When taking the leap from employee to chair renter, here are 5 things to consider:
There are pros and cons to being both an employee and a business owner. As an employee, you receive a paycheck each pay period and your taxes are calculated, withheld and paid to the government on your behalf. When you’re a business owner, those responsibilities fall on your shoulders.
On the flip side, as a business owner, you have the freedom to set your own fees and run your business your way, not as dictated by your employer. When taking the leap from employee to business owner, here are 5 things to consider:
1.) Entity Type
Sole Proprietor is the simplest and most affordable way to organize your business, but this entity type does not differentiate yourself from your business. You are personally liable for business debts.
Limited Liability Company establishes your business as a separate entity from yourself, protecting your personal assets. You will be required to file an annual report each year and pay a filing fee, which is $500 in the state of Massachusetts. A single member LLC will report their earnings on their personal tax return, while LLC’s with more than one member will have to file a separate tax return.
S-Corporation establishes your business as a separate entity and you as the business owner should be paid a reasonable salary as an employee. S-Corps must file a separate tax return and pay an annual excise tax, which is $456 in the state of Massachusetts
2.) Business Planning and Financial Projections
How much revenue can you expect to produce based on your current client base? How much will it cost to operate your business? This includes rent, supplies, insurance, utilities, etc. Does it make sense to take out a business loan? Understanding your cash flow by developing a business plan will help you determine how much money needs to be invested upfront.
Use a separate bank account for your business and only use this account for your business transactions. Retain all of your source documents in a secure place. This includes invoices, receipts, statements, etc. Bookkeeping is the process of categorizing financial transactions and reconciling the activity to the bank statement. It’s easy to maintain your bookkeeping using the Tax Duchess Business Organizer.
If you are organized as a Sole Proprietor or Single Member LLC, you should be making estimated tax payments on a quarterly basis. If you sell retail products and collect sales tax, you should be filing monthly or quarterly sales tax returns and make tax payments to your state. If you hire employees to work at your salon, you are responsible for withholding and paying payroll taxes.
5.) Plan for Growth
Keeping a close eye on your business operation will help you determine how to plan for growth, whether it means hiring additional staff or building a larger space. Another thing to consider is the opportunity cost you incur by 'doing it all' yourself. At what point is it more beneficial for you to hire help so you can focus on what makes you thrive?
Why the Tax Duchess recommends Salon Iris
Salon Iris offers an affordable platform that streamlines your salon's website, client booking, marketing and point of sale software all in one place. When you're running your business, you need reliable reporting that helps you document your receipts, pay your tax liabilities and evaluate your progress. This is why we recommend Salon Iris to our clients.
RENTAL INCOME ACCOUNTING TIP: Use your POS system to capture all of your revenue streams. This includes service income, product sales and rental income. Click here to watch a video that teaches you how to use Salon Iris to record your rental income and track your rental agreements.
Don't let your bookkeeping and payroll needs overwhelm your business flow. We are happy to take it over and provide you with the tools you need to maintain good business records.
Approximately 34% of hair stylists in America are self-employed, required by the IRS to maintain business records and pay self-employment tax. Keeping good business records also provides salon professionals with the financial visibility necessary to monitor their business progress and set future goals.
Tax Duchess Business Organizer is designed exclusively for self-employed hair stylists, make-up artists, aestheticians and massage therapists to record their financial transactions properly. It contains an entire year's worth of industry focused accounting ledgers, providing guidance and best practice tips. If you are renting a booth or chair at a salon, you are considered an independent contractor. Use this book to organize and record your business transactions, transforming your shoe box full of receipts, invoices and statements into meaningful financial reporting. Click this video to learn more about reconciling.
Doing your own bookkeeping as a new business owner can save you money and help you keep a close eye on your expenditures, however you may come to a point where your time is best spent serving your clients. If you do not have the time or staff to maintain your accounting work on a regular basis, it's best to call in the experts at Tax Duchess to help.
At Tax Duchess, we provide bookkeeping, payroll, tax filings and consulting services to salon businesses both big and small. Whether you are a self-employed stylist renting a booth or the president of a salon corporation, we have the accounting expertise you need. Call to see how we can help your business.