Forgetful, inept, and disorganized

[Coral Rhedd]

I could use a little help. Life was much easier until I went into business for myself. Now I am questioning the wisdom of such a move. My main problem lies not with the product that I sell. My main problem is with the organizational and the money management aspects of self-employment. Can some people who are successfully in business for themselves give me some hints? I feel like I am drowning in paperwork.

 

I am a sole proprietor. I sell a service not a product. I have trouble doing things like remembering to write down minor expenses and prodding myself into invoicing. You would think I could manage to do these things that would be most beneficial to me.

[Phi for All]

How big is your client base? Do you use a database to keep track? What kinds of communication do you use with them? Do you ever meet face-to-face, take meals with them, or is it strictly over the phone? How often can your service be repeated with the same client?

 

For invoicing, you have to remember that most people don't mind paying for your services, but they'll stay on top of payment about as well as you stay on top of invoicing. You need a system where you render your service and then go through a ritual that gets easier with practice.

 

Try doing the service, then send out a one-question survey (On a scale of 1-10, how likely would you be to recommend me to someone else?) along with an invoice. When the invoice is paid, you enter it into accounting (QuickBooks or something), then schedule a follow up call or email (short emails get answered, long ones don't).

 

Remember that expenses can be just about anything that helps you get your job done, and providing a service can include a lot of things. You can write off a lot of groceries if you serve snacks while meeting with clients (meals are computed differently).

 

Let me know if any of this is applicable, Coral.

[ecoli]

Maybe you should find a partner

[Coral Rhedd]

How big is your client base? Do you use a database to keep track? What kinds of communication do you use with them? Do you ever meet face-to-face' date=' take meals with them, or is it strictly over the phone? How often can your service be repeated with the same client?

[/quote']

 

I really have two businesses but they are related:

 

1. First business: I help disabled people find employment or become self-employment. For this I work as a government contractor. I have two clients, each a different program in the same government agency. For my consumers (what the peopl I help are called) who are seeking employment, I mostly meet with employers and the consumers to match them together. I have to write lots of reports which the gov. agency expects me not to bill for. My major expenses are auto related: Gas, maintenance, etc. on car. Sometimes paper and toner ink for reports and resumes I do for clients.

 

For consumers seeking self-employment, I help them craft a business plan that jumps through the many hoops the government requires. So far, I don't have an office. I meet them at the local Small Business Development Center and at to said gov. agency.

 

2. Second business: Resumes and business plans for clients who are seeking work or bank loans. This I have just started so client base is moot at this point. I meet them in restaurants and the library. So there are meals, gas, advertising, marketing, and the usual computer maintenance stuff. I don't have an accountant because I am pinching pennies but I think I should have.

 

For invoicing, you have to remember that most people don't mind paying for your services, but they'll stay on top of payment about as well as you stay on top of invoicing. You need a system where you render your service and then go through a ritual that gets easier with practice.

 

How often do you think I should do it? With the gov. agency, I bill every two weeks. Get paid two months later.

 

Try doing the service, then send out a one-question survey (On a scale of 1-10, how likely would you be to recommend me to someone else?) along with an invoice. When the invoice is paid, you enter it into accounting (QuickBooks or something), then schedule a follow up call or email (short emails get answered, long ones don't).

 

This is a good idea. Sometimes people need follow up help as they keep tweaking their resumes to suit different potential employers.

 

Remember that expenses can be just about anything that helps you get your job done, and providing a service can include a lot of things. You can write off a lot of groceries if you serve snacks while meeting with clients (meals are computed differently).

 

If I decided to meet clients at home, could I write off the expenses of a maid for cleaning the office part of my house?

 

Thank for advising me.

[Coral Rhedd]

Maybe you should find a partner

 

At this point ecoli, I wouldn't want me for a partner. I can't imagine inflicting myself on someone else.

[Phi for All]

1. First business: I help disabled people find employment or become self-employment. For this I work as a government contractor. I have two clients, each a different program in the same government agency.

Are there any other areas within these programs where you can offer services that tie in to what you do now? Are there any other programs, businesses or agencies your current clients work with that could use your services? You create synergy by expanding your business from within your current clientele, asking for referral and tie-in business.

