Business Basics Overview
There are a couple of things that are really important that we haven't addressed yet, and the first one is the numbers. What do you really need to know about your business? You can geek out on all the numbers of your business, oftentimes there's just not time to do all of that when you run your own one-man show. Let's get down to the essence of what's critical information that you need to know that will help you make good decisions. The second thing that we're going to cover in this segment is industry standards. I've been throwing around some numbers this morning talking about what the average salary is, and safe numbers, and what you can expect. I want to go over some of those industry standards so that you know what's going on out there, and make sure that your expectations of your business are realistic with what's actually happening out there. We're gonna start with a few really important basics. To be a real business you have to have an FEIN number, a Federal Employer Identificat...
ion Number. You have to set up your business with the Secretary of State in whatever state you live in. You have to get a sales tax license, collect sales tax, and pay that to the appropriate agency, and then you also have to decide what kind of business you're going to be. There are all kinds of organizations out there that can help you with this. There are small business associations in most communities that can help walk you through all of this. We're not going to spend a lot of time on it other than letting you know you have to do this. These are the kind of things that if you skip you can end up in jail, so it's a big deal. Go to your small business association, they can help you figure all of these things out. The one thing that I do want to point out down here is what kind of business you want to be. What kind of entity. Oftentimes when people are first starting their business they start out as a sole proprietor, and basically what that does is it allows you to file your taxes pretty easily. The risk with that is your business and your personal income are all wrapped up together as one thing, so if you have a lot of assets, that can be a really dangerous thing for your business. If you are a sole proprietor, I would recommend you consider becoming an LLC, because basically what the LLC does, you can still file your taxes in a similar manner, but it separates your business assets from your personal assets. It'll protect your home, it'll protect your personal savings and all of that. If you are in this sole proprietor area here, I would recommend coming over here to the LLC. There are advantages and disadvantages of becoming an LLC verses an S Corp, and it has to do with how much your gross sales are. I think a general rule of thumb is up to a hundred thousand dollars of gross sales, the total amount of money that you're bringing into your business, the recommendation is to be an LLC. After that, there are tax advantages to becoming an S Corp. Above a million dollars of gross sales there are some advantages to going back to an LLC. This is incredibly complex and I don't understand all of it completely so you'll want to work with an accountant that can really guide you on the intricacies of your business. I wanted to just lay those out as a starting point, and then you can go into the nuances with your tax professional. But, make sure that you are set up as a business, and you have a separate business account from your personal account your bank account, so that all your business money goes here, and all your personal money is here. Never the two shall meet. (audience chuckles) Find a great accountant who is willing to educate you and teach you and take time with you to help set all of this up so that you're on the right track and you understand what's going on and you can make those good decisions for your business. Specifically with payroll, each type of business entity has a different way of paying yourself, and when we own our own business the goal is to pay ourselves. You have to make sure that you're doing that within the rules and how you've set up your business. Your tax professional can help you with that. Sometimes you can just do a distribution where you pull money and write yourself a check, sometimes you have to do withholdings and pay social security and FICA and FUTA and all of these things. It's funny we have a business where Peter and Abby and I are the only employees, and we still pay unemployment tax. Here is the best words of wisdom I can give to any photography business owner; this is a seasonal business. There will be a slow season, without question. The way that we handle that is we are always putting money aside into our savings account, or into our business savings account. The way that it works for us, is we save 10 to 20 percent from every single session that we do. As soon as I make that sale and collect that money, I either take 10 or 20 percent and just move it to our business savings account. The reason - there's two - is when it's the slow season and I really need that money, I only take 10 percent, when it's the busy season and I have more money I move 20 percent over. That allows me whenever Peter drops a light into the river and it fries, I can go buy a new light and it's not a big deal I don't have to take out a loan. If I all of a sudden don't have any sessions in January and February, I have some income that I can live on, that I can still pay myself. If you can build the discipline in your business to every time you get paid to just don't ever look at that money as income, put that 10 or 20 percent aside, you will be able to sleep better at night. You're gonna have money whenever you need it. It's hard especially during the slow season, but try to build this just as a normal system and process in your business so that you can sleep well without worrying about things so much.