You Don't Know What You Don't Know

5 Things You Didn’t Know You Needed to Know When You Started Your Business

 When starting a business, there is a lot to learn. But, often, you don’t even know what you need to learn! Here are 5 things you likely didn’t even know you needed to know when you started your business.

 #1 – An LLC is Not a Tax Classification

One of the most common misconceptions in business is that you need to set up an LLC (Limited Liability Company) for tax purposes. However, an LLC is a legal structure and not specifically set up for tax purposes. As an LLC, you may have a different tax classification depending on how many owners you have as well as the election you make with the IRS. So, if someone tells you that you should set up an LLC for your business because it’s good for tax purposes, don’t head immediately to the secretary of state website. Meet with your attorney and your CPA to determine the best structure for your business for both legal protection and tax classification.

 #2 – Paying Your People as a Contractor or an Employee is Not a Choice for You to Make

Often business owners think that they get to decide how they want to pay their team members. If a staff member requests to be paid as a contractor, you may think that doing so would make things easier for everyone. However, it is not the team member’s choice and it’s not your choice either. The Department of Labor has set specific guidelines defining who can and cannot be paid as a contractor.

 #3 – You May Have to Register to Do Business in Each State You Operate

Each state has different requirements. Some states only require that you register with them if you have a physical location in the state. Other states require that you register to do business if you have a large customer in the state and spend a significant amount of time there with that customer. With many employees working from home, you will also need to register in each state in which you have employees working. Each state’s requirements vary, and it is important to understand the requirements so that you remain compliant.

 #4 – Revenue is Not the Same as Profit!

It is important not to get too excited about signing that large contract, unless you’re paying attention to the margin. If you sell a $1,000,000 contract that costs you $1,100,000 to deliver, you will lose $100,000. You can say you’re a one-million-dollar business, but you won’t be around long if you continue to sign unprofitable contracts. As you’re growing your business, don’t focus on revenue, focus on profit.

 #5 – You Can Screw Up QuickBooks

QuickBooks is easy, it’s user-friendly, and it’s a great system for managing your business finances. But you can create a major mess if you do not know what you’re doing. QuickBooks can get very messy, very fast. Work with a professional to make sure you get it set up correctly and that you understand the basic steps to managing your books successfully. Ensure you have a basic understanding of business finances so that you know how to review your financial statements and understand when there may be a discrepancy.

There are 101 things to learn about running a business and it’s impossible to ever know them all! Equip yourself with knowledge and surround yourself with quality business advisors to ensure your business is set up for success.