For my consumers (what the peopl I help are called) who are seeking employment, I mostly meet with employers and the consumers to match them together. I have to write lots of reports which the gov. agency expects me not to bill for.

These are non-reimbursed expenses. Keep careful track of them, they are all deductible at tax time. When you meet with employers, it doesn't have to be a formal thing, it could be as simple as speaking to the grocery store manager every time you shop for food, or the restaurant manager when you dine out. Just get into the habit of asking every business owner you personally deal with if they have any job openings for disabled people. Almost every bit of your daily travel can be written off as business-related. Unfortunately, you can't be reimbursed by the IRS for your time, so try to streamline your report process as much as possible.

My major expenses are auto related: Gas, maintenance, etc. on car. Sometimes paper and toner ink for reports and resumes I do for clients.

If you haven't bought an auto expense log, get one right away. Figure out what your starting mileage was January 1 and go from there. The IRS wants to know how many miles were for business as opposed to personal driving. Remember that driving to a friend's house can be deductible if that friend owns a business that might hire one of your consumers.

 

So far, I don't have an office. I meet them at the local Small Business Development Center and at to said gov. agency.

Home offices are tricky. I believe you can get away with deducting 5% of your home expenses, but beyond that you have to have a separate entrance to your office that doesn't cross personal parts of your house. A definite red flag area with the Men in Black.

 

2. Second business: Resumes and business plans for clients who are seeking work or bank loans. This I have just started so client base is moot at this point. I meet them in restaurants and the library. So there are meals, gas, advertising, marketing, and the usual computer maintenance stuff. I don't have an accountant because I am pinching pennies but I think I should have.

A good accountant is worth every penny you pay him. He should be up on all the hundreds of changes the IRS makes every year to justify their pathetic existence. When you look for an accountant, don't be afraid to ask how much he/she paid in taxes last year. If they paid nothing, you've got someone who is real aggressive. If they paid a lot, they may be too meek. I would lean towards aggressive, but watch out. I know an accountant who told a construction worker to write off his dog's food and expenses since the dog stayed in the back of his truck and guarded his tools, and was therefore "an alarm system". The crazy has that man.

How often do you think I should do it? With the gov. agency, I bill every two weeks. Get paid two months later.

Find out if there is any way to change your billing. If it saves them time if you bill once a month and you get paid every 30 days, everyone's better off.

If I decided to meet clients at home, could I write off the expenses of a maid for cleaning the office part of my house?

Again, I think the latest law says you have to have access to your office that doesn't go through the personal part of your home. If you do, I would work out an agreement with the maid that she charges double or triple to do your office, then cleans the personal part of your house for free.

[coquina]

I'm in the same boat. - Swamped in a sea of paper work.

 

My government customers pay by credit card. The money is in the bank 2 days later. There is a charge for processing, about 2.5% the credit card company charges an additional 2.5% for processing government credit cards because they must be paid in full at the end of each month and the company doesn't make any interest off them.

 

However, when you consider the cost of processing an invoice and waiting 2 months for payment (and then finding out it got lost and starting all over) - it's well worth it.

 

I have one bank account on which I have a debit card. I charge everything on that debit card. I use online banking, so whatever I have charged turns up on the screen the next day.

 

This way - instead of entering piddly amounts into your books daily, you can post it all at conveinient times. I use Quick Books Pro. You can go online and get your account activity, and post it to Quick Books every few days. Just be sure you keep enough money in the bank to cover what you purchase and record any large purchases right away. You can pay your phone bill and utility bill online, and every thing else that you can, and use that one account for it.

 

Keep a separate account for payroll and payroll taxes. Keep it at a different bank. I've been in business for over 25 years - it ain't all peaches and cream, but I'll help you however I can.

[Phi for All]

Keep a separate account for payroll and payroll taxes. Keep it at a different bank.

Gah, I forgot about this. Sandi is right, you MUST make sure you're saving out your tax money. You should be making quarterly estimate payments (although I think the way it still works is that you have to have 90% of what you will owe in by your January payment, the last quarterly). And you should be taking everything into your business account (even if it's just in your name) and then write a check to yourself for payroll and other reimbursements (like ISP charges if you do job research on the web).

