Ready to be Your Own Boss? Part 3

<<Ready to be your own Boss, Part 2

Hiring Employees:
Throughout the year, it takes hundreds of hours of your time to prepare and file the various payroll reports and other governmental forms required. This is no reason for you to sacrifice 24 hours a day trying to keep up with your business all by yourself without adequate help. When you have expanded to the point you can afford good employees and/or managers, don't hesitate to hire them. Properly trained and advised they will make more money for you than you can ever make going it alone in most ventures. Advertise in the classified section, take applications, set up interviews and hire the best. (Hiring Checklist, Employee Selection and Recruiting, Hiring Great People)

Payroll Taxes:
One of the first things to do when starting your new business is to get Federal and State application forms for ID numbers (Internal Revenue Service Small Business Guide). See our pages on State Resources for links on where to go for the forms you need. Request Business Start Up application forms from the Internal Revenue Service and from the State Tax Commission. After your applications are sent in you will be notified of your number and get a packet of information. Depository forms, quarterly report forms, W-4-A's, W-2's, estimated tax forms, etc., will then be mailed periodically as needed. Payroll taxes and expenses will amount to from 13% to 17% of your gross payroll depending on workmen's compensation rates for the various job classifications. Payroll expenses include: FICA taxes (Social Security), FUE taxes (Federal Unemployment), SUE taxes (State Unemployment), WC or SDI (Workmen's Compensation). You will also be required to withhold taxes from your employees' wages and pay it over to the Federal and State governments: FICA taxes (Social Security-Employers share), Federal Income Taxes, State Income Taxes (Most States), and State Disability Insurance (Some States).

Your initial response to the previous paragraph may be shock or an audible groan. You can obtain the help of a payroll service to make all of this happen. From my personal experience, it's worth it. Keeping up with the forms and timing can be a real headache when you're trying to keep your business going from all other directions. Having someone else handle the payroll can be a real weight off your back!

Business Income Taxes
If you are a sole proprietorship business or are a partner you will have to file and pay Federal estimated tax reports each quarter based on your estimated annual income. (Some states also require periodic estimates through the year.) Partnerships file an annual information return and each partners' share of profits is included in their individual personal income tax return. Corporations must also file for estimated taxes. (Choosing Your Legal Entity, What Type of Business Entity is Best for Your Business, ).

Bookkeeping and Accounting:
There is probably no reason you cannot do your own record keeping, at least in getting started. If you've never done any bookkeeping before and have trouble understanding the concepts, I highly recommend that you read The Accounting Game: Basic Accounting Fresh from the Lemonade Stand. It's a fresh view (pardon the pun) on understanding accounting concepts and can help you a great deal.

In the beginning, it's easy to just use a separate checkbook and bank account for your business. Use a columnar check register with several columns and distribute the amount of each check written to the proper columns. List your deposits on the check register and carry across a continuous bank balance. If you don't have a cash register to start with you can write up sales on duplicate sales slips, but a cash register is highly recommended. You will be able to ring up sales to different departments and by different clerks. It will pay for itself many times over in just a short time. Record receipts from the totaled out cash register tape at the end of each day to daily or weekly sheets.

If, in addition to your check register and cash register, you add a General Journal for recording any extraneous transactions you have all that is necessary for a simple cash accounting system. This cash system can be easily converted to the accrual method of accounting by simply journalizing accounts receivable, payable, accruals, prepaid insurance, etc. After posting these entries in your General Journal, the Balance Sheet and Income Statement can be readily completed.

After preparing the financial statements, reverse the accruals and you will be ready for entries the following month. You can enter your gross payroll, payroll deductions and the net amount in your check register. Give your employees a payroll slip showing all the facts and maintain subsidiary payroll sheets with all the information as to each employee.

With these individual payroll records and the control accounts in the General Ledger you have all the information necessary to complete the various payroll tax reports and returns as they come due. At the end of each annual accounting period all the information for filing your Income Tax returns will be right at your fingertips. If you know nothing about bookkeeping have an accountant set up your books on the basis of the above simple method. Let him keep the books the first few months while you learn how then, if you prefer, take them over yourself. Use your accountant as your advisor. After a short time, you probably will be able to do all the accounting without outside help.

