Starting Your Own Business?

Want to know how to eliminate the possibility of making mistakes? Want a foolproof method for ensuring you start off making lots of money with no obstacles in the way?

Good luck with that. One thing you can be sure of, when starting your own business, is that mistakes will be made. Opportunities missed. You’ll find yourself working longer hours than you’d planned, you’ll find that your business model needs to be revamped, you’ll find that what works for someone else doesn’t work for you, and you’ll find that if it were that easy, everyone would do it.

Worried about charging too much/not enough? Don’t worry. You will. You’ll find yourself eating some costs or spending too much time on a fixed rate job, and, if you’re lucky, you’ll find a job you quoted easier than you thought, and you’ll come out ahead. Admittedly, that’s a bit more unlikely, but it could happen.

There are guidelines you can follow, and you can solicit advice from a multitude of people, some of whom may have no idea what you’re doing, or trying to do, and others who do, and some of it will work, and some of it won’t, and you may not know the difference until you try it out and see for yourself.

The only one who can tell you what will definitively work and what will not work for your business is you. For example, some people swear by cold calling. Many don’t. How should this affect you? Should you try it and see? Or do you know you don’t want to go with that method of marketing? There’s no wrong decision because it’s your decision alone.

“But how do I know what will work and what won’t before I’ve even started!” you wail, and I tell you this because it’s the truth: You don’t. You don’t know until you do it, and then you find out, and then you know what to do next time, or what not to do.

There are some things that are a given. Don’t run an expensive yellow pages ad if you’re running a web-based business. Do as much free marketing as possible. Meet as many people as possible. But givens are another topic, aren’t they?

The method I used to start my business was this: Plan out what I can, start by throwing myself into it, and then see what happens. The fun of having your own business is being able to change directions, to back up, slow down, or speed up, and there’s no one to tell you not to. (There will be people who will be happy to tell you, but it isn’t their business, it’s your decision alone.) You get to decide. You get to make your own hours, and who hasn’t heard that making your own hours means you get to work as many weekends as you like? It’s true. You’ll probably work more hours than you’d planned.

Small businesses can react quickly to market forces. We don’t have to submit ideas to someone else and have them forgotten. We get to do it ourselves. Of course, that means there’s a level of responsibility that we wouldn’t have with a job. It’s up to us to get it done, and that may be an inconvenience, and it’s up to us to make the decisions, and they could be bad decisions, and then there’s no one to blame but ourselves.

But that’s how it works. Greater rewards, greater risk. If you don’t want risk, you should get a job, though these days that’s also a risk, isn’t it? But it’s stable. And if you want a raise, you better be prepared to ask someone for one.

It’s up to you. Your decisions. Your profit, or your loss, but it’s more than money. It’s how you want to live your life, and there is no right or wrong way, there’s only what you decide to do with it, and how you react to what you find out as you go.

Which is sort of like life, isn’t it?

Are You Self-Employable?

There are those of us who have discovered, through much trial and error, that we are not employable. I do not deal with authority well, even after military training. I like to set my own hours. I’m independent to the point of annoyance when I have been employed. (Annoying to those I work for, not myself.) I like having the final say, and being responsible for what happens. All of this added together has meant that despite several efforts to be employed, I have never been as happy as when I’ve been self-employed, and that includes periods of starting out when the possibility of making ends meet has been unknown.

Stable employment, just like self-employment, comes with a price, and it’s a price I’m not comfortable with. And in today’s economic climate, what can we count on anyway? So self-employment works well for me, and I couldn’t imagine going back to an employed status ever.

But what does it take to be self-employable? It’s not the same as being employed, and one of the things that it requires is an independent spirit. I’ve watched many people undertake the rigors of opening their own business, and mostly they succeed. Sometimes they don’t, but that doesn’t mean they give up and go back to looking for a job – instead, they find something else they can do. As a lifestyle, self-employment is hard to beat. You can make all the money you want, without having to ask for raises. You can manage your own schedule, which often means working far more overtime than you could possibly afford to pay yourself. It means knowing how to do a wide variety of things, and how to find out how to do things that you don’t know how to do. It calls for knowing yourself, and what you’re capable of, and interested in, and where you want to go.

It requires the ability to leap into the unknown without knowing if there’s a net to catch you if you fall. Perhaps, if you’re lucky, you have a parachute to slow your descent, but the safety of the parachute might keep you from taking the risks that you need to take.

One of the sticking points for those wanting to be self-employed is knowing how to find your own answers to the burning questions that pop up on a daily basis, and this is because there is no one-size-fits-all approach. There are books that tell you how to get started, and blogs that tell you how to market and sell, and lists of potential clients, and courses with knowledge to gain, but how you combine the resources available is up to you. No one else can tell you how to fit together the pieces to work for you, and no one else can tell you what you need to do.

