We are currently in an entrepreneurship era, which is an exciting time for those trying to live out their dreams. However, being an entrepreneur is tough because there are so many demands and so many hats to wear. Entrepreneurs are typically subject-matter experts in the business they are starting and accounting is sometimes looked at as a foreign language. This is a big obstacle most start-ups share in common. We understand that not being the expert in this area forces you to put the accounting work on hold so that you can focus on your customers or business. The following are 5 basic considerations for business start-ups:
1. What entity type should I select?
The business structure you choose will have legal and tax implications. Learn about the different types of business structures and find the one best suited for your business:
- Sole Proprietorship
- Limited Liability Company (LLC)
- S Corporation
2. How can I obtain a Federal Tax ID for my business?
An Employer Identification Number (EIN) is also known as a Federal Tax Identification Number, and is used to identify a business entity. Generally, businesses need an EIN. You may apply for an EIN in various ways, and now you may apply online on www.IRS.gov. You must check with your state to determine if you need a state number or charter as well.
3. What are options to track monthly income and expenses?
Bookkeeping is one of the most essential tasks of any business. Without proper bookkeeping, your business could very quickly and easily crash into a wall. Small business owners can do their own bookkeeping on their own, but many invest in a bookkeeping service that will save them not just precious time but the risk of making very costly financial mistakes.
Accounting software is very helpful in tracking revenue and expenses on a monthly basis. The following are commonly used accounting software products:
4. What should I consider when we are ready to hire employees or contractors?
Make sure to learn about employment and labor laws in the states you are hiring to make sure your business is in compliance with state regulations. In addition, you need to know the difference between an “employee” or “independent contractor” classification. The IRS takes into consideration the following 3 categories in determining whether the person providing service is an “employee” or “independent contractor”:
- Behavioral – Does the company control what the workers does and how the worker does his or her job.
- Financial – Does the company control business aspects of the worker such as how wages are paid, whether expenses are reimbursed, and who provides tools and materials.
- Type of relationship – Are there written contracts or employee type benefits.
5. Do I need to consider filing a tax return and paying taxes?
Make sure to discuss your tax filing requirements with a Certified Public Accountant (CPA). Failing to timely file annual tax returns can cause large federal and state penalties, which could cause a burden on the business’ cash flow.
Walter and Susan Villela are proud FIU graduates and own Villela, CPA. For more information, please contact 305-389-1347 with any questions or to schedule an appointment.