Building Your Business
Small Business Basics
Frequently Asked Questions
What is an example of a sole proprietorship?
A self-employed business owner and independent contractors are examples of sole proprietors. Many self-employed business owners also work from their homes to complete jobs for clients. For example, a freelance graphic designer, freelance writer, or an IT consultant who works with several clients could be considered self-employed business owners.
What types of taxes do small businesses pay?
Sole proprietorships, partnerships, LLCs, and S-corps use the pass-through method, wherein profits and losses are reported on the business owner’s and shareholders’ personal tax returns. Depending on business structure, tax liabilities that small businesses must account for include income tax, self-employment tax, employer tax, excise tax, and estimated tax.
How do I start a business from home?
There are several steps to start a home business, beginning with finding a relevant, viable business idea, then outlining a business plan so you can arrange funding and manage day-to-day operations. Most importantly, however, you should decide on a business structure—like a sole proprietorship or LLC—for tax purposes, and then legally register your company with a state or local government.
How do small businesses get financing?
There are several ways to obtain financing for your startup or small business including bootstrapping (using personal assets and no investors), borrowing from family or friends, using personal or business credit cards, applying for SBA 7(a) or microloans, crowdfunding, finding angel investors, and debt or equity financing.
How do I create an invoice?
There are several free invoice templates you can use to request payment for a product or service. Some factors to consider when invoicing include billing preferences, the type of clients you work with, and the goods or services provided. In an invoice, you should include business and client details, description of service, dates, amount owed, payment details, and terms.
An entrepreneur is typically an individual who creates a new business, plays an active role in its operations, assumes most of the financial risk, and enjoys most of its success.
Crowdfunding is the method of financing a business venture, project, or cause by collecting small monetary contributions from a large group of people through online platforms.
Unlimited liability is unrestricted liability for a company’s financial obligations. When business owners have unlimited liability, they are fully responsible for their company’s debts and other financial commitments.
Within the context of insurance, liability means a legally enforceable duty to pay a sum of money to another party as compensation for harm. A common source of liability for businesses is an accident caused by an employee that injures a customer or other third party.
Tax depreciation allows business owners to deduct the declining value of assets used in income-generating activities from their federal taxes. It is considered by the IRS to be an allowance for wear and tear, and it can also be applied to obsolete items that are no longer usable.
Seed capital is the initial funding needed to start a new business and cover startup costs like business proposals and research. It also covers proof of concept, which demonstrates that a business idea is feasible.
Business Tax Receipt
A business tax receipt is a document issued by a local city or municipal government that proves a business is allowed to operate in that area. Business tax receipts are typically issued and renewed on a yearly basis.
Net 30 is a credit term that indicates when a payment is due for goods or services. It is typically included in the payment terms of an invoice and it means that the client has up to 30 days after the invoice date to pay the net, or the full invoice amount, to the vendor.
The gig economy can be characterized by temporary, flexible, and freelance jobs and allows businesses to hire freelancers and independent contractors for short-term “gig” work.
Overhead refers to the ongoing, day-to-day expenses of operating a business that aren’t directly attributed to the level of output or specific business activity. It remains constant regardless of revenue and can have a direct impact on the profitability of a business.
Accrued expenses are costs you already have incurred but for which you have not yet paid or documented payment. They are part of virtually all business and personal budgets, and may be accounted for in different ways, depending on the accounting system you use.