“Okay! I’ve got my articles filed with the state, and I’m ready to start doing business, here WE GO!” Sounds funny right? Yet that is literally what thousands of people across the country will do when starting a new business.
- How do I collect revenue for my business?
- How will I get paid out of my LLC?
- Do I owe taxes? If so, what kind and how will those get paid?
These questions and many more are usually afterthoughts. It isn’t until they become an issue that any resources are dedicated to what are literally significant roadblocks ahead.
So it is time to give you another upgrade to your business knowledge. Let’s address each one of these vital questions above and give you some much needed guidance.
1) How do I collect revenue for my business?
Today’s revenue collection process has become a very “online” thing. People don’t usually have cash, and hardly any millennials(now the largest working class) use or write checks. Payment services like Paypal, Stripe, Venmo, Cash Apps, Apple Pay and Zelle are major ways of collecting payment for goods and services.
These payment services do come at a cost, usually averaging around 2.9%, plus a transaction fee of about 30 cents on each transaction. Once you have your commercial checking account setup, go through the payment service registration process of your choice above. It’s important to note that if you are a brick and mortar business, you will be collecting payment on site, and having the ability to make change for cash payments will be necessary. Get with the bank of your choice and they will aid you in this processof setting up payment collection on site. A number of recommended local payment service kiosk providers will be provided by the bank. It’s important that you go with one of their approved providers, in case additional charges apply for out of network services.
2) How will I get paid out of my LLC?
This can be a very tricky part of doing business. Every business owner needs to be in business to get paid. You should never run a business in a way where you aren’t rewarded for all your hard work and effort. Whether you are a single member or multi-member LLC there needs to be terms to make this happen. Typically your operating agreement will set these terms including the periodicity in which each member will receive payment for the net activity and potential salary that can be drawn.
However, your tax status will affect how you pay yourself. The only business entity types whereby you can pay yourself a wage will be through an S or C Corporation. Sole Proprietorships and Partnerships are not allowed to take a wage out of the business. If you haven’t created your LLC yet, there is a strategy on how you can take a wage through your business that will create incredible tax savings; read here The S Corp Example.
If you are a Sole Proprietorship or Partnership, you will simply make a distribution in cash out of the business, when operating cash flows and operating agreement payment terms align. If you are an S or C Corp you will want to enlist the services of a tax professional or payroll service provider who will set up and register the necessary federal and state withholding accounts to take a salary out of your business.
Payroll service providers now vary greatly in both cost and complexity of service. Here are a few providers you might want to consider:
3) Do I owe taxes? If so, what kind and how will those get paid?
The majority of small businesses fail to create a tax plan in year one of operations. The average starting entrepreneur doesn’t expect to earn much money and so they ignore the tax compliance obligations placed on a business at its inception. Many fail to realize that there is more than just a tax on your net earnings. Depending on the city, county, and state government you operate within, you could be obligated to other tax types.
For instance, at the state level you could owe an entity license tax, franchise tax, sales tax, and state income tax. The business owner or a qualified tax professional would register the business at the State Department of Revenues online web portal to pay and remit those types of taxes depending on the schedule in which the state expects the obligation to be paid. An analysis would need to be conducted to determine how much tax would be owed based on type.
This is where having a qualified tax professional really pays. For instance, when a franchise tax is being incurred, each state has laws on the books that will allow for certain deductions to be factored before the franchise tax is calculated, if you just paid the tax on the gross equity in the business you would overpay. Think of having a tax professional, like having a pair of analytical eyes in the field that will help you avoid the costly and overburdensome expense of undergoing a state or federal audit. Your tax professional will help you determine what tax you owe, and when that obligation needs to be paid. We go a step further after conducting a thorough analysis and then register you as part of a tax compliance profile to ensure that no unintended audits or letters show up on your doorstep. Our service offering includes tax planning, tax preparation, payroll service, and bookkeeping services.
In summary, there are numerous decisions that need to be made to ensure a successful start to your business. Simple Start is here for more than just your LLC needs. We want to be your liaison to a great foundational start, giving you an edge through business and tax consulting that will help you jump each hurdle successfully, keeping your focus on the service and product you provide. Don’t just create an LLC and be left empty handed when it comes to navigating the road ahead of that new business. Our “Super Simple” package gives you a 30 min consultation with our owner Nate Lamb, going through a next steps 7 point plan which will turn your business into an opportunity that you can retire on.