Counseling clients is not always done face-to-face. Recently a client contacted the Pikeville SBDC by email to ask a few questions about her new business ventures. When you're brand new at starting a business the questions never end, but for an excited entrepreneur that don't stop you! Here is a quick Q&A that may apply to your own business. - I will be running a daycare center out of a separate facility at my home. I am looking at a house I want to buy and the property is $80000. The business portion needs finish work and I will require start-up costs and supplies as well. Should I buy the home as an individual and try to get a mortgage or should I try to get the business loan for the entire sum?
If you buy the house with a business loan, especially SBA related, it may have to be used for business purposes only or at least 51% of the house will have to be business. The decision to get a mortgage or Business loan will be based on the down payment required, the length of the payback and interest rate. Mortgages are usually lower interest with longer payback, up to 30 years. Your concern is monthly outlay of cash. So, the lower the payment the better for you especially in the early stages of the start-up. If you have a strong Credit Score your choices will increase.
- I have no idea if I am supposed to save back money to pay taxes or how to do self-employment accounting. I know how to do payables/receivables but I don't know how to do income taxes and deductions.
If you will have employees, you will have to pay SS/OASDI, Unemployment and Compensation. You will have to withhold both state and Federal withholding taxes from your employees. That money can be deposited at any Federal Deposit Bank (most all banks are) using the company's Employment Identification number. You can get that number from the IRS website www.irs.gov .
As for you, if you are not a company employee you are required to make quarterly payments on any profits you will have. Usually the government is not too difficult to work with for the first year as they do not have a basis to work from. My advice would be to hire an accountant and/or a CPA to get you going on the right track. My guess is it would be less than $1,000 for the first year. They can also help you get all your tax numbers, etc.
- I want to hire one employee. How do I withhold payroll taxes for them...or can they pay their own taxes at the end of the year?
As stated above you must pay SS/OASDI, Unemployment and Compensation on your employees.You would pay and withhold as I discussed earlier. Employees cannot do their own withholdings. That is an employer responsibility.
- Should I set up an LLC? How do I know what kind of liability insurance is required?
Yes, I would suggest any structure other than Proprietorship or Partnership. This is a high risk industry and a LLC or Corporation will separate your personal assets from the business therefore lowering your personal liability risk. Yes, you must have liability Insurance for this industry. Any full lines agency can give you a quote and I would have as much as I could afford.
- I have started working through the business plan with the assistance of the builder tool on sba.gov. I am having difficulty completing the last section that asks for financial projections. I have included a copy of my business plan. It is a work in progress and I would appreciate any assistance or advice you can offer!
I will be glad to work with you on your projections and I can do some research as well. In the meantime, here is a website you can check out ksbdc.org
