Starting your own business can feel very daunting. Someone once told me that it is like walking in a pool of water and their feet not being able to touch the floor. People often feel overwhelmed because of the unknown. When you start your business, you must tackle these unknowns. You may face many obstacles, but once you overcome any barrier you may face the reward is great!
People often start their own business because they want the ability to dedicate their time to something they are passionate about. I often hear the common saying that doing something you are passionate about is like not working at all because of the joy it brings. It is like the song from Snow White and The Seven Dwarfs, “Whistle While You Work”.
Entrepreneurship of passion can bring many rewards from setting your own schedule, customizing your services to a niche market, to financial freedom. It is our goal to help our customers reach for the stars and succeed in every avenue of their business because the sky is not the limit; it’s beyond the stars. Therefore, in this article we will review accounting strategies that you can utilize to ensure a successful business.
Starting an S Corporation
Firstly, we recommend business set up an S corporation. When you start an S corporation you pay yourself a reasonable salary and pay 15.33 percent of the FICA taxes on the reasonable salary. An S corporation reduces your self-employment tax liability because you are not taxed on the entire business income like you would be if you were set up as a Schedule C. For example, if your business grossed 100,000 and your salary was 60,000 you will be subject to pay Self Employment taxes on 60,000 instead of the entire 100,000. This strategy allows you divide your income between salary and the net income of the business.
The net income of the business is taxed at a personal tax rate resulting in significant savings. Businesses set up as an S corporation can contribute to retirement planning such as 401K contributions reducing taxable income even further. In addition, health care premiums can be deducted as a business expense. Also, S corporations are not subjected to double taxation like C Corporations are, as they are pass through entities.
Organized and Accurate Bookkeeping
Secondly, having organized and accurate bookkeeping is very important when trying to ensure your business is successful. It may be tempting to intertwine your business account and personal account, and use them interchangeably, but doing so can make deciphering what are business expenses from what are personal expenses exponentially harder. This could lead to missing some business transactions or confusing them as personal expenses, resulting in important business expenses not being accounted for.
Managing Cost of Goods Sold
Thirdly, keeping Cost of Goods Sold low can also help with the success of your business. It may be enticing to want to offer a variety of products, and that is okay. However, don’t make the options too large. You don’t want to overwhelm your customer nor your budget. Overwhelming your customer can feel like going to a restaurant and having a plethora of options to choose from but not knowing what to choose. It is best to exploit your tried-and-true options first, and later down the line when revenue can sustain more, than add more. Having simplified options can help you review cost and profit more efficiently. A clearer picture can be analyzed helping you to see what products are profitable from those that are not.
In finality, at Turner CPA Solutions we know that there are a lot of factors that go into having a successful business, but following these three tips, such as an S corporation, clear and concise books, and simplified Cost of Goods Sold can make success attainable.
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