I've talked to so many people who say they didn't really intend to start a business, they just wanted to make a little extra spending cash from their hobbies. As you become popular, and the income starts flowing, you have to be prepared for not only what to do with the money, but where to put it, how to invest it etc. Sticking with some basic business guidelines will help simplify the process.
1.Get a Tax ID #I know States will have different policies, but in Texas you can run a business without having an official Tax ID Number. (You are, of course, still required to pay State Sales Tax as well as report the income Federally.) Personally, I think if you open an online shop of any kind, you should go ahead and apply for your Tax ID#. If your business doesn't sell a dime, all you have to do is report that. In other words, it doesn't cost you anything to go through the motions.
The upside of having a Tax ID # is not only can you buy office products and shipping products tax free, you can also be approved with manufacturers to purchase their goods (like fabric, paper, beads, etc) at up to half off the retail value. Most companies have a minimum dollar amount you have to purchase and even minimum quantities, so you'll have to be prepared to pay more for the products up front. BUT, every dollar you save on your material costs goes directly to your bottom line and increases your profit dollar for dollar.
2. Set up a Business Bank AccountIt's very important to make sure you keep your personal money separate from your business money. The main reason for this is in the event you are ever *gasp* audited.
Considering my first post was all about starting out debt free, chances are you started your business with personal money. But when you start making money, you need to start using that money to run your business. Which means you'll need a debit card and checks. You also need a place to start saving money in case your computer crashes or your sewing machine dies - both of which happened to me!!
Honestly, there is something empowering about opening a business account. To be able to see your name directly below your business name gives you both a sense of confidence and accountability. If you've gone to all this trouble, then surely you'll work your butt off to make this business succeed, right?
Setting up a bank account is super simple. Look for a bank that has a simple free business checking account. Your transactions will be limited to 500-700 a month, but let's be realistic. If you start needing over 700 transactions a month, you've probably had to hire help, the money is rolling in and you can afford the next level.
What most banks require:
- A DBA (Doing Business As) document. You'll have to file for this at your local court house. It just says that I, Kelley Terrill, am doing business as Owl Say Designs in Rockwall County. It prevents anyone else getting a bank account or any other credit info in my personal and business name.
- Driver's License
- Social Security Card
- Tax ID # - this probably depends on the State/Bank. I had mine when I opened up my account, but they did not require it.
3. Set Up Dedicated Contact InfoI'm not saying you need to set up your own 1-800 number, but if your home email address is firstname.lastname@example.org - that's not a very professional email address. Cute, but not appropriate. Try to set up your email account as close to your business name as possible. If you have already set up a personal website, then email@example.com is great. In any case, think about you as a consumer. Wouldn't you pause for a bit if you noticed the email address for the $70 high end diaper bag you're about to purchase is firstname.lastname@example.org? Just think about it.
4. Get OrganizedI'll have more in depth posts on this as I go on, but I can't stress how important it is to save every business transaction receipt. If you get a great deal on ink cartridges for your printer from a seller on Ebay, print the receipt and SAVE IT! Save ALL your business related receipts for EVERY SINGLE THING you purchase. Whether it's webhosting fees, domain name fees, paper for your printer, fabric, thread, shelving, a new desk, the cool organizer thingy you got from the craft store - whatever it is, if you purchased it to aid you somehow in your business, SAVE IT!
Keep a running log in Excel (or equivalent) of how much money you are spending and where it is going. You'll need this for so many reasons not the least of which is during Tax Time. When you file your Federal Taxes, you'll be asked to provide your gross income (aka - yearly sales dollars). That part can be a bit scary. What's more important is you'll also be asked to provide your expenses - which is directly subtracted from your sales showing your true net income. Again, if you are ever audited, you'll need to be able to prove all those expenses you claimed. Not only that your purchased them, but also that they were truly business related. I could ramble off a slew of reasons being honest in your business is important and reporting to the IRS is definitely one of them.
Next week I'll talk about how to organize all your sales and expenses in a spreadsheet to visually capture what's working and what isn't. You can do this yourself with basic spreadsheets WITHOUT having to purchase any expensive software for fancy spreadsheets off Etsy or Ebay. DIY and save the difference!!!