QUESTION: Jason is starting a business of putting Christmas lights up for people during the Christmas season. Does he need to get a business license?
ANSWER: In most municipalities you won’t need a business license. As long as this is a seasonal thing where you pull up in your pick-up truck and work for a couple hours putting lights on someone’s house, you don’t need a business license.
If you start doing something year round and employ people, you need to look at getting a business license.
You should get a separate checking account so that you can keep track of income and expenses associated with the business.
QUESTION: Joseph uses lines of credit for his small business. He just uses the credit to buy product, but wants to know if he should work his way out of using credit.
ANSWER: This is just too risky. If the company you’re working with goes under, you’re stuck with all of this product and paying off the debt. Eliminating the debt and just using cash means that if your one client goes under you don’t have to.
Using this line of credit also keeps you from being in control. It means that this client has you by the neck and you’re stuck. You don’t want to be in a price negotiation with a client who has all the advantage because you’re operating with debt. You need to get out of this debt and use cash for your business from now on.
QUESTION: Adam started a small business and doesn’t know exactly how to pay himself. What type of plan does he need to be on?
ANSWER: Open a separate checking account as a sole proprietorship under your social security number. For example, Adam DBA (Doing Business As) Adam’s Dog Training School. All the income for that business goes into that account. All expenses for that business go out of that account. The difference is your profit. As you go, you’ll learn what you need to budget for each month and you’ll want to leave that in the DBA account. The rest is your profit.
Then as you pull out your profit, you need to set aside one-fourth for taxes. Start a separate savings account for that money. You absolutely have to withhold on yourself. Failing to withhold is the number one reason that small businesses go under.