 

Sandi, I'll bet you have a ton of info on how to deal with the government, with all your connections.

[Coral Rhedd]

Thank you both. Clearly, I need more compartmentalization of my finances.

 

Sandi, your separate account with debit card idea for expenses is a real gem! It never crossed my feeble mind.

 

So far I have no one on payroll but if I take a draw, am I on payroll?

 

Phi, there is no reason why I can't bill once a month. I just got in the habit of twice a month because I needed the money ASAP.

 

Are there any advantages in my present circumstance to becoming a Limited Liability Corp or would I just be asking for paperwork that would not make it worth it?

 

I did not realize I could have a business account in just my name.

[5614]

I have not read the whole thread, maybe I will in a few days, just you said that your drowning in paper work, if you used a computerised system there wouldnt be paper work and searching for files and data is always easier.

 

Apologies if this has already been said, just a thought. Obviously some things can't be computer based, but I thought it might be worth saying.

[Coral Rhedd]

Thanks 5614. Just as soon as I figure out to make Outlook work for me, I hope to make progress towards a more computerized system. I am also trying to learn Excel.

[Phi for All]

Phi, there is no reason why I can't bill once a month. I just got in the habit of twice a month because I needed the money ASAP.

I wouldn't change your billing if it doesn't get you paid within 30 days. With your present system, are you getting checks once a month (from invoices 60 days old)? As long as you get your money regularly, you don't need to change. Sandi's idea of the credit card system is good, but she needs to pay vendors and employees so she needs the quick turnaround. I don't think losing the 5% is worth it for you. Remember, no one is matching your Social Security taxes anymore, you're paying it all. Every little bit helps.

 

Are there any advantages in my present circumstance to becoming a Limited Liability Corp or would I just be asking for paperwork that would not make it worth it?

I don't know, but that would be a great queston for an accountant. Chances are, with just a few clients and expenses, you don't need to do it unless there is some reason you might be held liable personally for something business related that happens to you. I think the reason people set up LLCs is so they can't be sued personally for a business screw-up. Sandi may know more about LLCs.

[coquina]

Thank you both. Clearly' date=' I need more compartmentalization of my finances.

 

Sandi, your separate account with debit card idea for expenses is a real gem! It never crossed my feeble mind.

 

So far I have no one on payroll but if I take a draw, am I on payroll?

 

Phi, there is no reason why I can't bill once a month. I just got in the habit of twice a month because I needed the money ASAP.

 

Are there any advantages in my present circumstance to becoming a Limited Liability Corp or would I just be asking for paperwork that would not make it worth it?

 

I did not realize I could have a business account in just my name.[/quote']

 

No, you're not on payroll.... But, you have to pay taxes on your profit at the end of the year, and you have to pay estimated taxes every quarter, or you'll be fined, so it is imperative that you know how much money you're making. When you work for someone else, you pay your half of social security and medicare tax and your employer matches it. If you are a sole proprieter - you have to pay the whole thing - it's around 13%. You might get a credit somewhere along the line, but it's been a long time since I've done a schedule C - my husband had a sideline business.

 

The Small Business Administration has an outfit called "SCORE" - Service Corps of Retired Executives - there are branches nationwide, and they ususally operate through the local Chambers of Commerce. They help you get things set up properly and their services are FREE!!!

 

You really need to know your 4 categories - Assets, Liabilities, Income and Expenses. If you post to the wrong expense account, it is not a disaster, but if you miss categories, it is. For example - say you buy a car for the business and you get a loan to pay for it - only the portion of the payment that is an expense is the interest, the part that goes to reduce the loan is a debit to the liability account. If you expense the whole payment, you will show less profit than you have. You won't think you're making as much money as you are, but worse, if you get audited you will owe additional tax. You do get to expense the car over time by taking depreciation on it. Depending on the expected life of the asset, there are different ways to do this - (set up by IRS) the most simple is "straight-line" depreciation. If the expected useful life of the car is 8 years - you expense 1/8 per year. (That's just an example - you have to do what IRS says).

