Successful entrepreneurs are proficient in all aspects of their
ventures, including the numbers. There are many easy-to-use
bookkeeping packages on the market. Some of the most popular
include Accpac's Simply Accounting, Intuit's QuickBooks Pro
and Peachtree's Complete Accounting. When choosing software,
consider the track record of the manufacturer and the system, the
technical assistance the manufacturer provides, the system's
compatibility with your other software, and, of course,
compatibility with PayPal, the eBay service that allows you to
accept online payments from credit cards or bank accounts. (PayPal
Account activity can be downloaded to Quicken and many spreadsheet
programs.)
Most software programs include tutorials and help screens that
walk you through the programs and give you a handle on the
components of an accounting system. These typically include the
chart of accounts, general ledger, accounts receivable, inventory,
fixed-asset accounting, accounts payable and payroll (if
applicable).
As a business with inventory, you will need to use the accrual
basis method of accounting (not the cash method). This means income
and expenses are recorded as they occur, regardless of whether cash
actually changes hands. A sale is entered into the books when the
invoice is generated, not when the cash is collected. An expense
occurs when materials are ordered.
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Most community colleges offer basic accounting and finance
courses, as well as training in specific software programs, such as
Microsoft Office. Signing up for a course is well worth the
cost.
Understanding Taxes
eBay does not track or report taxes for its sellers, so it's
your responsibility to make sure you're complying with federal
and state tax laws, and tax planning with your accountant to reduce
your business's tax burden.
Tax Compliance: In most cases, your taxpayer
identification number is your Social Security number. But if you
have employees, a corporation or partnership, or a Keogh plan, you
need a nine-digit Employer Identification Number. Visit the
IRS Web site, for
more information.
If you hire employees, work with your accountant to be sure you
handle payroll taxes properly. Many entrepreneurs use independent
contractors, rather than hire full-time employees. But if the
person you consider an independent contractor is determined by the
IRS to be an employee, you could owe substantial penalties and back
taxes. Visit www.irs.gov for information on making this
determination.
Your federal tax-filing obligations and due dates generally are
based on your business's legal structure. In addition to your
annual tax return, many self-employed individuals make quarterly
estimated tax payments. For specifics, consult with your tax
professional or visit www.irs.gov.
Sales taxes can be a sticky area for online sellers. Many large
retailers now collect sales tax on Internet sales. Whether you need
to collect state and local sales tax depends on several factors,
including your products, your location and your customers'
locations. Talk to your accountant or contact your state's
revenue service to be sure you understand your state's rules.
If you do charge sales tax, you need a sales tax ID number (also
called a reseller's permit). Contact your state's
department of revenue for more information.
Tax Planning: Periodically review your tax situation with
your accountant and look for deductions that can offset income.
Just beware, many deductions have restrictions, so consult your tax
professional before claiming one. Some possible deductions:
- Equipment Purchases: check with your tax professional
for the amount you can deduct
- Business Expenses: advertising expenses, employee
benefit programs, insurance, legal and professional services,
telephone and utilities, rent, office supplies, employee wages,
membership dues to professional associations, business publication
subscriptions
- Auto Expenses: use of your car for business
purposes
- Meal and Entertainment Expenses: fifty percent of the
cost of qualifying meals and entertainment
- Travel Expenses: "ordinary and necessary"
expenses incurred while traveling on business
- Home Office: possible deduction if you use a portion of
your home exclusively and regularly for business purposes
- Startup Costs: startup advertising expenses; market or
product research can be amortized over 60 months or more and used
as deductions
The IRS' Small Business Tax Education Program provides tax
education to small-business owners; call (800) 829-1040, and ask
for the Taxpayer Education Coordinator. The IRS also offers dozens
of free downloadable publications at www.irs.gov. While you're
there, visit the Small Business and Self-Employed One-Stop
Resource for a variety of tax resources, including their
"Online Classroom" page, which offers a series of
self-directed workshops.
For more detailed information on these and other aspects of
starting a business, visit Entrepreneur.com's "How to Start Your Own Business"
guide.
Expert Advice
A lawyer and an accountant can get your startup off
on the right foot. Consult a lawyer about any decision with legal
ramifications-including setting up a partnership or corporation,
checking for compliance with regulations, exporting or selling
products in other states, and collecting bad debts. Accountants can
work with you to create a financial plan, set up accounting
systems, and provide tax planning advice and auditing services.
To find a lawyer or an accountant, get recommendations from
business owners in your industry or from professionals such as
bankers. You can also contact your local Bar Association for
referrals to attorneys, and your state's Society of Certified
Public Accountants for referrals to accountants. (The CPA title is
awarded only to people who pass a rigorous two-day, standardized
test.)
Narrow your list to the top five most promising attorneys and
accountants, and interview each. Be ready to describe your business
and its legal or accounting needs. Look for someone experienced in
small business (and your industry in particular). Make sure the
firm offers the services you need, and that the accountant or
attorney you meet is the one who will handle your business. Ask for
references, and call them.
The best way to cut costs is to understand how your lawyer or
accountant bills, so ask about fees upfront. But don't choose
based on hourly fees alone, because an inexperienced professional
may take twice as long to complete a project as an experienced
one.
Adapted from Start Your Own Business: The Only Start-Up Book
You'll Ever Need, Third Editionby Rieva Lesonsky and
the editors of Entrepreneur magazine
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