The ability to make your own decisions is essential, and part of making your own decisions is deciding what you need. Your new job description is no longer being written by someone who doesn’t know you. You need to write your job description, even if only metaphorically, and you get to decide what to put in, and what to take out.

If you’re looking to freelance because a “real” job is hard to come by, you’ll need to shift your outlook in order to be successful, or keep sending out that resume. Until you believe that this course of action is a real job (and believe me, it’s real enough), you won’t put all of yourself into it, and until you do that, you’ll be treading water.

Enough with the metaphors. Set your own goals. Do your own homework. Mix and match the available resources. Find your own answers. Search within yourself for what it is you want, and set out for it.

Then write your own ending.

This is all about you.

Where Are You Getting Your Answers?

Where do you get your information? Is it from an anonymous source on the Internet? Is it from someone you know? Is it from your great aunt in Poughkeepsie who once worked for a company similar to yours and is not hesitant about telling you the correct way to do things? 

I can't do much about your great aunt.  You can listen to her if you want, and you might, especially if you’re in the will, but be careful about the information you receive online. Just because it's online doesn't make it so and just because someone somewhere took the time to answer your question doesn't mean they even answered the right question. 

Today, while answering questions on the (Vendor's Name Withheld) boards, I corrected several incorrect responses to questions. How do I know they were incorrect? Well, they just were. But did the people asking the questions know this? Probably not, or they wouldn't have been asking the question in the first place. 

(Vendor Name Withheld) likes people to think they can just pick up the software and get to work on it and not bother consulting anyone who's proficient with not only the software, but also with accounting. Then, the people who have purchased the software with this understanding try using it and they get stuck. Since they're still under the illusion that this software sets itself up and then does everything for you and there's no need to consult a professional, they go to the (Vendor Name Withheld) forum and post questions. Sometimes the questions are too complex to be answered quickly or the questions themselves don't make sense, and the answers - even if they're right - make even less sense to the questioners. It's chaos, with some people getting the correct and proper responses and other people getting the wrong responses or none at all. Or multiple varying responses, some of which don't even address the question asked. 

“But’” they cry out in exasperation, "I paid a lot of money for this! It should just work!"

Yes, and while I'm sure it was a lot of money for you, it's not really all that much, it's an out-of-the-box solution that doesn't do everything one might wish (I'm still trying to get mine to structure my days a little better) and besides, there's a reason some of us went to school and worked in this field for years. It's not just numbers. Don't I wish. 

And yes, life is not fair, but we'll cover that another time. 

Here's the thing.  Sometimes, when you're running a business, you're going to have to do things you don't want to do.  Pay a ProAdvisor to get it right.  Hire an attorney to keep you out of hot water.  Find a marketing consultant to figure out what you could be doing to increase your visibility.  Get an accountant to do your taxes.  All of these things can be painful because they're expenses, and none of us likes expenses. (If some of the questions are an indication, not all of us even understand what an expense is.)

But how much time are you spending trying to figure out software when you don't know a debit from a credit?  How valuable is your time?  And, if you're getting free answers online, are they correct?  Or is it a shot in the dark?

How much of that time should you be spending growing your business instead of trying to figure out how to make something “work”?  I won't say it's a pet peeve of mine because I picture a peeve as some sort of small animal and I don't need another pet, but your business needs you to make the best use of your time.  It's okay not to know how to do everything yourself.  It's okay to make sure the answers you get are good answers. 

The software does, in fact, work quite well. But it’s a tool and, like all tools, works better in the hands of someone who knows what to do with it. I can go out and buy a hammer, but that doesn’t make me a carpenter. It just makes me more likely to need a doctor when I try using said hammer without help. Hiring a carpenter would be cheaper in the long run.

Setting Your Hourly Rate

This is a subject that’s sure to come up when you started your business, and it’s not one-size-fits-all. Nothing really is, after all, is it? For a service business, setting the right rate is vital, even if it isn’t always easy.

There’s a trick to pricing your services, and that is, it needs to be a price you’re a) happy with, b) that you can earn a living with, and c) one that your customers will pay. If you’re not happy with it, you’ll begrudge your customers the time you give them. If you can’t earn a living with it, what use is it? You might as well give away your services. And if your clients won’t pay it, you’re right back to not being able to earn a living.

Rates will vary based on geographical region, services, ego, experience, qualifications, your clients/customers, and a host of other factors. You may have been told to find out what others charge for the same service. This may work, and it may not. Many of us don’t give out our rates when someone we don’t know calls – you may have also been told not to do that yourself, to talk to the client about what they need before you start discussing rates so you don’t scare them off right away.

A bit of a Catch-22 there.

