Copyright 2010 by Morris Rosenthal - - contact info
Planning A New Business
Copyright 2010 by Morris Rosenthal
All Rights Reserved
How To Become Self Employed And Self Sufficient In Business
So many aspiring entrepreneurs I talk with believe that at the heart of self employment must be passion for your work, a journey towards self fulfillment, an end to repetitive, unchallenging tasks assigned in the corporate world. While all of those things are reasonable goals to have, the true heart of self employment is making a profit. Being self employed isn't limited to filling the hours of your day in a constructive fashion, you have to make a profit or your attempt at starting a business is just an unpaid vacation. If you gag on the word "profit" or can't stand talking about money, going into business on your own isn't going to work unless you have a special relationship with a company or foundation that can't hire you as an employee but is willing to pay you on a 1099 in a pretend business.
Financial advisors are fond of telling sole proprietors that your first job is to pay yourself. Some take it so far as to suggest opening a line of credit and paying yourself a regular "salary" whether or not there's enough money coming in to justify it. I think that's crazy for two reasons. First of all, there is no such thing as taking a salary as a sole proprietor. As far as the IRS is concerned, and they are the only ones who count in this particular matter, any and all of the profit the business earns is yours, whether you leave it in the business account, transfer it to your personal account, or take it all in cash and blow it at the casino. At the end of every tax quarter, you are required to pay estimated taxes on the amount of your profit, which the IRS treats as your income for the year, whether you want it or not. Writing yourself regular checks makes no difference, nor does using a payroll service to write checks for you and withhold taxes. As the owner of the business, the profit is your compensation, and any checks written to you during the course of the year are part of that profit. Your labor is not tax deductible.
My own approach to business planning is to be honest with yourself. Don't waste time and effort setting up paperwork structures that have no legal or tax meaning. If the whole point of doing something is to trick yourself into saving money or paying bills, I would suggest thinking again about whether or not you are really ready to be your own boss. In fact, spending a lot of time setting up the infrastructure of a business before it's needed is a good way to procrastinate the real work of finding customers. The primary reason new businesses fail is that they never get to the point of selling enough goods or services to pay their bills. It's basically that simple, sales equals success, no sales equals failure. The main thing you can do to extend the amount of time you have to generate enough sales to pay all of your business expenses and leave you with a profit is to limit your business expenses from Day One. You have no way of knowing if you're going to be good or bad at generating sales before you try, no way of knowing how long it will take. What you can control is how much money you spend launching the business.
Over the years I've become convinced that there's little I can do to help friends or strangers in starting a business other than repeating myself over and over again, which doesn't make for a very interesting blog. So I developed a series of pages about sole proprietor taxes and basic finance and investing for homeowners. You can pay somebody else to make your decisions for you if that's what it takes to make you comfortable, but there's no reason to be ignorant of the underlying mathematics of what's going on with your taxes or your finances.
In the last couple years, my business has been steady and increasingly functions on autopilot, so I'm becoming obsessed with the next step. I wonder if I'm up to creating a larger business or entering a new field at this point in my life, especially without the fire in the belly that comes from a lack of steady meals. It seems there's a great desire in the world of business literature for books that describe how to earn more while doing less, soon they'll be promoting a ten minute work week and retirement at 40. So I'm already well past that retirement age, and what I really need is a way to remain busy and constructive without throwing up my hands and going back to work for somebody else just to fill the day.
I hope you find my material about how to become gainfully self employed useful, and that you soon find yourself in a similar situation. If I can come up with a discipline for sole proprietors looking to take the next step, I'll certainly share it.
This guide is in progress, feel free to contact me with questions or suggestions.