It's a rather dirty secret of mine, but from time to time I patrol a few entrepreneur/small-business forums when I'm bored. I am comfortable with the fact that I am becoming more lame as time passes. Don't judge me.
On one of these forums I recently responded to someone interested in starting a small business who had some basic questions which I get frequent enough at my office that I decided to post the exchange here. Frankly, if everyone who walked into my office had been offered this advice BEFORE starting their business (rather than just "winging it"), my job would be a lot easier.
ENTREPRENEUR: "Where can I learn the absolute basics of small business accounting, taxes, and payroll?"
ME: "Can you be more specific?"
ENTREPRENEUR: "Mainly I'd like to learn, before starting a business, what State and Federal taxes I need to pay, how much the taxes will be, and when they need to be paid. Would simple accounting software be enough to manage my books? I plan on having revenue of under $10,000 in the first year. I'd also like to know how I would go about paying myself in a Sole Proprietorship and an LLC. Any information or guidance is appreciated!:"
What follows is my rather long-winded response. I hope this helps others in the same situation. Please forgive the casual tone and please be aware that the suggestion to ignore estimated taxes was absolutely not general advice. I believe it was appropriate given the facts provided but by no means should be misinterpreted as sound advice in all situations. For anyone interested, here is a link to the IRS instructions for individual estimated taxes.
Get Quickbooks Pro. Nothing more. Nothing less. It should be under $200. Do not let anyone up-sell you to a more sophisticated version of QuickBooks. All you need is "Pro." It will do the job and just about every accountant in the US is familiar with it. It is scalable up to, say $20 mil annual revenue.
For now, especially with $10k revenue, you will manage. Just record all transactions. You'll figure it out. When the volume of transactions grows, get some proper accounting advise.
Open a business bank account. Don't argue with me. Just do it. You MUST have a separate bank account for business transactions. Don't think you can just keep track of business and personal expenses out of your regular personal checking account. If you're serious about starting a business, open a separate checking account. Your accountant will thank me at the end of the year. Tell him I'll be sending him a bill.
Keep ALL business transactions separate from personal transactions. Don't go out to the bar and use your business credit card or bank account. It's lazy and will end up being expensive for you when an accountant has to sort it all out.
Start simple. If you are not concerned with liability, stick with a sole-proprietorship for now. All you need to do to start a sole-prop is get an EIN (even that is not necessary unless you have employees) and open a bank account. You can always decide later down the line to form an entity (LLC or S Corp) if things start to take off.
If you are concerned about liability, see an attorney and set up an LLC. Do not skip the "see an attorney" part, but get references from people you trust.
For the time being, don't let anyone talk you into an S Corp. The administrative costs of filing the corporate tax returns, among other things (like penalties for NOT filing the corporate returns on time) are just not worth it while you are small.
If you decide to stay simple and stick with a sole-proprietorship, but don't want to use your name in the business (eg. Smith's Landscaping) but instead would like to use something like (The Sultan of Landscaping) you will probably need to file for a "fictitious name". If this is the case, see an attorney. Your state laws may differ from mine.
If you cannot afford to talk to a CPA at the moment, you should plan on setting aside 40% of your "profit" for taxes for the time being.
I cannot go into detail about this. It would be a rather thick book by the time I finished. Just be aware that you are taxed on your PROFIT, not your revenue. Add up all your revenue, subtract all your expenses, then multiply that number by 40%. Set it aside.
You are technically required to pay those taxes quarterly, but if you are cannot afford to see a CPA, then that means you probably aren't making enough money for the penalty and interest to really add up to much. At 10K revenue, don't worry about the estimated taxes for now. Just be aware that the tax will be due, plus penalty and interest.
You can buy the Quickbooks payroll add-on which will bring the cost up to maybe $350 for Quickbooks. But if you don't have any employees (beside yourself), you don't need it. If you don't have any employees, you don't have to set up a payroll account and file payroll returns (unless you have an S Corp, which is another reason not to have an S Corp for now).
If you do have employees, I don't see how your business is going to operate on 10K revenue. But if you really must have employees, payroll is THE FIRST THING that you will want to outsource. There is too much law to keep up with. There certainly are people who manage it on their own, but if you ask me, it's just not worth it. Annual cost to have a third party administer your payroll for one employee should be around $1200 or less (the incremental cost of adding additional employees is small). If you can't afford that, you probably can't afford employees.
But if you must do it yourself, like I said, Quickbooks has a pretty good module for that.
GOOD LUCK!!!! Let me know if you have any more specific questions. I'd be glad to help where I can.