Chapter 6: Paperwork
Not only must you have sufficient funds in place to begin, there is going to be a great deal of paper work in the beginning.
A. Initial startup paperwork: City/County/State/Federal
I’m assuming that the first step in this process has already been completed; namely the creation of your business entity. If not, that should be your first step in the startup paperwork process. There are at least two reasons for this, first, in the process of creating your entity, you or your representative will have selected a name that is not a duplication of another business name within your state, and second, you will report this business name and entity type to the IRS when signing up with them.
The creation and naming of your business entity is filed with your Secretary of State or equivalent.
Also, at the state level:
• You will probably need to get a license from your state department of licensing.
• If you have a state income tax, you will need to create an account through which to file and pay your business income taxes
• If your state has sales tax, you will need to apply for a resale certificate if you’ll be manufacturing goods or purchasing for resale, and create an account with your department of revenue or equivalent, to whom you will pay any collected sales tax.
By the way, I recommend setting up a liability account in your financial system for “sales tax payable”. Whenever you receive sales tax, make an entry for the sales tax that you owe to the state, and don’t spend it! Keep track of the total payable so that you don’t spend money that doesn’t belong to you, and not have it when it’s time to pay it.
If you have employees, you will probably have to file documents for:
• Industrial insurance
• Unemployment insurance
If you will hire minors, there are often special work permits you are expected to obtain.
In addition, depending on your type of business, there may be additional licenses or permits specific to your type of business. How does one find out about them all? It’s not always easy.
You may want to use some or all of the following methods:
• Retain the services of an experienced accountant
• Ask others in similar businesses
• Call the various agencies and ask questions
• Research online or at your local library
At the federal level, you will need to register your business and obtain an Employer Identification Number or EIN. Now there’s a few cases in which an EIN is not required, generally if you’re a sole proprietor with no employees, but I’m going to suggest you obtain one for privacy reasons. Often there are forms that require a federal tax ID, and if you don’t have an EIN, you’re stuck with using your Social Security number.
You may also need a business license from your city or county, and one or more permits to perform certain functions. No one likes to have to obtain these, but they are a cost of doing business.
If, for instance, I owned a brick and mortar store or operated heavy equipment, I would have to deal with my county to get required licenses and permits. You will want to check with your own city and county to find out what they require.
A good accountant can handle most or all of the above paperwork for you, although you will generally need to sign the applications.
B. Ongoing paperwork: City/County/State/Federal
Much of this ongoing paperwork will be related to taxes. You will have taxes at the federal level, in most cases at the state level, and possibly the county and city level. Not only must you factor in paying these taxes, the process of computing them and filling out the required returns is not always simple. Here’s a couple of tips to help you get a handle on them.
First, create a calendar on which you list all of the required returns. This can be handled in different ways. I like to use Google calendar, it’s very easy to set recurring items that repeat every week, month, year or whatever, and I can share my calendar with whomever I choose. Many people like to use the scheduling feature in Microsoft Outlook.
If you want to go low tech, you can just keep a schedule in a 3-ring binder and fill it out once a year, adding to it as necessary. For maximum effectiveness, you will actually need two entries for each return, one for the actual due date and the other for the date you will be doing the work, because you don’t want to fill them out at the last minute.
For example, your Federal income tax return will be completed once per year, though your estimated tax payments will be due once per quarter. If you have employees, you will have a 941 tax return to complete once per quarter. This is how you document your withheld Federal payroll taxes and the employer’s side of Social Security and Medicare tax. Your federal unemployment tax return, if required, will come due once per year.
Be aware that Federal taxes generally must be deposited on a more frequent basis, either estimated in the case of income taxes, or actual in the case of employment taxes.
At the state level, you will probably also have an annual income tax return, and if you collect sales taxes, you will be reporting and paying those once per month or quarter. If you have employees, all states of which I am aware will have industrial insurance returns to file and pay, along with state unemployment tax.
I’ve just hit the highlights here. Unfortunately, there may be other ongoing requirements as well.
No one likes paying taxes, but they are a cost of doing business. If you ignore them, you will pay dearly in the long run. So do whatever you can to reduce your taxes legally, and make it your aim to get them paid on time. If you follow my advice in this section, I believe you will find keeping up with them much easier.
The second thing you can do to keep up with ongoing paperwork is create checklists and informational sheets if you or someone on your team is completing these, versus an outside professional. An outside professional will generally know what do without your help and also remember that they do many of these returns on a fairly frequent basis. The reason for this is simply to save time and aggravation.
Some of these returns will be filled out only once per year or every three months, and often there will be one or two steps that are difficult to remember. By creating your own personalized checklists to follow each time, and including reminders about problem areas as you discover them, you will be miles ahead of the person that has to re-create the wheel each time.
The third recommendation I have for keeping up with paperwork, is put all of your startup paperwork in a 3-ring binder for easy access. You will receive a notice from the IRS with your Employer Identification Number, and each state and local agency will have something similar for the various accounts and records you are responsible to report on. Keeping it all accessible in one location will make your life much easier later. I personally like to use sheet protectors for this purpose, plastic sleeves that you slide pages into.
While taxes and record keeping is required, it’s not going to keep you in business.