Dollars & Sense
Starting a business
Starting a successful business requires a great deal of preparation. Sometimes just a little research can make all the difference. The keys to success are experience, knowledge, a business plan, professional advice and financing.
Experience and knowledge of your industry is crucial. If you don't have any experience, consider working with a successful owner-operator for at least six months. Do as much research as possible. The time you spend gathering accurate information is going to be well worth the effort. The more information you have the less likely you are of making poor business choices and costly mistakes.
Develop a business plan. Having a business plan is important, especially if you will be looking for financial assistance from outside sources. Your business plan must include a profit and loss forecast and a cash flow forecast.
Seek professional advice from both an accountant and an attorney. You may want to have an attorney look over any contracts or purchase/lease agreements you're considering signing.
An accountant can be a great source of information about tax and bookkeeping requirements and also consult on important business issues like start-up requirements, equipment purchase and business entity selection.
Financial needs are all too often underestimated. Start-up costs and cash-flow requirements should be determined in advance plus plan on starting with a cash reserve to handle the unforeseen.
Business Start-up and Organization
You may choose to operate your business by yourself (sole proprietorship), with another person (general partnership), or as a separate legal entity (corporation, limited liability company, limited liability partnership, or limited partnership).
Each type of business structure has advantages and disadvantages. We recommend discussing which form of business entity is best for your particular situation with both an attorney and a tax professional. Here is a quick overview of the most common business entities.
Sole Proprietorship
A sole proprietorship is the widest used and simplest form of business to startup and operate. The business owner is personally liable for all the obligations of the business.
General Partnership
A general partnership is an association of two or more persons doing business. All partners are personally liable for the obligations of the partnership.
Corporation
A corporation is a legal entity created under state law by filing articles of incorporation. A corporation is owned by its shareholders but exits separately from the shareholders. A corporation is managed by a board of directors. The directors elect the president, treasurer and secretary and adopt bylaws.
S Corporation
S corporations start out as C corporations but then make an election to be taxed differently than c corporations. A business corporation may elect to be taxed as an S corporation by filing Form 2553, Election by a Small Business Corporation, with the Internal Revenue Service. S corporations are taxed the same way as partnerships. The profit and/or loss flow through to the shareholders.
Limited Liability Company (LLC)
Limited Liability Companies are created by filing articles of organization with the state. A limited liability company (LLC) is an unincorporated association having one or more members. An LLC can be managed by it's members or by managers.
Each type of business entity offers advantages and disadvantages. Corporations must adhere to much stricter guidelines than other business entities. Courts may disregard "liability protection" in the case of one shareholder corporations and one member limited liability companies. The important of getting professional guidance cannot be stressed enough.
Keep Separate Bank Account for Business
If you don't already use a separate bank account for business income and expenses it's time to start. Keeping business and personal finances separated is not a requirement if you're operating as a sole proprietor but it is the smart thing to do.
Maintaining a separate account for business is not complicated. Simply deposit all business income into your business account and pay all business expenses out of the same account. When you need money for personal expenses simply write yourself a check from the business account and deposit to the personal account.
Having a separate business account makes things much easier from a bookkeeping standpoint as well as making review and analysis of expenses much easier.
Tip: Request a month end closing date on your business bank statements.
Make Estimated Tax Payments
Many self-employed truckers do not pay their estimated income taxes on a quarterly basis and instead wait until the end of the year. Often they are surprised to find out that they have been charged penalties by the IRS.
The point here is that the IRS wants to get their money on a timely basis throughout the year and so they have set up a method of paying estimated taxes four times a year.
If you do not adhere to this schedule, then you are subject to penalties for underpayment of your taxes. If you are unable to pay the full amount set up by your tax preparer, pay as much as you can instead of not paying at all. It is much easier to make payment throughout the year than trying to come up with a lump sum at the end of the year.
This article has been presented by PBS Tax & Bookkeeping Service, a company that has been providing income tax and bookkeeping services to the trucking industry for over a quarter century. Contributions to this article were made by Shasta May, Director Business Development for PBS. If you would like further information, please contact us at 800-697-5153. See our Web Site at www.pbstax.com.
Please remember everyone's financial situation is different. This article does not give and is not intended to give specific accounting and/or tax advice. Please consult with your own tax or accounting professional."