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5 FAQs and Answers for Your Small Business

From perfecting your product, crafting your brand, and keeping up with all the legal and financial requirements, growing a small business is a big challenge. It’s a lot of work before you even get down to work — and it’s a lot to celebrate when you succeed!

Here, NASE answers five frequently asked questions about running a small business.

1. What Records Do I Need To Keep For My Small Business?
Recordkeeping is one of the most critical tasks of a small business owner, freelancer, or contractor. It’s also a continuous task, regardless of the nature of your business. What records do you need to keep? The short answer is — a lot. But keep it organized. Essential accounting and bookkeeping records include:
Local, state, and federal filings: Local and state laws vary, so check with your Secretary of State. In most states, self-employed and small businesses must file annually to operate.
Keep licenses, certifications, permits, and articles of incorporation on hand. In addition, your physical business may be legally required to post proof of certifications and compliance with other laws.
Business tax returns: Self-employed workers pay quarterly taxes at both the state and federal level.
Income and Social Security taxes: Unlike payroll taxes, which are deducted from paychecks automatically, a small business owner must pay their own income and social security taxes.
Balance sheet: Keep records of what you’re paid and what you pay in expenses. This includes monthly financial statements from your bank, and loan and credit documentation.
Income statement: Sometimes called a Profit and Loss statement, this is a summary of your earnings, expenses, and your profit (or loss).
Cashflow: Money in and money out — it almost goes without saying you will need to keep documentation of the actual transfer of money coming in and what goes out.
Invoices and contracts: All invoices and contracts should include dates, summaries of work, contact information for both your business and the client.
Employee records: If you hire, keep records of the terms of employment including hiring and termination dates, wages and tax information for W-2 forms. Contractors paid more than $600 will also need a 1099 form. Federal tax laws can change, so always check the IRS website for deadlines and filing requirements.

A word on email: For contractors and freelancers, some of these business arrangements can take place over email. Keep in mind that contracts are legal documents, the rule for which is always “get it in writing.” Email counts as a legally binding contract as long as the terms are spelled out explicitly. Get it in writing and save those email exchanges, reiterating the agreement in invoices.

2. How Do I Set a Fair Price For My Products and Services?
How do you set price levels for your work? Independent workers often agonize over setting prices for their services. They also frequently end up setting their prices either too low to make a profit or too high to compete on the market. How do you determine what’s fair? Answer these questions for yourself:
How much does it cost? The price of a service or product is based on the cost of production. That includes the materials and labor involved. It also includes overhead, all the behind-the-scenes expenses like rent, taxes, insurance, and utility bills you pay to operate your business and make your product.
What’s my break-even price? To calculate overhead, total all these expenses over a month, and then divide that by the number of products you can make in that time. That’s how much it costs you to make one of your products. Now add that back in with your other production costs, and you have your “break-even” price for a product.
What do my competitors charge? After you know your break-even price, think about what you’d like to see in terms of profit. Every penny more you subtract from the production cost is profit, and that’s up to you. But recognize the balance between turning a profit and remaining competitive. Go too high, and you may lose potential sales.

3. What Should I Consider When Hiring For My Business?
Self-employed journeys often begin as solitary ones. All the production, sales, bookkeeping, and more are your own responsibility in the beginning. As your business grows, however, you may find yourself at a point where you need assistance. For some types of work, hiring contractors via freelancing sites like Upwork or Fiverr may suffice. But in other cases, a small business owner may need a longer-term employee to help. What then?

A lot goes into the decision to hire, and into picking qualified employees.

Be specific. Before you start interviewing, think carefully about the type of position you are filling. What, specifically, will your employee be doing? Do you need an employee for one task or for many different functions?
Be fair. The role you want a person to play should inform the job listing, application, and interview questions — as well as the wages you will offer. Industry-standard wages can be found for jobs in your region at the Bureau of Labor Statistics website.
Be responsible. Know that beyond wages, you are responsible for other financial responsibilities. Employers withhold state and federal income taxes, pay into the Social Security and unemployment systems, and health insurance programs.
What about family? Family members are often a natural choice to involve in small business work. And that works out perfectly for many business owners. But in some cases, unqualified relatives can be more trouble than help. Before you employ a relative, consider whether they (and you) can be objective enough to separate business decisions from family relationships.

4. What Security Measures Should I Take to Protect My Business?
Depending on the nature of your small business, security precautions may include everything from an alarm system and safety deposit box to disaster insurance.

Create routines and policies that protect your business to make a habit of security. Perform regular computer system backups and regularly running antivirus software. 
Prevent retail theft by taking courses in shoplifting prevention. The National Association for Shoplifting Prevention estimates $45 million is lost every day to shoplifting. Learning your shop’s vulnerabilities and signs of retail theft are key to stopping the crime in your business.
Robust disaster insurance is a must. Remember: A business can be ruined by robbery, embezzlement, and other crimes. It can also be ruined by fire or flood.
Keep records off-site. One of the best security investments you can make is keeping updated, duplicate business records off-site in a separate physical location or online cloud data storage.

5. What Financial Help Is Available For My Small Business?
In the early days of self-employment, self-financing is the rule. A small business owner who wants to succeed will often commit their own money toward supplies and initial start-up costs. But what if a business owner needs more?

Are other financial alternatives available? Yes! — small business owners can find other funding through family, taking on business partners, or applying for credit cards. Depending on the nature of your enterprise, you might seek out venture capital investment.
Loans are the traditional next step. Banks and local business development organizations regularly offer loans to small businesses. What do you need to get a loan? In general, lenders want a financial roadmap and a business plan. A business plan includes the legal information and organizational structure of your company, along with an explanation of your operations, marketing, and sales goals. How does your business run, and how will a loan make the different in building your business? Lenders may want to see income statements, a balance sheet, and other financial details — this information demonstrates your capacity for financial discipline and commitment to seeing a project through.
Lenders ask: How much money do you need to borrow? How do you plan to use the loan? How will you pay it back? If you can answer those questions, you’re ready to approach a lender. The federal Small Business Administration offers a Lender Match program to help find lenders that offer loans for your business type in your area. These include long-term, fixed-rate financing options as well as “microloans” to help small businesses make improvements and enhancements to supplies, inventory, and things like equipment or furniture.

Successfully navigating through the challenges of growing a small business is worth celebrating!

Need more advice? Ask the experts at NASE. All of our members have access to finance, accounting, and legal professionals on a 24/7 basis. Whether it’s recordkeeping, security, or financial questions, we are here to help.

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Courtesy of NASE.org
https://www.nase.org/about-us/media-relations/News/nase-in-the-news/2021/05/20/5-faqs-and-answers-for-your-small-business