Small Time Operator: How to Start Your Own Business, Keep Your Books, Pay Your Taxes, and Stay Out of Trouble 12th (twelfth) Edition PDF
Preview Small Time Operator: How to Start Your Own Business, Keep Your Books, Pay Your Taxes, and Stay Out of Trouble 12th (twelfth) Edition
ABOUT SMALL TIME OPERATOR With more than sixty-six printings and twelve edi- tions, Small Time Operator is “the most requested, most recommended, and best known small business guidebook in the world” (Business Professional). Updated every printing, this edition has the most current, most up-to-date information, to help you be a success in your own business. With over 650,000 copies in print, Small Time Operator is the best-selling small business guide- book of all time. SMALL TIME OPERATOR How to Start Your Own Business, Keep Your Books, Pay Your Taxes, and Stay Out of Trouble TWELFTH EDITION Bernard B. Kamoroff, CPA TAYLOR TRADE PUBLISHING Lanham · New York · Boulder · Toronto · Plymouth, UK Please Read: I have done my best to give you useful and accurate information in this book, but I cannot guarantee that the information is correct or will be appropriate to your particu- lar situation. Laws, procedures, and regulations change frequently and are subject to differing interpretations. It is your responsibility to verify all information and all laws discussed in this book before relying on them. Nothing in this book can substitute for legal advice and cannot be considered as making it unnecessary to obtain such advice. In all situations involving local, state, or federal law, obtain specific information from the appropriate government agency or a competent person. Published by Taylor Trade Publishing An imprint of The Rowman & Littlefield Publishing Group, Inc. 4501 Forbes Boulevard, Suite 200, Lanham, Maryland 20706 http://www.rlpgtrade.com Estover Road, Plymouth PL6 7PY, United Kingdom Distributed by National Book Network Copyright © 2011 by Bernard B. Kamoroff Illustrations, cartoons, and song lyrics used by permission of the copyright holders. All rights reserved. No part of this book may be reproduced in any form or by any electronic or mechanical means, including information stor- age and retrieval systems, without written permission from the pub- lisher, except by a reviewer who may quote passages in a review. British Library Cataloguing in Publication Information Available Library of Congress Cataloging-in-Publication Data Kamoroff, Bernard B. Small time operator : how to start your own business, keep your books, pay your taxes, and stay out of trouble / Bernard B. Kamoroff. — 12th ed. p. cm. Includes index. ISBN 978-1-58979-664-5 (pbk. : alk. paper) — ISBN 978-1-58979-665-2 (electronic) 1. New business enterprises. I. Title. HD62.5.K344 2011 658.1'1—dc23 2011021581 �™ The paper used in this publication meets the minimum requirements of American National Standard for Information Sciences—Permanence of Paper for Printed Library Materials, ANSI/NISO Z39.48-1992. Printed in the United States of America Many thanks . . . To Jim Hayes for your original idea. To Jim Robertson for your encouragement and for suggesting the title. To Robert Greenway for helping to publish the original edition. To the businesspeople who allowed me to interview them: Joe Campbell, Lara Stonebraker, Jan Lowe, Bob Matthews, Pat Ellington, Mike Simon, Nick Mein, Mike Madsen, Key Dickason, Steve Hargraves, and Terry Nemeth. To the people who generously shared their expertise: Paul Paul and Mary Lai (insurance); Dave Raub and Tony Mancuso (corporations); Joe Sachs (SBA); Larry Jacobs and Jan Zobel (taxes); John Bobbitt (marketing); Lance Hoffman, Joanie Mitchell, and Michael McCaffrey (import/export); Marcie Hart (pat- ents); Tom Person and James Dillehay (Internet). To my tireless editor Andy Blasky. To my illustrators Bruce McCloskey, Kat and Will Emerson, my daughter Crystal, and my dad, David Kamoroff, for drafting the ledgers. To the people who had faith in me and supported the project when it was just a manuscript and a dream: Lance and Kathy Hoffman, Beth Hackenbruch, Jerry Eisman, Richard Benson, and Paul and Laura Klipfel. To my long lost friend H. Berry. To my daughters Crystal Rose, Julia, Colleen, and Corrina. And especially to Sharon, the Sweet Yodelady. This book is dedicated to John Muir, The Mechanic. In this world, a person must either be anvil or hammer. —Henry Wadsworth Longfellow BRIEF CONTENTS Detailed Contents xi Preface: Be Your Own Boss xix Chapter 1 Getting Started 1 Chapter 2 Bookkeeping 35 Chapter 3 Growing Up 65 Chapter 4 Taxes 93 Chapter 5 Home Business 137 Chapter 6 Your Business 153 Appendix The Ledgers 199 Index 215 About the Author 229 ix xi Brief Contents ix Preface: Be Your Own Boss xix Chapter 1 Getting Started Getting Started: Basics 1 A Small Time Operator: A True Story 3 What Kind of Business? 3 Business Failure Rate 4 The Successful Business “Triangle” 4 Can You Do It? 5 One More Key to Success . . . 