So you want to start your own business?

Starting a new business can be fun and exciting. There is nothing like making a living doing what you enjoy, and for many of us, that means going out on our own. While being the master of your fate can tempting, that temptation can turn your passion into a nightmare. Here’s why,

The back end –

Running a business involves a lot work behind the scenes. Things like scheduling, bookkeeping, paying invoices, making sure you get paid, shopping around for the best prices on materials and many, many more functions. In many cases, the business owner spends more time on the minutia of running a business than they do actually doing the thing they opened the business for in the first place.

Tip #1 – Make sure you know what your getting into.

2. Taxes –

Think your going to make more money on your own, get ready to pay a bigger share to the government. Let’s say you made 50K in 2019 working as an accountant, but you really love martial arts and think you can make just as much opening your own school. Not so fast. As a business owner you are subject to self-employment taxes. Let’s compare,

Accountant –

W2 Wages – $ 50,000.00
Income Tax – 6,859.00*
Net Profit $ 43,141.00

Martial Artist –

Profit – $ 50,000.00
SE Tax** – ( 7,650.00)
Income Tax***– ( 6,016.00)
Net Profit $ 36,334.00

*Single person tax bracket- 22% Marginal Rate – 2019 tax schedule

** Self-Employment Tax ***Change due to a SE adjustment

Tip #2 – Make sure to research and build your tax responsibilities into your pricing models. Otherwise, you could wind up paying more to Uncle Sam than yourself. Are you planning on making and selling goods? Then you may be responsible for collecting and forwarding sales tax to local authorities. Bottom line, the cost of a consultation with a local CPA or other tax professional could save you over the long run by planning for taxes or avoiding penalties and interest on failure to file or comply situations.

3. Hidden Costs

You think you have it figured out. You rent some space, hire some workers and money is rolling in, but for some reason, your bank balance is slowly dropping. Why? Well, many times there costs that you didn’t factor in to your pricing model. Here are a couple of examples,

Insurance costs – There are many types of insurance that you need to consider buying to protect yourself and your business from the day to day operations. Here are just a couple of examples,

1. Health Insurance – Unless your spouse is working and you are covered through their plan, your going to have to purchase it on your own, and unlike working for a company, you will have to bear the whole cost on your own.
2. Workers Compensation and Disability – If you plan on hiring employees, this is a must. It protects employees from on the job injuries. Lack of these policies can cost you big. Pricing on these policies is dependent on the amount of pay and the risk associated with the job being covered. For example, the price to cover a carpenter is more than the price to cover an office worker.
3. Auto – What do you need auto insurance for? You already have it on your personal car and that’s what you are going to be using to the run the day to day operations. Not so fast. Most personal lines auto insurance companies won’t cover you while you are working. Though it is true that some policies do allow for minimum use for business, the key word here is “minimum”. Heavy use for business may leave you exposed. Make sure your current policy covers business use, and confirm how much.

Miscellaneous Costs – Unfortunately all businesses have certain costs that are not readily apparent. Considering the impact COVID-19 has taken on the way we live our day to day lives, let’s look at a couple of examples of costs that you may not have considered. When making and selling merchandise, the first consideration would be the raw materials and cost of labor to make the product, but the cost of packaging and shipping costs may not be factored into the sales price. Failure to do this, can create a situation where you are losing on each sale rather than profiting. In the long run, your bank account is drained and your stuck wondering where the money is going.

Tip #3 – Think about all your costs, not just the ones you see everyday but the not so obvious ones as well.

4. Efficient use of your time –

Knowing where you have the most impact on your business is key to success. Sometimes you need to give up the reins on some projects allow you to reclaim your time and put it to more productive uses. As an example let’s say it takes you 10 hours a month to maintain your books and 3 hours to build a table. The profit on each of your custom tables is $250.00 and the cost of a bookkeeper or accountant is $400.00. If you were to outsource your bookkeeping and accounting tasks, you would be in a position to build approximately 3 additional tables per month. This would translate into an additional $ 350.00 in profit per month simply by having a professional take on a task you otherwise would not have enjoyed doing anyway. Even if it took the bookkeeper or accountant took 10 minutes to do the job, it still saved you 10 hours. 10 hours of additional time available to fill orders and conduct business you didn’t have before. How about if you didn’t have orders to fill, do you still hire an outside person? Yes. Why? Because you still get 10 hours back to further your business. You could use those 10 hours in the first month to get business for the next month, which would create additional relations ships and opportunity to expose your product to your target market. Creating and building relationships that could potentially lead to orders and sales down the road is just as essential to your business as the act of building your tables alone..

Tip # 4 – Use your talents to produce the most value and outsource everything else.

No matter how much it seems like it, I’m not trying to talk you out of following your dreams. Take it from me owning your own business can be exciting and give you an opportunity to create a better life and on your own terms, but be prepare to work like you’ve never worked before. It takes weekends, long days and late nights, but when it works, there is nothing more satisfying. The best way to ensure it works out is to plan properly, consider every aspect and to ask for help when it becomes too much. When your ready to plan, implement or run your business, feel free to contact us for a free consultation.