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How Do I Pay Myself as A Sole Proprietor? November 7, 2009

Posted by Julie Duriga, CPA in Uncategorized.
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j0438810If you have established yourself as a sole proprietor inside your small business, paying yourself is relatively easy!  The tricky part, of course, is the estimated tax payments.

Of course, you would need to be profitable in order to be able to pay yourself, there needs to be excess cash in your business accounts after you have met all of your small business expenses.  All of the small business experts will tell you that you need to pay yourself first.  I agree with this statement, you must take care of your household expenses first, otherwise what you have is an expensive hobby.  However, sometimes, it is incredibly difficult to let the business expenses slide because we see our small business as the goose that lays the golden egg…if we can just through the next month, things will be great!  I know, I have been there. 

Assuming your small business is enormously profitable (and I hope that it is), you have excess cash to pay yourself…If your business account and your personal accounts are at the same bank then online transfers from the business accounts to your personal accounts are the way to go.  I would always recommend setting up a separate business savings account to set your tax money aside.  If you don’t have online access to your accounts, then is fine to write a check from your small business account to your personal accounts.

For example, you want to pay yourself, $1,000.00 as a small business owner, you would really only bring home about $700.00 after taxes.  The online transfer would be two part-$700.00 to your personal checking account and $300.00 to your tax savings account.  Depending on your tax bracket and if you don’t have a great deal of other personal income (25%-30%) should cover you come tax time. 

Seems high doesn’t it?  Yes!  We do pay a lot of taxes as small business owners…Dave Ramsey says that if we weren’t so busy keeping our doors open of our small businesses we as small business owners would have a revolution.  I agree, when we are working for other people, we don’t notice the tax bill as much because it is being withheld from our paycheck but when we have to write a check to pay our taxes, it might make you sick to your stomach!

Caution!  It is very important to remember that just because you did not bring all of your profits home with you DOES NOT mean you don’t pay taxes on those profits!  If you have $10,000.00 in profits at the end of the taxable year, that is considered taxable income to you and you will have to pay taxes on these profits to the tune of about $3,000.00!  It is remarkable because it may feel as though you did not benefit from these profits, but it is the law to pay taxes on your profits and what you put into your personal bank account.

 Remember, that if you are an LLC, you may also be a sole proprietor…the federal government doesn’t recognize the LLC only the sole proprietor.  You may be registered as an LLC with the state but you still remain a sole proprietor with the federal government.  You would declare yourself, “I am an LLC filing as a sole proprietor”.

Visit us at our website to get your free E-Book titled “How Do I Pay Myself? The Entrepreneur’s Guide to Building a Business AND Bringing Home the Dough.”  www.UniversityForBusiness.com

We also offer a really cool twenty minute video about how running your business affects your bottom line. We use islands, cars and bridges to demonstrate the movement of profits and losses between your personal and business bank accounts. This immediate download is avaialble for only $6.99. Twenty minutes with a CPA for only $6.99, what a deal!

5 Ways to Improve Cash Flow In Your Business June 17, 2009

Posted by Julie Duriga, CPA in accounting, Small Business, Uncategorized.
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There are so many ways that good accounting can save you a fortune,  this topic is virtually unlimited!  If we do a great job managing money that is owed us (money that is owed to us is a receivable) we might avoid borrowing or we could make money by charging interest on monies owed to us.  Receivables are an excellent place to start in our quest to make and to save a fortune.

  • Just Starting Your Business?  Terms for payment absolutely should be ” Due Upon Receipt.”  After all, you have just started your business and cash flow is probably a  little light.   You may want to appear as though you can afford to give terms of 15 or 30 days.  For most of us when we are starting,  this isn’t possible to give longer terms.  Use “Due Upon Receipt” or  ask for payment before they even before leaving the place of business.   It may even be necessary to say when they call for an appointment to say,  “Bring your checkbook.”

 

  • Watch Your Receivables Closely-If you see you have a customer who is not paying in the manner you have outlined, give them a call and see if they need help.  Check in and see if perhaps they need to make payment arrangements.  Don’t let your customers stray and put you at the bottom of the list because you are not making contact with them.  Unfortunately, it is your responsibility at times, to make collections calls.

 

  • Charge Interest!  If your business has been put in the position where your customers need your business to carry them for a short period of time, it is perfectly acceptable to charge interest.  Of course, if you are going to charge interest, this needs to be disclosed upfront on the first invoice what your intentions are.  For example, “10% interest is charged after invoice is 30 past due.”

 

  • Offer a 2% discount if your customers pay within ten days.  This is a great way to help your customers save money and for you to make sure that you get paid as quickly as possible.

 

  • Factoring?  There are companies that offer what is called factoring.  This means they will buy your receivables from you and your customers send the company the money instead of your business.  They buy your receivables from you at a lower price than what they believe they will collect.  This process gives you the upfront cash and the factoring company takes over from there.   This is usually only used if your business is in tough times but it is an option.

Managing your accounting is critical for long term success.  Even more importantly, it is critical if your business has receivables, to be attentive to them.  If you are attentive and proactive with your receivables, it is possible to avoid borrowing money.    It is possible for your business to make money by charging interest on invoices that go over 30 days.   Manage your receivables as if it were cash because your receivables are cash!  If you would like additional information on how good accounting can save you a fortune, visit us at our website at www.UniversityForBusiness.com.