I promised when I agreed to start a corporate blog that I would spend time talking from time to time about what it’s like running a small business, so it’s time to live up to that promise.
First, to run a small business legitmiately, in compliance with all of the tax and record keeping laws that are out there is not an easy thing to do. You have to be able to keep your personal and business finances separate – keep good records – and file (read: pay) your taxes properly. And then there’s all of the state regulations that go along with all of the above.
We’re setup as a S Corporation. This means that we’ve filed articles of incorporation with a state – Massachusetts in our case – and then filed for S Corporation status with the Internal Revenue Service.
Being a corporation grants us both a level of credibility and a level of protection that would not be there if we were a sole proprietorship. But it does bring on a level of complexity that didn’t exist before. It makes taxes and finances more complicated – and requires more administrative overhead than some other formats. We could have also considered being a LLC or a partnership, but the corporation seemed to offer us the best mix of what we were looking for.
Once we received our corporation documents back – we used BizFilings to have this done – we filed for an Employer Identification Number from the IRS. The EIN is the “social security number” for our business and is used in lieu of a SSN on all tax forms. This ensures that income is tracked back to the EIN and not to any individual SSN – important since we’re a corporation and therefore a legal entity, not individuals anymore.
Once the EIN was in place we were able to open a bank account under our corporation name. We went with Wells Fargo in our case since they have outstanding small business services. They required a corporate resolution from our board (they provide sample language) along with some information about our officers. Took us about an hour of paperwork – all done online and via fax. We were up and running within three days with a savings and checking account.
Because we process credit card transactions on some of our websites and for advertising services – we also setup accounts with PayPal and 2checkout.com. We also established a merchant account – more on that below.
For corporate record keeping, we went with the industry leading Intuit QuickBooks. We’ve been using them since the 2000 edition and am now on Quickbooks 2005. It makes corporate recordkeeping a breeze and integrates with many other applications. The standard reporting is fabulous and it contains a complete set of custom reports as well. Especially handy is the online invoicing – where Quickbooks sends out an invoice via email and allows the customer to pay online via PayPal or your merchant account.
We also established a merchant account through QuickBooks’s service. It’s fully integrated with QuickBooks and some e-commerce websites and works very well for our purposes.
We’re currently in the process of establishing payroll services through Quickbooks as well in order to simplify some record keeping on our end.
As far as corporate and individual taxes go, we use TurboTax for Business. It integrates fully with QuickBooks. We then have our taxes reviewed by our accountant.
I hope that’s a good simple explanation of structure and finance. Please note that we’re neither lawyers or accountants and that we did most of these things in the mid 1990’s so some information may be a bit out of date. I would recommend reading over at the Small Business Adminstration website or other resources before undertaking any significant steps…
I’ll post more down the road a bit on some other small business topics….