known as the S-Corporation, no change to how your business is structured, just to how it's taxed (In your favor).  Best for scaling businesses, lowering taxes, and to create additional legal protection

See more below

Take a look below for more info on each.

Sole vs S Corp

**When we mention "Separation" it means some legal protection between you and your business in case you (or your business) were ever sued

***SSN = Social Security Number; EIN = Employer Identification Number; LLC = Limited Liability Company

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Sole Proprietor (SP) - No separation or protection from your business, you'll give your SSN out to customers when they need your information.  You'll also pay more in taxes than an S Corp when the business is profitable (We'll explain what defines "profitable" in a bit

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Single-Member LLC (SMLLC) - Next step up, creates minimal separation but you'll use an IRS-provided EIN instead of your SSN.  Still more paid in taxes than the S-Corp once profitable​​

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**Many states don't recognize LLC's as a business entity but you will still have you register the name and file an annual renewal to keep it active

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S Corp - Mirrors the SMLLC but requires the owner to take a reasonable salary through payroll.  Allows the business to deduct 1/2 payroll taxes = lower taxes than SP or SMLLC.  You will not need a 1099 from customers at the end of the year

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**The difference between these two is purely for tax purposes.  

S-Corps are not a specific type of business structure

How to Decide

The following is just a baseline for where to start.  Send us a message for assistance picking the best type for your business



I am just starting out, barely turning a profit, or it's only a side hustle (even just for now)
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Sole Proprietor

We have multiplie, non-spouse owners, no outside investors 

**Multiple non-spouse owners disqualify the above two options, but can be an LLP
(LLC + Partnership)

Partnership

I'm making enough to take a paycheck, I have a lot of expensive equipment/materials, my operations are prone to legal issue, I'm on my way to growth, OR I'll need a retail license to sell

LLC



We have multiple owners, looking for or have outside investors, and large operations

 

Corporation

When to Hire Outside Help

As a new and/or small business, you'll be doing a lot of the work yourself.  At some point, even before you hire employees, there are a few specialists that you should consider soliciting help from so that the foundation of your business is solid.

Process Integrity

Processes separate who does what tasks and how they're completed.

They don't need to be complex but includes using an efficient software program and implementing extra visibilty inside the business.

Without structured visibility and control in your business, it's exposed to chaos and breakage from the inside.

We can assist you with reviewing your current processes to help mitigate the risk of a breakdown in your business.  
What risks do you face without processes?

  • Theft of cash

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  • Theft of products

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  • Collusion (More than one person involved)

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  • Damaged reputation with suppliers and customers

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  • Time and money wasted on legal costs and mediation or court

Types of Taxes

Businesses have to comply with several types of taxes, depending on your business structure 

Sales & Use Tax

Sales taxes aren't paid by you.  You'll collect sales taxes and send them to the state and/or county you sold in.

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Online sales have different requirements by state.

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Start by registering where you'll be selling in person.

Payroll Tax

Not necessary for all businesses.

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Depends on how your business is structured but these need paid timely and correctly.

Property tax

Many states and counties assess taxes on the assets you use in your business.

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Which states require them and when assets qualify vary by situation.

"Income" Taxes

Businesses don't pay "income" taxes (although corporations pay taxes).

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What catches owners is the taxes they'll pay on their personal taxes based on what their business earned.

Business Taxes

Some states base annual business license renewals based on the earnings of the business.

Business Licenses

Not all businesses need all licenses, but all will need #1

(once past the hobby stage)

1 / Business License (Permission to Operate)

Many states and countys (even local towns) require you to register with them to operate.

2 / Professional License

Trade professionals similar to electricians or Office professionals like lawyers need licenses to verify their education and expertise.

3 / Retail License

Retail licenses funtion similar to business licenses but are in addition to and are required by many state or local goverments to sell goods in their district.

Year End Taxes - Be Prepared

Most tax professionals will want a few more items than what's on this list but this will help you be prepared for April (or March) 15th

  • All standard documents relating to income: employer statements, interest earning, investments

  • Business Documents

    • Who is running the business​ (how much do they own in the business)

    • Records of equipment purchased

    • List of transactions

      • It's best to use a software or bookkeeper for this.  Spreadsheets are ok but still prone to errors and require a lot of extra time​

      • ​List of space used for the business (storage and work if you don't rent a separate place)

  • Personal:​​

    • Who you take care of, ​who helped work in your business

    • Medical expenses, insurance papers (specifically if you're on Marketplace)

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***Always work with a tax professional who wants to know your situation before December 31st.   Not much can be done after that.

 

Basic tax prep done in March and April, without advanced planning, gets costly.  Costly for you.  Spending the time and the planning fees during the year will still cost much less than the taxes paid from not planning.  The earlier in the year you plan with a professional, the better.

Key Points

  • Do not mix personal and business funds!  If the IRS audits you and business expenses are paid with personal money and vice versa, the IRS could disqualify A LOT of expenses.  Instead:

    • Add money to the business, then pay what you need to, OR​

    • Move money to your personal account, THEN pay personal expenses

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  • Cash flow is the most important commodity in your business!  Making money is great, but if all of your earnings go to paying debts, then your business isn't thriving.  

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  • Some skills are worth paying for up front.  Focus first on sales, but be sure to not neglect the integrity of your business!  Integrity in your services or products, legal protection, and integrity in your numbers.

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  • Don't make business decisions out of emotion.  Anger, fear, desperation, no emotions.  Take the time to clear your head and think.  Some decisions made out of emotion can be detrimental to your business, and none of them are beneficial.

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