Self-employment can be great. You have a flexible schedule and you are your own boss. But being self-employed means you are not just the boss, you are also the accountant, office manager, and marketing person all in one.
Having that much responsibility — especially over your business — can be tough, but with enough planning and preparation, you can be successful at running your own business. Here we outline the basics on how to start a franchise and be an entrepreneur.
Setting Up Your Business.
Before you launch your business and begin taking on clients, decide how you want to legally structure it. Do you need to incorporate your business or become a sole proprietor? In most cases, being incorporated is required, so check to see if that is mandatory for your profession. Name your business and register if necessary. Also, be sure to get insurance for your business and set up a business bank account to keep track of your finances and business expenses.
Just like with any other business, sometimes your business will be booming and sometimes you’ll hit a lull. That’s why it’s important to have a reserve fund you can dip into. Determine your average monthly expenses and if your income that month exceeds that amount, put the surplus into your reserve fund. You can also put a percentage of each paycheck you receive into the reserve fund. You can change the percentage amount depending on how much you earn for the month. You should aim to have six months’ worth of living costs in this fund.
When you’re a full-time employee with a company, medical insurance is provided for you. But as a self-employed individual, you have to figure out what your own health care plan will be. Generally, you have two options: the government’s Health Insurance Marketplace or private insurance. With the Health Insurance Marketplace, you can find out if you qualify for Medicaid. With the private health care route, you can browse Medicare insurance plans to see what kind of coverage works best for you.
Taxes can get a bit complicated as a self-employed individual. Instead of having taxes withheld from your paycheck, you have to determine how much you owe to the IRS. Set aside about 25-30% of your yearly earnings for taxes and figure out your estimated tax. You need to pay a self-employment tax and income tax.
Estimate how much you believe you’ll earn for the year and then adjust accordingly. You will also need to pay taxes in quarterly installments as opposed to once a year in the spring. These installments are usually on January 15, April 15, June 15, and September 15. When you have figured out your estimated tax, divide that by four and that is how much you will provide for each installment.
Take advantage of tax deductions to make your payments smoother. There’s a variety of items you can write off as a self-employed person. For instance, you can deduct the space in your home where you conduct business, transportation, and internet and phone bills. Educate yourself on tax deduction rules as they can be fairly strict about how much you can deduct. Make sure that what you write off is necessary in order to operate your business and normal for people in your line of work to use.
Don’t forget about saving for retirement. While you might want to prioritize your business in the beginning, make sure to establish a retirement fund at some point. You may be focused on growing your business now, but eventually, you will want to retire comfortably!