Need New Business Advice!

[AlexLeather]

Any advice from you small business owners would be much appreciated.

I've been claiming about $3,000 hobby income for the last two years on my federal tax return and was advised to register as a business so I could order materials wholesale and pay less during tax season, and claim losses/expenses/deductions. My state adviser told me that if I am manufacturing and selling things, I should really be registered.

So I applied for a business license online a couple nights ago, and while I'm waiting for the paperwork to come in the mail, I've started to panic. I've never taken a single accounting or bookkeeping class, and tax forms are alien to me; I've always taken my pay stubs and mortgage taxes to H&R to let them deal with it. I pay the fee and go home. I throw all my receipts in the trash, along with all packaging, I trash all email invoices I receive for online orders because I have no use for them.

I'm not too nervous about remembering to record every bottle of dye I purchase and how many miles I drive to Tandy, to save bridge toll receipts and keep all receipts in a shoebox. An adviser over the phone told me I could apply for a re-seller's permit so I wouldn't have to pay sales tax on materials I buy (I buy 95% of my materials online, but the veg tan I buy in person along with a few tools).

I feel like I'm way in over my head on this. In a nutshell, what should my priorities be to make sure I do this right from the get-go? What kinds of habits should I practice? Do I really need to fill out everything on Schedule C?

I'm working by myself from my home, I'm not sure if I need to let my home owners insurance company know that I'm running a registered small business from my spare bedroom... I'm so very clueless on running a business. I'm not sure I'm cut out for this!

[emmanuelleather]

Alex-

As "The Hitch Hikers Guide" says, "Don't Panic". Good bookkeeping is important but it's not as hard as you are imagining. There are many good free accounting programs (ie Mint) but investing in Quickbooks or Quicken for Home and Business would not be a bad idea. You just need to get in the habit of inputting data. Open a separate business account with a bank and you can download account transactions directly into the software. I am not an accountant but those who are tell me that the IRS is more concerned that you tell them all the money you make and that your deductions make sense than if your accounting method is modern. Throwing your receipts in a shoebox is a perfectly viable accounting method. Use TurboTax. It asks all the questions you need to answer for a small business run out of your home. Lots of people do this and we are not business or tax geniuses, Trust Me On This! Good luck to you, Stay Calm.

[Pounder]

Alex

You have the business jitters just the same as I had two year ago when I started. Once you get your license and get into the swing of things you will find it is not much different from when you ran it as a hobby. Just record everything, sutdy up on your accounting practices, seek help from local organizations that offer assistance to new business owners and enjoy the ride.

I would recommmend the business incusrance especially if you have customers coming to your house on ocassion and also to cover any major losss you may incur. Your current agent should be able to recommend a good policy for you. Mine cost about $42. per month but it is well worht it.

[JinxedDream]

Quickbooks is an excellent software to use, most businesses, especially the smaller ones seem to be using that one. We use it for the farm. Accounting isn't that hard (says the business student). Just keep track of what you spend, keep all the receipts (the shoebox method is more popular than you think). Write out receipts for what you sell. IRS just wants your cash flows. Setting up a business account might be good, it give you a way to check your books.

Don't panic. If you really want to, consult an accountant, they are usually helpful.

[Randy Cornelius]

I keep a folder with all my reciepts and another for invoices which I use software to keep track. I also keep a book in my vehicle to write down all the milage for trips that are tax deductable. Seems to work for me.

[BIGGUNDOCTOR]

^{Get the book Entreleadership by Dave Ramsey, you can find it on his website.}

[RMB Custom Leather]

Get a Paypal Extras credit card and use to buy all your supplies or anything related to the business, it will help you keep some sort of record or at least a back up. You will also rack up tons of reward points which you can cash in to buy more supplies. They will allow about $400-500 a year in rewards. About forgot if your not the kind to pay all your cards off each month I would not recommend this, I have never paid a dime in interest yet and have had over two years.

Edited March 7, 2013 by RMB Custom Leather

[AlexLeather]

Can you guys explain to me the two choices of accounting methods? accrual and cash? I think Accrual is it counts as soon as you establish an order, like I take an order for a leather jacket, even though the customer has only paid their 50% down payment. Cash method is when I take full cash for it.?

[JinxedDream]

Yes, accrual is when the action happens. Cash is when you get the cash. In this case, with accrual, you would make an account for the customer, you show that they paid 50% and the remainder is on the books as a credit. So your "cash" goes up by the full amount but you keep it even with the credit of the 50% that the customer still owes you. In cash accounting, you just show that there is an inflow twice, no credit accounts unless you are getting loan and there is actual cash involved.

[corter]

Shoebox method here. One for invoices, one for receipts. When tax time comes I just count up the invoices, count up the receipts, send those two numbers to my cpa. I have my tax ID for suppliers, and that's it. The IRS is really only interested in businesses that loose money year after year, if you're claiming any sort of profit it shouldn't really raise up any red flags.