When the economy goes downhill, many corporations retrench employees in order to save on costs. Many of those severed employees end up putting their own small business either to make ends meet or to have their own small company that they’ve always dreamed of.
Just like any entrepreneur, newbies need to start off on the right foot and carefully avoid financial, legal, and tax problems that can often dishearten the new self-employed. Here are 5 self-finance tips for small business starters.
Establish the Right Legal Structure
Every small business owner must first identify the type of business, whether to operate as a sole proprietorship or as a corporate entity. Most startup businesses begin as a sole proprietorship since operating it doesn’t cost much money. The owner doesn’t need to pay to create corporate documents and tax returns. But if you want some legal protection from liability as a sole business owner and protect your personal credit rating, you can choose a corporate entity. However, you should only form a corporate entity unless you know how to run a business because it is expensive. It can also waste both your time and money.
Pay the Right Taxes
Your business structure will determine when you would need to start paying taxes on your business earnings. The general rule is, if you operate as a sole proprietorship, you don’t need to begin paying taxes immediately. If you have to shift during the year from being a regular employee to become self-employed, then you don’t need to immediately make quarterly tax payments. But if you want to form a corporate entity, those partner entities must begin filing taxes on income as they earn it. If you make money as a business entity, you have to report and pay it quarterly.
Allocate Self-Employment Taxes
While you were an employee, your employer withheld roughly 15 percent of your income to fund Social Security. You paid half of it through automatic salary deduction, while your employer covers the other half. But when you are self-employed, you need to shoulder the whole amount. You don’t have to make quarterly payments to cover the tax, but you can avoid being shocked when the tax due date comes through diligently allocating funds to cover those taxes.
Think Critical About Insurance
Only a few startup businesses have extra cash to spend on insurance premiums. In general, you don’t need insurance until you hire your first employee. When you are working from your home office, you can let your homeowner’s insurance to cover it. If you are operating outside of your home, then you’ll probably need a minimum insurance on your office and assets. Liability insurance depends on your business. But if you are a digital marketing service provider who is most unlikely to get sued no matter how poorly you perform, such as an editor or graphic designer, you don’t need insurance.
Have Business Contracts
Being your own boss doesn’t mean that you don’t get paid for your work. Whenever possible, you still need to get 10, 15, or 25 percent of your fee upfront. The reaction of your clients to that request will tell you a lot whether they have the capacity to pay you or not. So it is better for your mutual protection to always use contracts to identify all the deliverables and amount details. Through issuing a contract, you are clearly saying that your business is real and should be treated professionally and seriously.
If you are venturing to sell a business, consulting with business brokers Victoria can assure you of the best results and not excuses.
Since 1883, National Brokers Network has been one of the most trusted business and property experts in Australia. With hundreds of offices around the world, National Brokers Network is committed to providing you with exceptional service across the globe. Take advantage of National Brokers Network’s marketing power to get the best value for your business. Talk to us today at 03 9226 9222 or email us at businessbrokersvictoria@rhc.com.au
