Business Information for Entrepreneurs by an Entrepreneur

Are you a small business that needs a little extra help here and there? Beware of how you hire any help in the form of time, labor, or creativity. There are both federal and state rules that you must follow when paying money to others when it benefits your business.

Employees

Hiring an employee means you put them on your company payroll. However, this is where small business employers can get into a lot of trouble if they don't follow tax laws.

Full-time employees are usually those who work 35-40 hours per week. Any more than 40 hours in one week, and you must pay overtime at 1.5 times the regular rate. Depending on your state, you are probably required to pay state unemployment taxes for each employee. Also, check with your state laws about whether you are required to provide certain benefits, such as medical insurance.

However, what if you have an employee that only works occasionally as needed? Or if you pay your college-age niece for working during spring break or summer? You must be careful in how you classify your employees. If they are on your books as an hourly or salaried employee, you will be required to pay federal FICA taxes and possibly state unemployment. If you want to avoid these issues for occasional work, you might consider the following alternatives.

Temporary Agencies

You could hire part-time or occasional help through temp agencies. These companies take great care to filter and certify their workers to provide clients with the best help possible. Better yet, they will take care of all employee taxes. You simply pay the agency a fee for each hour their employee works for your business.

Independent Contractors and Freelancers

You could determine to hire a contractor or freelancer to perform necessary duties. A good example is an outside bookkeeping service or a freelance writer. You simply contract them through an agreement to perform specific duties or tasks and then pay them for their services as an outside contractor. If you do this, however, note than any monies paid over $600 to any contractor will need to be reported to the IRS on a 1099 form.

Hiring extra help once in a while can be a pain, but if done strategically and according to employment laws, you can save considerable money on employee taxes and potential penalties.

In any business, overhead costs are those recurring expenses that show up month after month and bill after bill, and these expenses can have a huge impact on your bottom line. Usually considered administrative costs, overhead includes rent, utilities, phone, and all the other costs necessary to keep your business running.

Without careful monitoring, overhead can easily spiral out of control. Here are five ways you can start saving on overhead costs and help keep your company in the black.

1. Office Space - Commercial rental space is usually one of the biggest overhead costs, and it is one of the most inefficient of all admin expenses. Perform an analysis of your current office, retail, or warehouse space and your actual needs. Don't just consider the size, but the location as well. Many small businesses lease too much space and could save considerable money on a more efficient office space. Also, you could pay considerably less on the same size space in a different part of town. Commercial lease rates usually vary depending on the section or location of the space. You may find that a similar space just around the corner from a busy thoroughfare is 25% less than what you pay now.

2. Electricity - There are many ways to save on electric costs. One way is to install motion sensors for overhead lights. This will assure that the lights are off when no one is in the office. Also, form a "computer off" policy when employees are out of the office.

3. Staff - Too much staff is also an overhead waster. Determine to staff to meet minimum needs. You can always hire temporary staff during peak times.

4. Insurance - Insurance is necessary, but you will find that different insurance companies offer various rates. Shop through agents and find a company that offers you the lowest rate for the best service.

5. Miscellaneous - Miscellaneous costs can get out of hand if not monitored. Here are a few to keep in mind.

   • Overnight shipping - Shipping documents and items overnight can quickly become a large yearly expense. Try to save money by shipping express when you can, and coordinate shipping through one person to help control costs.
   • Dues and memberships - Eliminate dues and subscriptions that are not absolutely necessary for your business.

   Administrative and operational costs help keep your business going, but you can save considerable money if you find ways to cut costs and save on expenses. Do an overhead analysis today to find ways you can increase your profits.

One of the most basic requirements of operating a small business is establishing a bank account in the business name. For some new business owners, this may seem trivial and unnecessary, since their business is operated out of their home.

However, the consequences of mingling your personal and business funds, even if it is part-time, can be disastrous - especially if the IRS makes a call to see your small business financial records. Here are 5 good reasons you need a bank account in your business name.

1. Business For Profit

   The IRS acknowledges that some small businesses are actually a hobby run for fun by the owner. However, if you expect to earn a profit from your business operations, you can bet the IRS will want a piece of that action. A separate bank account will help give you the appearance that you operate a business, not a hobby.

2. Look Professional For Customers and Clients

   When a customer writes a check to you personally, it appears that you are not a "professional." Having a separate bank account is just one of those factors that help make a business look legitimate and professional to your potential customers and clients.

3. Tax Filing

   You are required to file your business taxes, either by April 15 every year, or every quarter if you are a self-employed small business owner. Having that separate bank account will help you keep track of income and expenses for the periods you file. Without it, trying to separate your business checks and deposits from your personal transactions can be a nightmare.

4. Easily Find Deductions

   When preparing taxes, you want to deduct every expense possible that is allowed by the IRS. With your separate small business bank account, you can more easily sort through your canceled checks and bank statements to find the expenses that reduce your tax burden.

5. Leaves The Audit Trail

   No one wants it to happen, but if the IRS deems you worthy of an audit, you will need to show them a full, complete, and clear record of all your small business financial transactions. Your separate bank account will aid in the audit process.

   A small business bank account may be an extra expense, but the small amount paid is worth the organization and separation you get for your business transactions.