Now, if those three previous paragraphs made you gag you need to make some other choices.

1. If you're comfortable with your computer, (if you're reading this you are at least familiar with the basics!) consider trying Peachtree or QuickBooks Pro. This are both well used pieces of software and your CPA can give you decent advice on setting it up. As with any software, it takes a little while to understand everything, but soon you'll be quite proficient. Having your finances automated can make life a lot easier. These pieces of software will not only track your accounting but print estimates, invoices, statements, IRS payroll forms, etc. They can be a good investment if you're willing to take the time to learn to work with them.
   
2. Hire a bookkeeping firm. Find a reputable business through your CPA. Since you'll expect your bookkeeping company to act as an intermediary between you and your CPA, your CPA is the best choice for a referral. Other friends in business are also good places to find a referral.

In short, if you can't or don't want to do it yourself, DON'T do it yourself. You'll just hate it and may make a mess of it (from experience I can tell you that is not a chance worth taking!). For more information, see our article, "Accountant or Bookkeeper?"

Equipment Required:
Every business is different and will not be using the same kind of fixtures and equipment. Sometimes it is much better to preserve cash for inventories or working capital and purchase good used fixtures and equipment for a smaller price. With the recent changes in the income tax laws you will have to do extra analysis to determine whether a lease program or direct purchase is the best way to proceed. Whether to buy or lease depends on many facts that can only be determined by observation and computation. It could be better to lease electronic equipment, computers, copiers and certain other products due to the major changes taking place in these sectors. (So, you bought a nice computer a month ago? Well that's great if you want a nice paperweight!). (See Why Lease Equipment When I Can Own It?)

Suppliers:
Suppliers are reluctant to ship their goods to new businesses. That is one reason you should get to know your banker as he can offer credit references acceptable to most any firm. You will have to convince your proposed suppliers that you are honest and hard working and that your business has a good chance for success. You may have to pay upon ordering or C.O.D. while getting started so take this fact into account when preparing your financial planning and start-up requirements. After you have become established with your suppliers send your financial data to Dun And Bradstreet so your company will be listed in their files. Most every firm in the country recognizes Dun and Bradstreet as a most reliable organization for obtaining correct credit information. Work with your suppliers to take advantage of special offers, cooperative advertising programs, trade and cash discounts, dated invoices, etc. (Web and E-mail Tactics that
Make Your Little Box Look Like a BIG Box)

Advertising and Promotion:
When you are getting started give a press release to the local newspaper. See our article on "How to Write a Press Release." Depending on the type of business, it may be very profitable to have a few thousand circulars printed and distributed throughout the area. Or you can have grand opening circulars inserted in the newspaper to be distributed to subscribers. Watch the ads of your competitors. As you find time clip various ads of businesses similar to your own, from large city papers. File them for ideas when preparing your own ads. There are all kinds of promotional ideas and gimmicks to keep your business out in front of your competitor. Search the library, bookstores and mail order media for such publications. Choose the ones that fit your promotional programs or those that can be twisted to fit and get them working for you. See our other articles on advertising and promotion: "Marketing and Promotion."

When you first start thinking about establishing your own business find out when the next issue of the telephone book will be printed and the deadline for getting listed. Place a reasonable display ad in the yellow pages under the classification which best describes your product or service. It could be a catastrophe if you missed the deadline for the next issue by a few days and have to wait 9 months to a year for a listing in the permanent directory.

Conclusion:
This is a lot of information. Take it bit by bit and think about it. When you feel you have a good feel for everything that is included here, do some more research on the areas where you have questions. If you want some pointers, just let us know (vccorp@ventureconsult.com). Mention this article in your email. We will do our best to point you in the right direction.

You will also have to consider funding your business which is an entirely different monster. We have several resources regarding money and financing that you may peruse at your leisure. You can find them in our section called "Money Matters." You can find references to Venture Capitalists, SBA loan programs, Angel Investors, etc.

Your next stop should be our Business Plan Tutorial series. If you take the time to follow the tutorial, you'll have a very good feeling as to whether your business idea is worth pursuing.

Good luck!

Business Plan Tutorial, Part 1>>

-Kris Bell