Prof. Stacy, The Money Teacher

Advice For Entrepreneurs - Know Your Numbers | Prof. Stacy, The Money Teacher

Advice For Entrepreneurs – Know Your Numbers!

Do you long to be part of the Great Resignation? Have you dreamed of starting your own business? Do you want to leave your day job and build your dream business? If you want to plan for success, you need to KNOW YOUR FINANCIAL NUMBERS!

What financial numbers?

In order to manage your business well, every business owner needs to know (at a minimum) their start-up costs, revenues, operating costs, forecasted profits, and forecasted cash flow. As a business owner-operator, you will have to make decisions in the moment, so knowing your financial numbers is necessary to make the most-informed decisions.

For example, if you go to a new prospect to make a bid on a job, you need to be ready to estimate your costs based on the prospect’s individual wants and needs. You need to know how much negotiating room you have in your bid to ensure that you will cover your costs – including paying yourself – and make a profit. Additionally, you need to be able to estimate your future cash flows to contract the payment terms for the job and to make sure you will have cash available when the bills come due.

How do you get started in your own business?

The U.S. Small Business Administration has identified “10 steps to start your business”.

I highly recommend that you read and consider each step, but here I will highlight two of the financial first steps:

  1. The legal form of your business determines many circumstances of your business’ operations including how your business files tax information with the IRS and your state department of revenue. Common legal forms include sole proprietorship, partnership, corporation, and S corporation. The Small Business Administration provides some advice in selecting the legal form for your business here.

2. You need to register your business and get
an employer identification number (EIN)
from the IRS. You may need one from your
state as well, you can check for your state’s
requirements here. You need the EIN to file
your tax return among other things.

Key first financial step for your new business

A key first step for your newly formed business is to open a business bank account.

As your business grows, you will need accounting software, and, eventually, an accountant. But to start, keep it simple. You don’t need to invest a lot of money in your accounting system until you … make some money. However, from the first day of your business, you need to have a separate bank account for your business. This is easy to do. You can go to your existing bank and ask to open a DBA (doing business as) checking account. A DBA account is established in the name of your company and will allow you to make deposits and make payments in your business’ name.

Once you have that bank account, you should run all of your business cash through that checking account. Deposit all of your customer receipts into that account and pay all the bills – including paying yourself – out of that account. NEVER run your personal transactions through this account or your business transactions through your personal bank account. If you run only business cash flows through this business bank account, the balance in the account (less any “seed” money) will be your profit. This deliberate strict separation of your personal money transactions and your business money transactions will not only help you know the profitability of your business, but it will also provide support to the IRS in the event of an audit.

Getting your taxes right

You definitely don’t want your business to get on the wrong side of the IRS. A great place to start learning about taxes for your business is with the IRS itself. The IRS provides a really clear and useful series of Small Business Tax Workshop Videos here. These videos cover the following topics:

Advice For Entrepreneurs - Know Your Finances | Prof. Stacy, The Money Teacher

Sed ut perspiciatis unde omnis iste natus error sit voluptatem accusantium doloremque

  1. Federal taxes and your new business
  2. Schedule C and other small business taxes
  3. Filing and paying taxes electronically
  4. Business use of your home
  5. Federal taxes when hiring employees or independent contractors
  6. Managing payroll to withhold the correct amount of taxes
  7. Tax deposits and filing a return to report payroll taxes
  8. Hiring people who live in the U.S. who aren’t citizens

As shown in these videos, taxes are not particularly complicated, but you do need to make sure you know the requirements for submitting your business’ federal income taxes, payroll taxes, and sales taxes. Frankly, as your business grows, calculating and submitting your taxes is likely to be one of the first tasks you will delegate to a hired accountant. However, to start, you can do it yourself with some careful record-keeping.

Here is another government website that looks at small business taxation a little more broadly including the following:

  1. Business taxes (including self-employment, property, and sales taxes)
  2. Estimated taxes
  3. Energy tax incentives (including a database of state incentives for renewables and efficiency)
  4. Tax relief in disaster situations
  5. Federal tax deductions for small business charitable donations

Getting your pricing right

One of the most important things you can do to get your business started off right financially is to price your product or service properly!

So many new entrepreneurs get hung up on this question but the answer is actually very easy: you need to price your product or service at what the market is willing to pay. That’s it.

How can you find out how much your target market is willing to pay? You can research your competitors’ prices for similar products or services; you can survey your target market and ask them; or you can test-price your product and see how the market responds. However you do it, you need to find out what your customer is willing to pay for what you will provide.

Once you have that information comes is the hard part: you have to decide if you’re willing to provide the product or service for that price. If you are not willing to provide the product or service for what the market is willing to pay for it, you have not found your “great business idea”. It is a waste of your time and energy to try to sell to the market a product that they are not willing to pay for. You can’t win at that game. You need to find a product or service that the market is willing to pay more than your minimum price for.

The Covid pandemic has caused a great many Americans to reconsider their career options. As a result, many people have resigned from their pre-pandemic jobs – so many in fact, that the wave has a name: “The Great Resignation”. As part of this wave, many people have decided that their “new gig” would be self-employment but there are some important things to consider in that adventure, not the least of which is managing the financial aspects of a company, including submitting your taxes and pricing your product or service. I hope this article provides you with some guidance in the first financial steps to starting your new business.

Leave a Comment

Your email address will not be published. Required fields are marked *

Solverwp- WordPress Theme and Plugin