This is part of the Work from Home Series I started in response to questions I get about how I manage my time and obligations with my family life. More to come soon!
Heading into 2013 I have been self-employed for several years, and 2013 looks like it will be my best year yet. As my business continues to grow, I often get questions about self-employment, running a business from home, and how I balance my work and life.
I will be sharing a few posts over the coming weeks to help answer those questions and more, so if you have specific questions leave them in the comments or pop over to my Facebook page to share your thoughts.
I own several businesses, but for the purposes of this post we’re discussing both my blog (under the umbrella of my Whalen Media, LLC), and Splash Creative Media (a digital media marketing firm I co-founded).
Setting up a business doesn’t have to be expensive, but you do need to make sure that you operate your business as a business, taking into account the financial needs you and your business will have.
Setting up a Business with your State:
Rules vary by state, so you’ll want to look into costs, forms, and guidelines for your state. In some states a sole proprietorship (where one person runs owns and runs a business) you only need to fill out minor paperwork and use your social security number on all payment forms.
I started as a sole proprietorship and moved onto being a LLC over two years ago for protection and banking purposes.
(edited) While you do not need an LLC to open a bank account (thank Darla for catching my mistake!), you will need proof of your business. Requirements vary based on the type of business you are classified as (sole prop, LLC, etc.) and specific forms will vary by state.
In Pennsylvania setting up a LLC was straightforward and cost about $250 when all the forms were filed. Your cost may vary.
Having a separate business bank account (including savings) and a business credit card are a great way to make sure your personal finances and business finances don’t mix and are easier to track at tax time.
I also recommend having a PayPal business account if any of your work is online.
Everyone should have life insurance, especially if you are a parent. Starting a business is usually a good time to consider if you should increase your policy. Read more about insurance in this post, Life Insurance 101. You can find out how much life insurance you need using the below life insurance calculator:
In many cases if you are starting a business you should have a business plan, and layout the expenses you will need to spend on upfront (startup costs), and your regular monthly expenses.
In my case startup costs included buying domains, purchasing hosting, paying for a graphic design, and buying minimal office supplies. For my joint venture LLC costs were also figured into startup costs.
Monthly and yearly fees for my businesses are fairly straightforward, though as my business has grown so have my expenses. I balance that by taking on more work, and increasing pricing.
At times you will find you have one-off expenses such as hiring someone to make a logo, paying for business cards, or hiring out backend work.
To make these simple you should reserve 10%-20% of earnings for expenses (such as a new computer), read below for more info on taxes.
To figure out your budget use the calculator below.
While taxes may not be your favorite thing are likely to become top on your list of things to think about when you own your own business. Most business owners wait until they are in over their head, so my best advice is to get an accountant as soon as possible.
You should reserve anywhere from 30-50% of your income for taxes, and typically you will need to pay quarterly taxes. Talk to your accountant for more specifics.
It’s also good to know what is a deductible expense and what isn’t. For instance you may be able to write off a portion of your cell phone bill if you use it for work.
Other than life insurance you may also need to consider other types of insurance depending on your business and family status. Many self-employed people have to pay out-of-pocket for their own healthcare plan, while others (like me) depend on their spouse’s plan.
Have an Exit Plan:
For every successful business there are just as many that don’t take off the ground. To avoid getting deep into debt for your business set a threshold you are willing to spend on the startup costs.
Even if your business is successful you will need a way to get ‘out’ should you choose to move on. This can be as simple as shutting down, dissolving your LLC and closing your accounts or as complex as signing over your portion of the business or whole business to another party with lawyers involved and negotiations.
While this is just the tip of the iceberg when it comes to managing your business finances, this acts as a starter. I’ll discuss how I started up my business in my next post.
Disclosure:Post presented by Genworth Financial, all opinions are my own.