6 Get Some Help 6 Your Idea—and the Market 6 Business Location 7 Mall Businesses 7 Non-Retail Businesses 7 Business Incubators 8 The Building 8 Zoning 8 The Lease 8 Home-Based Businesses 9 Rural Businesses 9 Financing 10 How Much Do You Need? 10 Start-Up Capital: Financing a New Business 11 Self-Financing 11 Debt Financing (Loans) 11 Bank Loans 11 Other Possible Loan Sources 12 Small Business Administration (SBA) Loans 12 Grants (Free Money) 13 Loans to Yourself 14 Equity Financing (Investors) 14 Limited Partnerships 14 Limited Liability Companies (LLCs) 14 Venture Capital 14 A Final Suggestion for Financing Your Business 15 Legal Structure 15 Different Legal Structures 15 Sole Proprietorship 15 Partnership 15 Corporation or LLC 15 DETAILED CONTENTS xii DETAILED CONTENTS Sole Proprietorship 15 The Traditional One-Person Business 15 Legal Liability of the Sole Proprietorship 16 Taxable Profit of the Sole Proprietorship 16 Paying Yourself a Wage 16 Choosing a Business Name 17 Registering a Business Name 17 DBA: Doing Business As (Fictitious/Assumed Name Statement) 17 Trademarks and Business Names 18 Licenses and Permits 19 Local Business Licenses 19 Other Local Permits 19 Help from Local Government 19 State Licenses 20 Sales Tax 20 Other State Regulations 23 Federal Identification Numbers 23 Federal Licenses 24 Federal Agencies: Business Regulations 24 Insurance 26 Purchasing Insurance 30 Self-Insurance 30 The Business Plan 31 Mission Statement 31 A Basic Plan 31 Raising Capital 32 Chapter 2 Bookkeeping 35 Warming Up to an Unpopular Subject 37 Why Keep a Set of Books? 37 Setting Up Your Books 38 Computer or Hand-Posted Ledgers? 38 Spreadsheets 38 Accounting (Bookkeeping) Software 38 Quickbooks 39 A Warning about Accounting Software 39 Hiring a Bookkeeper 40 The Bookkeeping 40 Business Bank Accounts 40 Tax and Legal Requirements: Bank Accounts 41 Bookkeeping Simplified 41 Introduction to the Single Entry System 41 Cash Accounting vs. Accrual 42 Which Method Do You Choose? 42 Understanding Bookkeeping 43 More Than One Business 43 Defining Income 43 Recording Income: Step One 43 Low Volume of Sales 43 Medium Volume of Sales 44 Large Volume of Sales 44 Terms of Sale 44 DETAILED CONTENTS xiii Recording Income: Step Two 45 The Income Ledger 45 Daily Posting 45 Posting Every Few Days or Once a Week 46 How to Post Sales Returns 46 End-of-Month Procedure 46 Year-End Procedure 46 Altering the Ledgers 47 Filing Your Sales Receipts 47 Installment Sales 47 Return (Bounced) Checks 47 Credit Sales 48 Federal Laws—Finance Charges 48 Credit Ledger 49 Accounts Receivable 49 You and Your Credit Customers 50 Posting Uncollectible Accounts 50 Credit and Debit Cards 50 Credit Card Fees 51 Credit Card Terminals 51 Credit Card Chargebacks 51 Internet Credit Card Transactions 52 Transactions through PayPal 52 Collecting Personal Information 52 Recording Expenditures 52 The Expenditure Ledger 52 Credit Card Purchases 53 Posting Credit Card Charges 54 Paying with Debit Cards 54 Checkbook and Ledger Combined? 54 Posting the Expenditure Ledger 54 Uncashed Checks 56 Recording Vehicle Expenses 57 Monthly Totals 57 Year-End Procedures 57 Accounts Payable 57 Altering the Ledgers and Designing Your Own 58 Petty Cash 58 Calculators and Adding Machines 59 Financial Management: Using Your Ledgers 59 Profit and Loss Statement 59 Cash Flow 61 Inventory Control 62 How to Keep an Inventory Record 63 Computer Inventory Control Programs 63 Chapter 3 Growing Up 65 Business Growth 67 Hiring Help 68 How to Save Time and Money by Not Becoming an Employer 68 Hiring Independent (Outside) Contractors 68 Who Is an Employee? 68 xiv DETAILED CONTENTS Contracting with Your Contractor 69 IRS Forms for Independent Contractors 69 Incorporated Independent Contractor 71 Under-the-Table/Off-the-Books Payments 71 Special Situations 71 Steps to Becoming an Employer 72 Federal Requirements for Employers 72 State Requirements for Employers 73 Federal Procedures and Taxes for Employers 73 Family Employees 75 Payroll Ledgers 76 Payroll Software 77 Partnerships 77 General vs. Limited Partnerships 78 Legal Aspects of General Partnerships 78 Uniform Partnership Act 78 Partnership Agreements 79 You and Your Partners 80 Partnership Bookkeeping 81 Joint Ventures 82 Partnership Postmortem 82 . . . And a Partnership That Works 82 You, Incorporated 83 A Corporation Primer 83 “In Twenty-five Words or Less” 83 Corporate Taxes 83 Corporate Limited Liability 84 Corporation Change of Ownership 84 Owner-Employees 84 Some More Reasons to Consider Incorporating 85 Employee Business Expenses 85 Corporation Retained Earnings 85 S Corporations 86 Tax Advantages of an S Corporation 86 Close Corporations 87 Steps to Incorporating a Business 87 Articles of Incorporation 87 Corporate Bylaws 88 Acting Like a Corporation 88 Incorporating an Existing Business 89 Limited Liability Company (LLC) 89 LLC Limited Liability 89 LLC Taxation 90 LLCs vs. Corporations 90 State Laws for LLCs 90 Setting Up an LLC 91 LLCs vs. Limited Partnerships 91 Limited Liability Partnerships 91 A Few Last Words about Growth . . . 91
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