Have you always dreamed of owning your own business? Many people harbor secret aspirations of escaping from being somebody else's employee and becoming their own boss, but few are able to do it.
If you have cast aside your fears and are gathering your resources to set off on your own, make sure that you've done your homework. There's more to running a successful business than offering a great product or service. You need to make sure that you've laid the groundwork that's necessary for every business to succeed – that means thinking about tax liability, business organization, and other essential building blocks. They may not be as exciting as choosing a location for your storefront, but they're just as determinative of your success – and maybe even more so.
You Need to Learn the Rules and Play by Them
Part of the appeal of running your own business is the sense that you no longer have to adhere to mind-numbing bureaucracies or managers whose rules seem designed to accomplish nothing more than making employees miserable. Though all that is true, there are some rules and regulations that we all need to adhere to, and those are the ones that are put in place by state and federal tax and business requirements. You need to investigate whether your locale requires a license for your business as well as what your tax liabilities are, from paying payroll tax and worker's compensation to finding out your sales tax obligations and filing all of the appropriate paperwork.
Creating Your Own Rules
Speaking of those old managers and bureaucracies, as much as you may have chafed at the rules you had to live under when you were employed by somebody else, most of them were set in place for a good reason. Though you don't have to use the same internal controls that you hated, you still need to put boundaries in place to make sure that things have a semblance of order and everybody is working towards the same objectives. This is especially true in industries that are subject to government regulations. If you need assistance setting up employee manuals and procedures, ask an experienced CPA for help.
Ask Your CPA What Accounting Method Works Best For Your Business
When you're speaking with your CPA about internal controls, there are a couple of other things to discuss with them. That same professional is the best person for you to talk to about choosing an accounting method. Even if you took an Accounting 101 class or invested in an off-the-shelf software package, you still have to decide whether you're going to use a cash accounting method or an accrual method. This is more than a toss-up decision: your CPA will base their guidance on a number of different factors, most importantly the type of business you're operating.
And Don't Forget to Ask Your CPA About What Type of Business Organization You Choose
One of the most important decisions that any new business owner makes is about how their business should be classified. Some are better off as sole proprietorships, but when there are multiple people involved or investors, or if your ownership is planned to be short term, that plays a critical role in your decision. Whether you're better off setting up as a partnership, an S-corporation or a C-corporation is something that an experienced CPA can help you with.
Tracking Your Performance And Expenses
In the excitement of starting a brand new endeavor, it is easy to fall into the trap of spending too much: it's a classic case of hopes and dreams outrunning the reality of the checking account, and many businesses had failed before they got off the ground as a result. You need to create a budget and stick to it, as well as establish a way of tracking whether you're meeting your goals. If you take the time to develop key performance indicators (KPI) against which you can measure your performance, you'll be better equipped to figure out what is working and what isn't, and where you need to make adjustments. Not only will it help you move forward but will also make future planning for taxes and expansion easier.
The More Measured You Are, The More Successful You Will Be
It is natural and healthy to get swept up and overly enthusiastic about your new business, but this is the time to take a deep breath and move forward strategically. Contact an experienced tax professional to make sure that you have all the support and information you need to make your dreams come true.
Tim Murphy, CPA writes for TaxBuzz, a tax news and advice website. Reach his office at [email protected].
About Tim Murphy
Tim Murphy formed Murphy & Murphy, CPA, LLC in 1978 and is the managing member. In addition to being a Certified Public Accountant, he is also a Certified Financial Planner and a Certified Valuation Analyst. The firm specializes in tax planning and preparation, auditing services, accounting & bookkeeping, as well as estate, financial and retirement planning. They have offices in both La Plata and Clinton, MD.