Also, you really can’t base your rates on what someone else charges. Some time ago, after I’d moved to a new area, I met someone who was doing the same work I was. We had lunch and talked about our rates. Hers were twenty an hour less than mine, and she told me I’d have to reduce my rates in order to get any work in this area. I thanked her for the advice and left my rates right where they were. I wouldn’t have been happy with a lower rate, and I know the value of my work.

Since then, many others have said my rates are just fine, among them CPA’s and clients.

One thing to keep in mind is that there will always be someone cheaper than you. But is this your competition? Only you can decide that. There will also be people charging more. What matters is what you need to earn for your business to be successful.

You may look at salary guides, but that doesn’t tell you what rate to charge. What it does tell you is what the going rate is for that position, if you were an employee. You’re not. You can’t build a business on employee wages. You have to pay your own taxes, provide your own equipment and office space, and you have to provide your own benefits. Of course, there are advantages to businesses to go with an independent contractor instead, which you may need to point out to them. The clients don’t always come to us pre-educated.

A good way to get a starting point for your rate is to think about what you need your annual income to be, net of taxes and expenses. Then add taxes and expenses. This is the part a lot of new business owners neglect to do. That’s the minimum you need to make, right?

Look at how many billable hours you can expect in a week. If you want to work a 40 hour week, you won’t have 40 billable hours. This is a business now, and someone has to do all the work that goes into running a business too.

So how much do you need to make an hour?

Look at your qualifications and experience. Do you think you’re worth that hourly rate? If not, you need to work on your ego (or, to be politically correct, self-esteem), or find out how to be worth it. If you’re think you should make more, charge more. Don’t worry about losing clients over it – the price shoppers will always be less concerned about service and more concerned about financial cost. They’ll spend so much time searching for the cheapest option that their businesses will flounder. And do you want to spend time on a business like that? (There is also truth to the rumor that you get what you pay for.)

Setting your hourly rate is a lot less about what other people are charging than it is about you getting what you need and want to be successful. If you’re good and can give clients the service they crave, you’ll do fine, no matter what your rate is.

1099 Season

It’s that time of year again, when questions about 1099’s fly through the air like sparks before an electrical storm. Who sends them? Who receives them? Why? When? How? Here’s a few basics, just to get started with, dealing ONLY with the 1099-MISC:

1099’s are issued by your business to anyone who provides services to you for $600 or more during a calendar year. Unless the provider of services is incorporated. Then you can skip the 1099.

How do you know if they’re incorporated? Prior to paying anyone for services, you should hand them a W-9, or mail it, or email it. The provider of services completes the W-9, and on it they can indicate if they’re a corporation and therefore not subject to receiving a 1099. The W-9 also gives you the all-important tax ID number, without which you cannot file a 1099. This is why we ask for a completed W-9 prior to payment, and, hopefully, prior to receiving services, to avoid the sort of skirmishes wherein one party asks for the information in order to comply with the IRS regulations and the second party refuses to provide it, and they’ve already received their payment. (See below for what to do in that case.)

There are exceptions, of course, this being a federal tax law sort of thing. Lawyers are to receive a 1099 if you pay them anything at all. You can often find their tax ID on their letterhead, in which case, no need for a W-9.

What if materials are included in what you paid to the service provider? You can break those out, by completing the 1099 for only what the service was. However, you’re not required to – if you have all costs posted to the same account in your accounting software and aren’t sure which are materials and which are services, send a 1099 for the entire amount. It’s the provider’s responsibility to deal with that on their own tax return, and it’s rather easily done.

Cash or accrual? CASH. You 1099 someone for the amount you physically paid them during the year. If they billed you another 100 grand but at year end it’s still on your books as a payable, it doesn’t count. That’ll be for next year.

Rents? If you’re paying rents, you’re also required to include rents paid on a 1099. There’s a separate block for rent paid.

When: 1099’s are due out by January 31^st, so the sooner the better. The filing for the feds comes later, but you must have the 1099’s out to the recipients by January 31^st.

How: There are so many options for how that I’m not sure we can cover them all at once. You can print them from your accounting software. You can order free forms from the IRS, and print them on those, though if you haven’t ordered your free forms by now, you won’t have time. You can buy forms at the office supply store. You can file online with various providers who will mail the forms for you and efile with the feds. This is my favorite, especially if a company only has 1 or 2 1099’s. I use filetaxes.com, but there are other options.

Red forms or not? IRS regs require that the 1099 and the 1096, which is the summary that goes to the IRS with their copies, be printed on their red forms. This is why the forms purchased at the office supply store come with red copies. However, I know people who’ve been printing them on plain paper with black ink straight out of their software for years, with no problems and no complaints from the IRS. Yet another reason why online filing is so great – there’s no need to worry about it.

