For Americans, each one of us has the right to decide how to earn our money and support our family. We have the right to choose our own job and career. You can be an employee if you choose to, or start your own business and become self-employed. If you are thinking about becoming an owner-operator, or have already made the decision and are currently self-employed, there are many business fundamentals that can be overlooked. Let’s look at some of these principles through the eyes of a CEO.
- Business Structures: Understanding the different entities and how they can affect your business is very important. If you haven’t formed your business yet, doing this research ahead of time can save you a lot of time, stress, and money. If you are already a business owner and CEO, keep in mind that it is never too late to change your business structure, and can be done for multiple reasons. Here is a brief look at the basic structures:
- Sole Proprietor
- LLC – Limited Liability Company
- Single member LLC
- Multiple member LLC
- C Corporations
- S Corporations
When looking into these various entities, keep in mind what you want out of the entity, and the reasons you want to form the entity. Forming an entity for the wrong reasons can result in more than just a headache for you and your accountant. Talk with your accountant and/or business service provider for more information on these options. You can also read the Team Run Smart eBook “Which Business Structure is Right for Your Business.” This eBook has a lot of helpful tips for those looking into this important step for your business.
- Business Management Tools:
- Budget - Setting up your budget or profit plan is a great way to put your business goals together in one place, and can provide you with a road map to achieving such goals. Following this plan can be an entirely different story. Having a good accounting system in place can help.
- Accounting system - All successful businesses track every penny brought in, and every penny spent. Maybe you are analytical by nature and enjoy tracking and documenting every expense receipt your business generates. But even so, keep in mind that you are not only the CEO, but wear many hats including a driver, mechanic, salesperson, etc. and possibly your time is more valuable generating revenue, rather than spent adding up receipts.
A successful CEO will tell you that having an accurate monthly financial statement is priceless. This monthly financial statement, or P&L, is a scorecard for the month in question and can be compared to your profit plan. This comparison will how which goals you are achieving and which ones you missed the mark on. What good does it do to wait until the year is over to add all expenses and earnings, just to have your accountant tell you that you lost money or seriously underperformed in a given area? Why not fix the problem as soon as possible? Keeping up with your books on a monthly basis puts you in the driver’s seat. Use these valuable tools to help guide and manage your day-to-day and month-to-month operations. You will be more likely to stay on course and reach the goals set forth in your profit plan.
- Managing cash flow – As a business owner you are the CEO of your business and are no longer just an employee. Does the CEO of a major business take the entire company profits home each week and month? I’m guessing the successful ones do not. Companies must be ready for the unexpected and have funds available for such times. CEOs generally earn a set salary regardless of the company’s weekly/monthly profits. Based on said profits, once all business expenses and taxes have been paid each quarter, the CEO can then receive a quarterly bonus based on these profits. Here are some basic steps to avoid veering off course:
- Keep your personal and business finances separate.
- Have a separate account for your business earnings and expenses to be deposited into and debited from. Never pay personal bills from the business account.
- By keeping your personal and business banking separate, the business is prepared for unexpected expenses throughout each quarter, and should have any funds needed for estimated tax payments.
- Determine a reasonable and possibly conservative salary for yourself that will adequately cover all home bills that your salary is responsible for.
- Never take more than this weekly or monthly salary from the business.
- If there is a bad week or you simply took a week off, there should be enough in the bank to still pay your home the same weekly salary without hurting the business.
- Pay Quarterly Taxes – Taxes are due quarterly for every American taxpayer. For employees, your employer deducts these funds each week, but they only send the money to the government four times a year (quarterly). Nothing changes as a self-employed person regarding these due dates. Your taxes are still due each quarter. Some business owners may tell you that you do not have to pay taxes quarterly, and that you can just pay them when you file your tax return. Technically, this is true, as you have the right to pay your taxes once a year, or even once every five years. However, you will be charged a late payment penalty, and an under-payment penalty if your taxes are not paid each quarter.
Following the basic business practices described above raises your chances of success exponentially. Remember, good CEOs only take a reasonable salary from the business and allow their business profits to grow. They also prepare for unexpected expenses and keep quarterly tax money safe. After covering all your business costs and paying your taxes each quarter, the remaining business profits can be used to pay a quarterly bonus to you, the CEO.