| As a CPA who works primarily with small businesses | | | | -Do not try to be your own marketing department |
| and start-up businesses, I have decided to put together | | | | unless you have a true gift for it. I cannot tell you how |
| a list of the Top Tips for Running a Side Business. | | | | many flyers, postcards, mailings that arrive at my |
| 1) Incorporate. The #1 most overlooked tip by people | | | | house and at my office that appear as if they were |
| running side businesses is that they fail to setup a | | | | designed by a child (and not a child who is destined for |
| business entity because they still view their business | | | | a great career in marketing). Between typos, plain text, |
| as a "little side business" that they will incorporate | | | | black & white coloring, nothing eye-catching, poor |
| "when things take off." Here is why this is the most | | | | grammer, no call to action, every penny that gets |
| detrimental mistake that a side business owner can | | | | spent designing, printing, and mailing these "marketing" |
| make: | | | | pieces is not only wasted, but actually create a |
| -Sole Proprietorships (the business structure you | | | | negative image for your business, doing more harm |
| default to if you fail to setup a Corporation, LLC, etc) | | | | than if you simply didn't send out the mailing. |
| are subject to the highest audit risk out of all the | | | | 4) Network. Network. Network. The hands down, single |
| business structures. The reason for this high audit risk | | | | most cost-effective marketing technique is networking. |
| is that all Sole Proprietorships report their business | | | | In most cases it is either free or $5, $10, $15, $25 per |
| income and expenses on Schedule C (the second | | | | event and it will generate more business than any |
| most highly audited form that you can attach to your | | | | $1,000 print ad or $500 mailing. By networking, you are |
| tax return. By setting up an S Corporation, you | | | | meeting potential clients/customers and potential |
| become nine times less likely to be selected for a | | | | referral sources face-to-face while getting your |
| random IRS audit (audit risk decreases from 2.7% | | | | company's name out there. Many networking events |
| to.3%, making it very possible that you can go your | | | | run in the early morning or in the evening, so you can |
| entire life without ever being selected for an audit) | | | | certainly coordinate these events around your full time |
| -Sole Proprietorships are subject to the highest tax | | | | job. |
| rates. As a Sole Proprietor, you end up paying your | | | | 5) Establish a web presence. Every business out there |
| regular income tax rate plus an additional 15.3% Self | | | | will benefit from having a web presence. Creating a |
| Employment Tax. This means that if you are in the | | | | website (not a freebie, amateurish looking site, but a |
| 25% tax bracket, you are essentially paying 40.3% tax. | | | | very clean, very informative site) is a must in today's |
| S Corporations typically enjoy a lower tax rate due to | | | | marketplace. Just about every business owner I know |
| payroll taxes taking the place of Self-Employment | | | | has gotten at least one client/customer who just |
| Taxes. So, if you are in the 25% tax bracket, you end | | | | happened to stumble upon their website while |
| up paying somewhere between 25% and 40.3% | | | | searching or browsing the web. The keys are to keep |
| depending on the nature of your business, profit levels, | | | | the site informative, make it easy for potential clients |
| etc. | | | | customers to contact you, and offer online payments |
| -Operating a Sole Proprietorship means that your | | | | through PayPal or another well-known credit card |
| personal assets are completely exposed during your | | | | processing company. Creating your website in blog |
| business operations. If someone sues you for a | | | | format or linking a blog to your website is a surefire |
| business related matter, you could end up losing your | | | | way to generate traffic and ensure that visitors return |
| house, your savings, your retirement, and everything | | | | at future dates to see what you have been posting. |
| else you own. By setting up an S Corporation, you | | | | 6) Don't play up the fact that this is a side business. Of |
| protect your personal assets from business related | | | | course, if a potential customer asks, you shouldn't lie to |
| lawsuits and all you can lose are the business assets. | | | | them. However, if the topic never comes up, you |
| By failing to setup your Corporation right from the start, | | | | always want to "play the part" and instill confidence in |
| you lose valuable credit-building time. Banks, credit card | | | | your customers that you are an expert in your field, |
| companies, and other lenders will not lend unsecured | | | | you are going to do a great job for them, and that you |
| funds to Corporations within their first two years in | | | | will be around for a long time. Now, there are some |
| business. They will either lend to you and allow you to | | | | exceptions here...there are some industries in which |
| use the funds for business purposes or they will lend | | | | running a side business may actually be more |
| to the business as long as you are willing to attach a | | | | attractive to some customers. For things like |
| personal guarantee. If you incorporate right from the | | | | handyman services, electrical work, carpentry, |
| start, when you are ready to turn your side business | | | | plumbing, etc., many homeowners like to hire guys who |
| into a full business, you may already have this two | | | | work in their field full-time during the day and then offer |
| year period behind you and you can start looking for | | | | their services direct to the homeowner via their side |
