First Person: Financial Items to Consider Before Going into Business for Yourself

Yahoo Contributor Network

Are you thinking about starting a business? There are some things you should take into consideration before you open your doors. Before you start your business, decide how you will finance your business, where you will locate (at home or in rented space), your income needs both personally and professionally, whether or not you will hire employees and how you will pay your taxes.

Self-Funded Or Business Loans

There are two ways to start a small business. One way involves saving lots of money and opening the business with your own private funds. The other way involves filling out a lengthy business plan, determining every detail of the business prior to opening the doors, performing detailed market research and coming up with a detailed list of start-up and first year expenses.

Financial institutions and venture capitalists all require business plans. This is because they want to know how viable your business is in the current market, how much money you need to open your doors or launch your product and how long it will be until you estimate becoming profitable.

I chose to start my business with my own funds. Between my 401k, savings accounts and stock accounts, I had almost $10,000 saved before I launched my business, which was roughly six months of business and living expenses if I failed to earn any money.

The first few months were rough as I continuously calculated my income versus my expenses, but my savings plus the income I earned got me through my first tumultuous year and into stable profits.

Home Based Or Commercial Property Rental

Many small businesses start at home. A home based business has very little overhead since you're already paying for the space via rent or a mortgage payment, and lots of businesses can be started at home, including construction, remodeling, electrical and plumbing work, online retail stores and many types of technology based businesses.

I choose to start my business at home because I didn't have the funds available to rent an office from an office building. Instead, I moved my office into a spare bedroom and designated that space as my work space. This helps in two ways. It designates specific square footage to my business that I can write off as a tax deduction, and it lets me know that I am at work when I am in that room.

Daily Or Weekly Income Needs

How will you determine your income needs? I currently calculate my income daily, weekly and monthly. This ensures that if I miss an income goal, I can make it up either at the end of the week or at the end of the month.

Employees Or Not

Will your business require employees or can you perform all the work yourself? Most sole-proprietorships are single employee businesses where the owner both manages and operates the business.

I choose to run my administrative assistant business myself with zero extra employees. This saves me money in the form of payroll, payroll taxes and employee insurance, including workers compensation and liability policies. Employees are great for getting more work accomplished, but employees are also very expensive for the beginning business.

Taxes

If you're the employee of a business, that business is required to take taxes out of your paycheck. If you work for yourself, it is your responsibility to pay your own taxes. The IRS offers two ways for self-employed individuals to pay their taxes, at tax time and quarterly.

When I called the IRS, they recommended that I pay my taxes quarterly to avoid owing large amounts of money at the end of the year. The IRS website states that anyone who will owe less than $1,000 in federal taxes to pay at the end of the year. I currently choose to pay my taxes at the end of the year, but I have to have all my tax money saved by April 15th for the previous year. Otherwise, I have to commit to paying a certain amount each month to catch up on the back taxes I owe.

*Note: This was written by a Yahoo! contributor. Do you have a personal finance story that you'd like to share? Sign up with the Yahoo! Contributor Network to start publishing your own finance articles.

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