Starting a business begins with prep work.
- It’s a good idea to put away enough money to cover one year of expenses, to free you up to focus on your new business.
- Staying atop self-employment taxes ensures you won’t be hit with a big bill at tax time.
- If you don’t recognize the worth of your time and effort, customers won’t either.
If anyone knows what it takes to become a successful entrepreneur, it’s Suze Orman. According to Orman, the number of women who used IncFile to set up a limited liability company (LLC) — or other business type – grew by 48% during the pandemic. For men, the number was up by over 20%.
If you’ve been thinking of starting a business, you already know that it involves much more than filing the proper paperwork. Here are four things Orman suggests up-and-coming entrepreneurs do to build a foundation for success.
1. Plump up personal savings
According to Orman, launching a business is going to require 110% of your attention and energy. During the time you’re getting the business off the ground, you can’t afford to be distracted by things like worrying about personal bills. Of course, your bills still need to be paid, but the more automated the system is, the better.
At a minimum, Orman suggests having enough put away in savings to cover one year’s worth of living expenses. Let’s say your monthly bills (house payment, auto loan, credit card bills, utilities, etc.) amount to $5,000 per month. Orman believes having at least $60,000 put away to cover those expenses will free you up to focus on getting the business up and running.
Imagine having time to focus on what you’re building for the future rather than worrying about whether your electric bill is going to be paid.
2. Make sure taxes are paid
Every person who’s ever gone into business for themselves gets a crash course in self-employment taxes. As the business owner, you are responsible for filing quarterly estimated taxes to the IRS and to your state (unless you’re lucky enough to live in a state that does not levy taxes).
Your estimated federal payment should cover both income tax and Security and Medicare. You can pay your federal estimated taxes through the IRS Direct Pay website, and each state also offers an online payment system.
Not to put too fine a point on it, but failure to pay your quarterly estimated taxes is likely to leave you with a huge bill at tax time, compounded by owing late-payment penalties. Orman suggests using one of the free online calculators to figure out how much you owe each quarter.
Further, Orman advises you have a separate savings account at your bank, dedicated solely to quarterly payments.
3. Don’t take your eye off the retirement ball
According to Orman, one of the biggest mistakes she sees entrepreneurs make is telling themselves they can wait a few years to focus on retirement. She calls putting off retirement savings “flat-out dangerous.”
Orman says that you should commit to saving at least 10% of your income, and that a Roth IRA is a great option. If you can save more than the $6,000 to $7,000 limit imposed on Roth IRAs (depending on your age), a SEP-IRA is worth looking into. With a SEP-IRA, business owners are allowed to make larger annual contributions.
4.Know your worth
One thing small business owners tend to have in common is how often they’re asked to work at a discounted rate (or even worse, for free). Orman recommends asking yourself what you’re worth. The financial guru says that if you don’t respect your skills and expertise, you can’t expect a client or customer to.
Starting a business is one of the most exciting things you can do. Doing the prep work first can give that business greater odds of thriving.
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