| business loans and business credit cards. | | | | business at very low rates. For a job that a contractor |
| 2) Do not use your home address or a PO Box. There | | | | may bid out a $2,500, a homeowner may be able to |
| is such a stigma associated with using a residential | | | | find a carpenter who is willing to work at a $200/day |
| address or a PO Box as your business address. Many | | | | rate and finish up the job in 5-6 days, leaving them with |
| consumers view the use of a home address as a sign | | | | a $1,000-$1,200 bill and a $1,300-$1,500 savings for the |
| that you are new in business and that your business is | | | | same (or sometimes even better) quality of work. So, |
| not successful. While this may be the furthest from the | | | | if your industry is similar to this, you may actually want |
| truth, a consumers mind will be made up once they | | | | to play up the fact that you are operating a side |
| see your address and decide not to call you, giving you | | | | business |
| no opportunity to explain why you operate your | | | | 7) Create a plan. No, I'm not talking about the clichéd |
| business out of your house. In order to combat this, | | | | "Business Plan," I'm talking about a "Milestones Plan." As |
| many business owners opt to go the PO Box route. | | | | a small business CPA, many people are surprised to |
| However, PO Boxes have their own stigma. Many | | | | hear that I am not a proponent of entrepreneurs |
| consumers view companies that use PO Boxes as | | | | creating business plans. I view business plans as the #1 |
| "fly-by-night" companies that may leave town at the | | | | barrier to starting a business and that 95% of the time, |
| drop of a hat and that they may never be able to get | | | | once you start your business, you end up going in a |
| a hold of once their job is done. Some ways around | | | | completely different direction than you had originally |
| this include: | | | | planned as you discover your strengths, your |
| -Renting a small office within the office a client, friend, | | | | weaknesses, what your customers want, what the |
| associate, vendor. In addition to giving you a | | | | economy is dictating, etc. Far too often, I see people |
| consumer-friendly address to use, situations like this | | | | who want to start a business, but create the "I'll start |
| may also open up opportunities for more referrals due | | | | up as soon as I'm done writing my business plan" |
| to the traffic that your landlord's business is bringing | | | | excuse. If you have an idea or a skill and you know |
| past your door each day. | | | | how to put that skill to use or bring that idea to market, |
| -Renting office space or a mailbox within a Virtual | | | | just get started and everything else will fall into place. |
| Office such as HQ Global, Regus, or Intelligent Office. | | | | When I refer to a "Milestones Plan," I am talking about |
| In addition to the mailbox/mailing address options, most | | | | setting concrete milestones that will dictate your |
| of these Virtual Offices offer the use of Conference | | | | timeline over the next few years. Start off by setting |
| Rooms, Receptionist Services, and office space as | | | | the following milestones and add/adjust again a few |
| your business grows | | | | months after your business gets off the ground: |
| -Renting a mailbox at a UPS Store or Mailboxes Etc. | | | | -Set a "shut down" milestone. Determine at what point |
| While this is nothing more than a "PO Box" located at | | | | you should pull the plug on your business. This can be a |
| a UPS Store instead of at the Post Office, it does give | | | | financial milestone (once you invest $10,000 and don't |
| you a more consumer-friendly business address | | | | see any potential for profitability) or a time milestone (if |
| 3) Don't skimp on professional services. When you run | | | | after 24 months, you don't see any potential for |
| a side business, the #1 goal is typically to keep costs | | | | profitability) |
| as low as possible until the business takes off and | | | | -Set a "part-time" milestone. Determine at what point |
| starts generating some real revenue. However, know | | | | you will convert your full-time job into a part-time job |
| when to DIY and when not to DIY. Certain things can | | | | so that your side business can turn into a part time |
| be done effectively using the DIY approach, while | | | | business. This can be a financial milestone (once you |
| others could prove more detrimental: | | | | hit $5,000/month in revenue, once you hit $1,000/month |
| -Do not try to be your own lawyer. Free legal forms | | | | in profit, etc) or a customer-driven milestone (once you |
| that you download on the web will leave you getting | | | | start getting two new customers/week, once you |
| exactly what you paid for and could lead to the end of | | | | have 25 customers, etc.) |
| your business if you are not properly protected | | | | -Set a "full-time" milestone. Determine at what point |
| Do not try to be your own accountant. While | | | | you will quit your part-time job and start running your |
| bookkeeping is a task that can be taken on by most | | | | business full time. This milestone will be similar to your |
| business owners (assuming they actually have the | | | | "part-time" milestone, just with the bar set at a higher |
| time to devote to it), when it comes to actual tax | | | | level. |
| return preparation (payroll, sales tax, corporate tax | | | | Have any more tips for startups or side businesses? |
| returns, etc.), deadline watching, and staying current on | | | | Post them in the comment section and we'll start |
| tax law changes, you need a CPA who specializes in | | | | expanding the list. |
| small business accounting and taxation | | | | |