Why Mompreneurs Are the BEST Kind of “Preneur”
Entrepreneurs who are moms (“mompreneurs”) are among the most driven of all business owners. Why? Because they realize that any time they spend on the business is time that is not spent either with the kids or doing things for the kids. This lights a special kind of fire under these women. They don’t have time to mess around. They realize the importance in having a business that runs as efficiently as possible, because their time is super precious.
I know this because I am a mom and a business owner. I own a bookkeeping/accounting business called Balanced by Stevie. It. is. hard. Running your own business is hard as a single person with no other real responsibilities. But try doing it when you’re responsible for little ones too! It’s the ultimate juggling act! That’s why I wanted to create this post — to offer my expertise in the accounting and bookkeeping world to all of you “mompreneurs” who are KILLING it out there. I believe in women helping women, moms helping moms, and business owners helping business owners. This allows for me to do all of this!
“Need to Knows” for Forming Your Business
So you’ve hit the point where you’re ready to venture out into the business owner world. Here is what you need to know. If you’re serious about your venture, you need to do the following:
- Apply for a business license. You will definitely need one for the state of Alabama, but you will likely also need one for your county and city as well. This is ESPECIALLY important if you are going to be required to collect and remit sales tax (will cover more on the beast that is sales tax later in the post.)
- Form an LLC. I just recently published a podcast episode titled “To Be or Not to Be an LLC.” This is a topic that comes up a lot in discussions with potential clients. They usually ask the following (my answers included):
- What is an LLC? – “LLC” stands for limited liability company. It’s a legal step that new businesses take to protect the owner’s personal assets in the case of lawsuit or default on business debts. Think of an “LLC” as a shield between your business and your personal assets (e.g. your home, your personal bank accounts, etc.) If someone files a lawsuit against your business and you have an LLC in place, then your personal assets aren’t at stake.
- Should I form one for my business or not really worry about it? If you’re serious about your business, then yes you should form an LLC. It’s easy to do and affordable. You will rest easier knowing that your personal assets aren’t at risk.
- What are the tax advantages to being an LLC? None. Nadda. Zilch. This is where most people get confused (and rightly so.) An LLC is a legal thing and not a tax thing. You’re taxed the exact same whether you have an LLC in place or not.
- Apply for a sales tax license IF you will be selling products. If you are a service provider, you will not be required to collect sales tax from your clients. But if you sell products, then you most definitely will. (Side note: sales tax is kind of a nightmare. Just fair warning. There are LOTS of different rules and things to consider. There are some helpful websites available that can usually answer your questions. The one I recommend is Avalara. They have the rules per state listed on their website. And when in doubt, call the Alabama Department of Revenue).
- Caveat alert — if you are a wholesaler who sells products to resellers such as retail stores or interior designers, then you are not required to collect sales tax if the retailer can present to you their sales tax license or resell license indicating that they are a reseller. And on the flip side, if you are a reseller, you should indicate this when completing your application for a sales tax license. You will then be exempt from paying sales tax to the wholesaler when you purchase items. However, you are still required to charge the client/customer sales tax when they purchase from you.
How You Should Pay Yourself and Plan for Taxes
When you first form your business, you are usually considered a “Sole Proprietor” for tax purposes. This means that you will not pay yourself through a payroll system . . . meaning you will not have payroll taxes withheld or receive a W-2 at the end of the year. Instead, you will just send yourself cash from the business for owner’s pay. This will be recorded as a decrease to your owner’s equity on your balance sheet vs. an expense on your profit & loss statement. (P.S. if you don’t know what a balance sheet is, you’re not alone. Another common question that I get asked is, “What’s a balance sheet?”)
At the end of the year, you will report your net profit (total income less total expenses) from your business on your personal income tax return. You will be charged taxes at roughly 20% of that net profit amount (when you include federal and state). Hint: this is why it’s so important to maintain your bookkeeping . . . so you can track your net profit on a monthly basis and therefore know your tax liability at any given point in time.
Once your business hits a net profit amount of around $65k per year, you need to consider electing to be taxed as an S-Corporation vs. a sole proprietor. I won’t get down into the details here. Just keep that threshold in mind. I also recommend consulting with a tax accountant when you start a business. It will be worth it. And if you don’t at first, then DEFINITELY consult them once your net profit starts getting upwards of $50k. There is possibly some creative tax structuring that can be done to help decrease your tax liability.
The System You Should Use for Bookkeeping
Ideally, every business owner wants to eventually outsource bookkeeping. But in the beginning budgets are tight. But I’m here to tell you that you are absolutely capable of doing it yourself until that glorious day arrives when you can outsource! As a bookkeeping system, I recommend either Quickbooks Online Essentials or Quickbooks Online Plus. Please do not use Quickbooks Self-Employed. It does not give you everything you need in order to diagnose the health of your business. I have a serious beef with it. It’s okay if you’re already using Quickbooks Self-Employed. But I suggest switching. I helped a client do this recently. Full disclosure, it’s a pretty involved process. It’s more than just clicking a button. But the Quickbooks help team is usually pretty good with walking you through everything that you need to do.
When you have a bookkeeping system like Quickbooks, you can connect your business bank account (if you don’t have a separate bank account for your business, that should be the FIRST thing you do after reading this) and your business credit card account to your bookkeeping system. All of the daily transactions will then feed directly into your system, and you can categorize them or “record” them monthly. If you’re unsure of how to record your transactions, I have some great free resources that will help with this — some cheat sheets and lists. You can find these in the link in my instagram bio. Or simply reach out to me, and I’ll be happy to provide them to you.
Non-Negotiables and Best Practices for Running a Business
- File and pay your sales tax every month. For Alabama it is due no later than the 20th of the month following your taxable month. So for example, August sales tax is due no later than September 20th. Alabama has a really great website that acts as a one-stop shop for filing your state, city, and county sales tax (because you will have to pay all three.) The website is called My Alabama Taxes. You will receive your login instructions once you apply for your business and sales tax licenses. Also, if you’re an online seller, your online shop will most of the time automatically collect your sales tax for you. Many people do not realize this. You can then run a report from your online store to see how much tax has been assessed to your customers. You must remit every penny of what you collect or else it could (worst case) be considered tax fraud.
- Non-negotiable – If you are an S-Corporation (as we discussed earlier), then you will actually be running payroll and withholding payroll taxes when you pay yourself. You must remit your payroll taxes and file your payroll tax returns quarterly. Quickbooks has an add-on feature that will do all of this for you. Another great payroll company is Advantage payroll. They will also handle all of that for you.
- Use a bookkeeping system like Quickbooks. It will save you a ton of time, and it will also save you money. If you aren’t keeping your books, then guess who has to do it when it comes to tax time? Your CPA. Their hourly rate: at least $150.
- Reserve for taxes as you go! Run your profit & loss statement monthly (if you’re using a bookkeeping system, this is super easy) and set aside 15% for taxes. Then forget it’s there and don’t touch it until tax time.
- KNOW YOUR NUMBERS! Know your highest profit drivers! My most successful clients know exactly where they make the most profit in their business. Don’t turn a blind eye to what’s happening with the money in your business. Even though it can be stressful, monitor it, stay on top of it, and you will have a MUCH higher chance of success. Knowledge is power!
Wow, that was a lot, but I feel like I barely skimmed the surface! If you have specific questions regarding your business, I’d be happy to answer them for you! You can find me on Instagram @balancedbystevie or contact me through my website. I hope this was helpful!