Why? It’s the IRS. You want I should have an answer for what they do? But the short version is, the IRS wants to be able to check to see if someone’s reported all their income, and one way they do that is by checking 1099’s against the person’s tax return. So in completing 1099’s, you’re helping the government collect on taxes! That should give you a warm fuzzy feeling about doing it. There IS a penalty for not doing them by the way, should they happen to find out you didn’t do it.

Another warning on 1099’s: This year I’ve seen an increase in the number of business owners who refer to service providers as “1099 employees.” There is no such thing. You either have employees, or you have subcontractors. Do not confuse the two. Just saying someone’s a subcontractor so you don’t have to pay payroll taxes doesn’t work either. There are guidelines to follow, and if the IRS finds out you’ve misclassified an employee as a subcontractor, the penalties will be steep – not to mention the back payroll taxes. Not to mention your state – if they catch wind of it, back payroll taxes and penalties will mount up quickly. All it takes is one dissatisfied “1099 employee” to bring up the issue, so please don’t do it.

There’s so much more to 1099’s than I can cover here, so if you have questions about 1099’s, ask one of us who knows. We’re awash in 1099’s and W-2’s right now, and we’re not unfamiliar with the process!

New Mileage Rates, and More!

In keeping with the IRS mission to confuse as many taxpayers as possible at any given time (sure, they don't tell you this is what it is, but we know the truth), here's a few changes for 2010 you may want to know about:

* Mileage rates. Effective January 1, 2010, the standard mileage rate for business driving is 50 cents a mile, down from the 2009 rate of 55 cents a mile. Taxpayers who drive for medical services or in a job-related move may use a mileage rate of 16.5 cents a mile. That's down from the 2009 rate of 24 cents a mile. The mileage rate for charitable driving is not adjusted annually and remains at 14 cents a mile.

* Health savings accounts. The 2010 limit for deductible contributions to a health savings account (HSA) is set at $3,050 for individuals and $6,150 for family coverage. Individuals who are 55 or older may contribute an additional $1,000.

* The interest rates on tax overpayments and underpayments for the first quarter of 2010 remain the same as they were for the fourth quarter of 2009. The rates are 4% for overpayments and underpayments by individuals. Corporations will pay 4% on underpayments and receive 3% on overpayments. On large corporate underpayments, the interest rate is 6%; the rate paid on large corporate overpayments is 1.5%.

More updates will follow. It's an always changing world out there.

Happy 2010!

What Happens When You’re Gone?

Succession planning has typically been the bastion of the big guys, the corporations who ensure that key positions are filled in so the company can keep moving forward, no matter what happens.

That’s all good and well for them, but for those of us who don’t have the wherewithal to have legions of replacements standing at the ready, what do we do? Obviously we intend to have nothing happen to us, but get this: things happen. Unplanned, unprovoked, unwarranted, and unwanted things. You could be run over by a truck, just when you thought life was going along swimmingly well. You could be kidnapped and held for ransom by robber barons who care little what happens to your company in your absence. You could step into a shower one day, slip and hit your head, and be dead within the week. (This happened to someone I knew. Not something one can plan for, is it?)

I don’t mean to be morbid, but here’s the thing: things can happen that we never expected. It’s what makes life so interesting, the possibility that every day wondrous things can happen, but so can horrible things, things that we never anticipated. These things can remove us permanently from our business, or they can remove us only temporarily, or they can fall into the great unknown category: will we return to work? Only time will tell.

And what happens to your business then? Perhaps you don’t care. After all, you won’t be around, so what does it matter? How do your customers and clients feel about that? One of the reasons people go to big companies is to ensure they’re taken care of, even if something should happen to the person handling their account. How can you give your customers the same level of comfort?

If you work with others in your business, either partners or employees, is there enough information so the loss of one of you doesn’t mean the customers will be neglected? Are procedures in writing and does everyone know where they are? If it’s just you running your business, what will happen if you disappear one day?

It’s one thing to plan what will happen to your business if something happens to you. If you’re a sole prop, you are your business, so the business will come to an end. But what about your customers and clients? How will they feel about it? Oh sure, they’ll be sad, of course, but what about THEM? They’re going to wonder what’s going to happen to them, which is a natural response. And what will happen to them? These are the things you should be thinking about now, and the beginning of a new year is a good time to do it.

Some of my colleagues who have their own businesses have reciprocal arrangements. If something happens to me, my husband knows who to contact to take over my client work. I have information on all my clients in a file, or will, as soon as I finish updating it. Here’s the thing: this is not a one-time all-done-never-have-to-think-about-it-again sort of thing. It’s an ongoing process, keeping in mind how you’d like your vendors to take care of you, should anything happen to THEM. Do no less for your own customers, and you’ll rest a lot easier in that hospital bed, which will mean you’ll be able to return to work faster and get back to living your life. If you’ve planned to take care of your customers when you can’t do it yourself, they’ll still be there, waiting for you.