6 Actions You Need to Take to Set Up Your Side Hustle or New Business For Financial Success

Let's not leave anything out...

“We are looking at our headcount, and will be reducing it in the near future”

Those are words that strike fear into anyone’s heart. You start to wonder

• “Am I going to get laid off?”

• “How will I support my family?”

• “How quickly can I find a new job?”

• “Should I start looking now?”

Thankfully, they made the announcement at the end of the day. I was able to process it on the drive home without having to show my co-workers how scared I was.

At the end of my hour-long commute, I decided to start my own business in case I did get laid off and needed to hit the ground running.

I sat down at my home PC, logged onto the IRS website, and got my EIN number.

I was off and running. It was October of 2009.

Thankfully, I did not get laid off. But I did not wait for the next round of layoffs to get moving again.

I worked for a tax prep place in 2011 after getting some training in tax return preparation. I am a CPA but wanted to get a refresher since I had worked in Corporate America for a while. The following year, I took on some of my own clients, networked, and grew my business into a nice side hustle.

2018

“We are going to be reorganizing the department. You all will be able to take a package or apply for a job in the new department”.

I looked around the room and saw the look of shock on my teammate’s faces, as well as the worry. I knew what they were thinking. What was I thinking?

“Talk to your wife before you take the money.”

And how did that discussion go?

Me: “So there are going to be layoffs as they are going to be reorganizing the department”

Her: “Well, we have the tax business, right?”

Me: “Yes”

Her: “I guess we go with that. Do we want meatballs with the spaghetti?”

I love my wife.

Because I had put in the leg work years before, I was able to transition into self-employment rather easily, and have not looked back.

Over the course of preparing taxes, one of the big questions I get is what do I need to do to start my business. There are 6 simple musts dos.

Get an EIN number

If you want to be a sole proprietor, this may not be necessary, but you can still get one.

However, if you decide to become an LLC, partnership, or incorporate, you will need this number. It is a number that the IRS will use to identify your business.

It also allows you to separate your business financial activity from your personal financial activity, allowing you to deduct certain expenses for your business.

Register your business with your state and county/city

If you are a sole proprietor, this may not be needed for the state. However, you will need to get a business license from your county or city, depending on how your area is set up and who issues the business license. You do not want to run afoul of the zoning rules, so by registering you can make sure you in compliance with them.

Set up a separate bank account

Years ago, I had a conversation with a friend about this. They had a business and needed a computer for their business. So they ran out to the store, picked one up, paid with their personal credit card, and took it home and used it their business.

After they filed their tax return, they were audited. The auditor looked at their receipt for their computer and denied the deduction for it.
As computers can also be used for personal use, buying it with a personal credit card made it a personal item. If they had used their business credit card, they had a chance of being able to deduct that $1,000 computer.

Setting up a business account also makes things easier at tax time as the CPA doesn’t have to wade through all of your personal information to determine your business income and expenses.

Get some accounting software

I actually had a change of heart about this after talking to a bookkeeper friend of mine. I had been working with a spreadsheet for quite a few of my clients, but am now encouraging them to sign up with a bookkeeping software program. This does a couple of things:

First, it allows you to build up a history of your financial activity so that if the IRS comes knocking and wants to look at your financial records, you are able to give them financial records in a format that they will be able to follow and will show that you have support for the numbers you had listed on your returns.

Second, getting set up with accounting software sends a message that you are committed to this business. By making the investment in the software, you are showing that you are a business owner that wants to keep track of their finances and use the system to make decisions to grow your business.

Third, it will make it easier to work with your accountant at tax time. As a CPA, it is much easier to work off of accounting system generated financial statements than a spreadsheet or bank statement that I need to decipher. It also allows me to ask questions that will help you grow your business and improve your profits.

Get set up a mileage app

If you will be traveling to client’s locations, or be traveling by car or truck to various places where you will perform work, you will need to capture the miles you traveled so you can take a deduction for the miles driven. There are a few out there, but just make sure that it will allow you to distinguish between miles driven for business and those driven for other purposes.

You will also want to have some method to record the purpose of the trip to further support that the trip was for business purposes.

Set up a home office

You will want to have somewhere to do your work. For tax purposes, it needs to be a space that is not used for some other purpose.

For instance, I do quite a bit of work at my dining room table, but since my family eats there multiple times a day, I cannot claim the dining room as a home office.

You will need to give your accountant the square footage of both your home office and your home in total. You will also need to provide them with amounts spent on your rent or mortgage, utilities, repairs, and other costs to help compute the deduction.