Small Business Services

Congratulations on considering starting a small business! It is truly one of the primary freedoms we, as Americans, enjoy. However, there are several steps you need to take if you expect to be successful in your endeavor.

For starters, you should consult with a CPA, an attorney, and an insurance agent. This is not to say that your CPA, attorney or insurance agent will make your business successful—they will just keep you from making some early mistakes that could jeopardize the success of your venture. For example, what form of business will help shield you from personal liability? How will your business be taxed? How can you avoid double-taxation? What steps can you take to keep a simple accident from bankrupting your business? These are all questions you need to have answered before you hang your shingle.

Where we come in...

What do you do first? What agencies should you register with? We can provide guidance in these areas. We have advised many new business owners on forms of organization, tax consequences of various forms of organization and compliance questions related to forming a new business. Our Texas New Business Kit has proved to be a valuable tool to our clients.

Maybe you are considering purchasing or selling an existing business. If so, do not sign any buy/sell agreement prior to consulting with your CPA and attorney. The different tax effects of the various types of transactions can be quite significant. Business owners may save many thousands of dollars in taxes just by structuring the agreement a particular way.

Proper record keeping...

Most operators of a new and growing business have a flair for the environment in which the business operates. They may be a great salesperson, an outstanding mechanic, carpenter, lawyer, or inventor. Unfortunately most people don’t like to keep the books. As an owner of a business you must remember that your company’s books and financial statements represent a score sheet which tells how you are progressing, as well as an early warning system which lets you know when and why the business may be going amiss. Financial statements and the underlying records will provide the basis for many decisions made by outsiders such as banks, landlords, potential investors, and trade creditors as well as taxing authorities and other governing bodies. The necessity for well-organized financial records cannot be over-emphasized. One of the greatest mistakes made by owners of small businesses is not keeping good financial records and making improper or poor business decisions based on inadequate information.

Quality financial information does not necessarily translate into complicated bookkeeping or accounting systems. Far too often owners of businesses become overwhelmed by their accounting system to the point where it is of no use to them. An accounting or bookkeeping system is like any tool used in your business; it needs to be sophisticated enough to provide the information you need to run your business and simple enough for you to operate it (or at least understand what your accountant needs to process your financial data). Questions you should ask in developing an accounting and financial reporting system are:

1. Who will be the users of the financial information?

2. What questions do I need answered to manage the business?

3. What questions should be answered for government or regulatory taxing authorities?

As your business grows, you should work closely with us to ensure that your accounting system is providing you with appropriate information.

Smaller businesses may be able to operate on one of the off-the-shelf accounting software packages (such as QuickBooks® or Peachtree®). Larger businesses may require a more complex application such as a custom package (e.g., MAS 90®, JD Edwards®, Great Plains®, or Oracle®).

While most large businesses have a full-time controller or chief financial officer on staff, smaller businesses have similar needs that generally remain unfulfilled until they hire a CPA. We can compile monthly financial statements for your small business from your accounting data—usually spending just a few hours per month. If you prefer, we can actually perform the data entry for you. We have staff in place to take your check stubs, invoices, and deposits, etc. and generate financial statements for you. Alternatively, if your business requires daily or weekly accounting data input (such as invoicing or employee time input), we can compile your financial statements from the accounting data input by your staff (generally, some adjusting entries or additional data input is required). Whichever level of service you choose, the main benefit to you is that you are able to plan your business and set or revise goals based on current, accurate financial data.

Hiring Employees...

If you will be hiring employees, we recommend that you consult with your attorney. You will most likely be advised to organize the company in a manner that will limit your personal legal liability. Hiring employees also greatly increases the company’s reporting requirements.

If the company does not already have an Employer Identification Number, it will need to apply for one from the Internal Revenue Service using IRS Form SS-4. The company will also need to register with the state in which it operates. In Texas, you may go directly to the Texas Workforce Commission’s online account registration.

New employers should obtain a copy of the IRS’s Circular E, Publication 15, Employer’s Tax Guide. This publication covers the federal payroll tax reporting and payroll tax deposit requirements. See chapter 4 of our Texas New Business Kit for a brief summary of these rules.

Before you hire any individual, always ensure that the applicant is legally employable in the United States (have the individual complete the US Justice Department’s Form I-9). To determine the proper federal withholding for each new employee, have the individual complete an IRS Form W-4 immediately upon hiring. Employees may wish to update this form each year.

Employees vs. Independent Contractors...

Some companies choose to operate under the assumption that their labor pool consists of independent contractors—thus bypassing the federal withholding and employer payroll tax burden. While this may be an accurate assumption in a lot of cases, some business owners may need to reevaluate the classification of their labor.

Business owners should carefully consider the characteristics of the relationship between the company and the labor. Under IRS Revenue Ruling 87-41, the IRS has published a list of 20 factors to consider when determining whether an individual is an employee or an independent contractor. These guidelines hinge on the level of control the company has over the individual providing the services.

In our experience, a gray area does exist; however, if your labor has set hours, follows the company’s direct supervision, and has a long-term working relationship with the company, it is a safe assumption that they should be considered employees. Good judgment can help avoid a costly reclassification of your labor by the IRS, since serious penalties may be assessed.

If, after careful consideration, you choose to utilize contract labor in your company’s operations, we recommend that you consult with your attorney. You should also consider the use of an independent contractor’s agreement.