I recently incorporated my first company. It has one employee – me – and its only asset is this website. But it was a great feeling to officially become a small business owner, thereby joining 15 million other Americans. The reason for incorporation was primarily driven by the taxation benefits as I detailed below, but I also think it will make me more focused on my goals and growing this blog from a hobby to a serious source of passive income.
Part of moving to a small business mindset has also involved setting up a (formal) small office space in my home and undertaking all the associated organization activities that go with that. Like the majority of small business owners and especially those whose work involve sales and/or on-line related activities, my office is my home. Initially I just worked where I wanted, but have now becoming more cognizant of having a real “office space” where I can focus, avoid disturbances (i.e. the kids) and have everything I need for getting the job done.
Setting up your home office business
After working from my home office for a few weeks, I have found that the two main things you should get, without blowing the bank, are a good laptop (more on this in a future post) and purchasing a 4-1 (copier, fax, printer, scanner) home office printer. From a furniture perspective, I bought my desk and chair from IKEA (less than $200), though recent back problems have made me consider a more expense ergonomic chairs. The key thing with setting up your home office is that you make it comfortable and functional to what suits your style. Set a budget but buy good quality stuff, and best of all whatever you spend on a home office is tax deductible.
Small Business Taxation and Finances
The other big challenge most new small business owners face is when it comes to Taxation and Finances. One of the primary reasons people incorporate is for taxation purposes, because you can write off more expenses (the list is pretty big) and the IRS and State taxation agencies encourage the setup of small business (they are more likely to audit business expenses in a 1040 Schedule C personal tax return, than if these expenses are claimed via a corporation). However, setting up a company and managing the ongoing accounting does create extra administration.
While you can get pretty good software like Intuit’s Quick Books to manage your payroll, taxes, income and expenses, I would also recommend finding a good accountant to help you developing an effective tax strategy. I was lucky to find someone who charges me on average between $150 and $250 a month based on income, but takes care of all my paperwork, payroll and end of year taxes. One good benchmark she gave me was that if you earn more than 25% of your total income from a side-venture (or more than $2000 a month) then it will most likely make sense to incorporate.
Getting a good business checking account and credit card are also important, and I will cover my experience and tips with getting these in a future post. From feeling overwhelmed, I am finally getting my head around what needs to be done as a small business owner and things are really not that hard (plus the potential is enormous). Once I get my operational activities under control and build a solid base, I’ll start putting together a business plan for my future growth. It definitely feels good to be the boss!
Get a Jump Start With Some Good Reads
You will spend a lot of time online when trying to find tips and ideas on navigating through all the small business setup and administrative activities. Because time is money, particularly if this business is a side venture, save your self some time and buy these two inexpensive books, which provide a ton of useful information on the small business process: Starting a Business Quick Start Guide and Mind Your Business: A Workbook to Grow Your Creative Passion Into a Full-time Gig
Even better than books is to try and find a mentor, or someone you trust and has been through this process before. It may take some time to find the right person(s), but getting a small business mentor can save you a lot of pain and money in the longer term.