 

Now - you also have an asset category called "Prepaid Assets". For example, suppose you pay your liability insurance in one whopping big annual premium. You put the whole amount into a current asset account called "prepaid insurance" and each month you reduce the asset account by 1/12 of the premium and expense 1/12.

 

Some of this depends on whether you are on a "cash" or "accrual" basis. If you are on a cash basis, you recognize income when it is paid to you and you recognize bills when you pay them. If you're on an accrual basis, you recognize income when you invoice it and bills when you receive them.

 

The SBA will send you a free booklet to make sure you set things up right. I really think you ought to get Quick Books - it's not that expensive (you don't need "pro" (it's deductable) and you only have 2 months data to put in to get you up to date. There is a place at the beginning which walks you through, step by step, and it is up to date tax wise. At the end of the year you can export your data from quickbooks right into Turbo tax - it saves a lot of time and money.

 

PM me if I can help - I'll send you an email addy.

[Coral Rhedd]

Wow, I am turning pale just reading your posts Sandi and Phi. I did not even know about the four categories of Assets, Liabilities, Income and Expenses. What is a Liability -- besides me?

 

I can pay my income taxes but I might have a little trouble coming up with the Social Security taxes. I hope they won't break down my door and seize my computer or something if I can't pay.

 

How do I decide if I am on a cash or accrual -- or does the government decide that for me?

 

I beginning to think I should apply at the local community college for adjunct work again.

 

I know I sound like an ignorant A$$. There is just so much I don't know. I will get in touch with SCORE and maybe they can help me evaluate if I should go forward with this.

[coquina]

Financial Statements are composed of two sections - a Balance Sheet, and an Income Statement.

 

The Balance Sheet is composed of Assets - what you own, Liabilities, what you owe, and Equities, your investment in the company.

 

The formula is: Assets = Liabilities + Equities.

 

You start the Company and invest $10,000, and put it in your checking account:

 

(Assets; $10,000) = (Liabilities; 0 + Equities; $10,000)

 

You buy a truck for $5000 and borrow the whole amount.

(Assets; $15,000) = (Liabilities; $5000 + Equities; $10,000)

 

The other part is the Income Statement

 

Sales - Cost of Goods Sold - Expenses = Profit

 

At the end of the year, you sold $10,000 worth of widgets. You paid $5,000 for them and had $2500 worth of expenses.

Sales; 10,000 - COGS; $5000 - G&A * $2500 = Profit, $2,500

 

*G&A = "General and Administrative Expenses

 

At the end of the year you close your income and expense account and start over. The $2500 in profit is posted to the Equities account, (It has been posted to the asset account as you made deposits) so now, the balance sheet looks like this:

 

(Assets $17500) = (Liabilities $10000 = Equities $7500)

 

Bookkeeping is called "double entry" because for there are two entries for each transaction. You write a check for something - you subtract the money from the checking account and add the cost of the expense to the Income Statement.

 

It gets tricky, because the additions and subtractions are called "debits" and "credits" and whether they add to or subtract from the balance depend on what kind of account it is. However - once you have made both entries, the total of the transaction is zero.

 

It is not difficult once you get your head around it - it is almost all simple addition and subtraction... but you need a book to learn it. If you don't know the basics, get some basic books from the library and be sure you understand how it all works together. If you get a computer based accounting system, and enter things wrong, you're screwed.

 

That's pretty easy - when it comes to cost accounting it gets more dicy - you have to allocate the expenses to each individual job. If you do work for the government, they may ask you to do this to prove that you charged them equitably.

 

Everything is further sub-categorized - Current Assets = Cash, Accounts Receivable, Inventories. Long Term or "Fixed Assets" those held more than one year, and not easily converted to cash = buildings, equipment, motor vehicles.

 

Current Liabilities = Accounts Payable, Taxes, Loans payable within one year

Longterm Liabilities = Mortgages and other long term loans.

 

Equities = Retained Earnings (money left in the company)

Income = the current profit (or loss)

Drawing = In a sole proprietorship, what the owner withdraws for personal use.

 

Ready to hire an accountant???