Let’s not beat around the bush: There seems to be a myth amongst One Woman Shops that it’s shameful to take on part-time or full-time work for someone else when they’re working to build their solo business.
The feelings that come up: shame; embarrassment; failure. After all, how can you call yourself a business owner if your business isn’t fully supporting you?
Excuse us while we clear our throats — as it turns out, we happen to have a lot to say about that.
Issue #1: That’s a whole lot of all-or-nothing thinking going on.
It’s not black or white. It’s not stop or go. And it’s certainly not all or nothing.
The author Barbara Kingsolver writes acclaimed novels, grows her own vegetables, runs a local co-op, and holds classes on farming out of her backyard. Do those “extracurriculars” make her any less of an author? No.
Just like babysitting, tutoring, tending bar, or any number of bridge jobs you might take on will not make you any less of a business owner, so long as you keep putting time into building your brand.
And the “gurus” who tell you that you have to be 110% committed or you’re not a “real” business owner? We happen to like Coach Jennie’s response to that one, after falling for that advice: “these all-or-nothing thinking gurus weren’t responsible for my rent.”
Issue #2: Working from a place of financial stress simply isn’t effective.
While we can come up with several reasons for a bridge job (and we share them, below), the biggest reason is because a solo business owner may find herself financially stressed.
And here’s what we see in our coaching clients, members, and community when they’re coming from a place of financial burden: desperation (that their audience can “smell”). Hasty decisions. Getting away from their values or what they’re truly aiming for.
What ends up happening is that they build a business for short-term gains instead of long-term appeal. This is through no fault of their own — when there are bills to pay, mouths to feed, and responsibilities, those short-term gains are necessary.
But they aren’t ideal for building a business that will fuel you for a long time to come — especially one where you’d like some semblance of solopreneur sanity.
Here’s what we mean when we’re talking about bridge jobs: a job that gives you financial stability while you build your solo business.
A bridge job is literally anything that brings that financial stability — from pouring wine tastings (Sara) to catering for a pizza restaurant (Cristina) to babysitting (both) and everything in between. There’s no shortage of bridge jobs out there.
What a bridge job allows for
Financial stability: We like to think of it as a comfy cushion. When you’re working from a place of financial comfort, you’re empowered with the confidence to take risks, fail faster, and reiterate. You have room to experiment. To work with people how you want to, not just in the way that will make you the most money. Maybe you just want money to put into your business? A bridge job can provide the money to invest in that new website.
Structure: Have you ever heard the adage, “If you want something done, ask a busy person?” As it turns out, most of us work better with structure. I (Sara) can speak from experience on this one: When building my business as a side hustle in addition to my full-time job, I was amazingly productive in the ~10 hours/week I devoted to it. Once I had my days wide open after quitting that full-time gig? Productivity became a tug of war. So if you’re worried about a bridge job taking away precious time, remember this: You can do big things with just 5, 10, or 15 hours a week.
Community: Depending on the role, a bridge job will introduce you to people who might end up as readers, followers, customers, clients, or collaborators in your solo business. And if the people themselves aren’t ideal partners in any way, shape, or form, let them serve as inspiration. (I’ve often considered becoming a bartender just for the appreciation of the stories I’d be sure to hear.)
Learning: Getting paid to learn might be one of the best feelings, ever. And if you go into your bridge job with this attitude, there’s no shortage of things you can learn. Learn from your boss; learn from your fellow employees; learn from the situation. I learned to upsell while pouring wine samples; Cristina learned the importance of connecting with potential clients and customers on shared interests. Keep an open mind.
Bridge jobs for building businesses
Whether you’re just starting out, or you’ve been in business for a while but just aren’t there yet, there is absolutely no shame in taking on a bridge job that helps you reach your long-term goals and build the business you want to run.
Businesses take time. “Overnight successes” more often take 10 years than they do one day.
We don’t share any of this to discourage — we certainly are not saying that you can’t take the leap from your full-time job tomorrow or stay away from “the man” forevermore. We share this because we’ve seen all sorts of business situations amongst our community and members, and, it takes most (us included!) a long time to become both profitable and sustainable. In fact, had we been in this solely for the money, One Woman Shop likely would’ve folded by now. (#truth) We’re fueled by our passion, our belief in what we’re doing, and the progress we’ve seen so far in helping other One Woman Shops.
You are in this for the long haul, right?
Tell us: What fears creep up for you when it comes to the idea of a bridge job to ease your financial situation? Remember: There’s no shame here!
For our business to grow, we have to continually educate ourselves on all the things we have to do, both in and on our company. In fact, when I quit my job to work full time for myself, I quickly learned that my accounting degree wouldn’t be enough.
I knew I had to invest in nontraditional education beyond the blog posts I was reading and the podcasts I was listening to. It was time to look at paid webinars, courses, classes, and books to help fill in any gaps my formal business degree left.
At some point, however, I became a “content consumer.” Similar to a “professional student,” I was taking every course and attending every workshop I thought would help make my business better.
I love learning new things but I was forgetting the most valuable piece of the puzzle: the actual implementation.
Since then, I’ve learned that I need to measure the return on investment (ROI) before I make a purchase on any new educational material that I come across, taking some time to work out the numbers and evaluate how quickly I can earn my costs back. (Yes, your purchase will be tax deductible — we’ll talk about that in a minute — but spending money you don’t need to is not good for your cash flow, either.)
Here’s how I do it, and how you can do the same.
Measuring the ROI of business development content purchases
Good news: You don’t have to be a mathematician to calculate a rough ROI on your course purchases.
Here’s what’s important: Having a roadmap to know where you’re headed no matter what concepts you’re studying. Nothing is random, and everything has a purpose. Creating ROI goals and meticulously tracking them gives you some accountability to yourself and helps you understand what it would take to recoup the cost of the purchase.
Here are the questions I ask myself before purchasing:
What does it cost?
What do I want to accomplish from this investment?
If I implement what I’ve learned from the material, can I create new paid content from it or increase my prices? If so, how much do I have the potential to make, based on my goals?
How does what I learn from this course or workshop enable me to build a more profitable, more efficient business?
Here are a few examples of how I consider the cost versus what I want to accomplish from learning:
If I have to decide on purchasing a $99 course on creating the best Instagram strategy, I set a follower goal for my Instagram account and then a revenue goal based on conversion rates.
If I purchase a $799 course on creating courses, I’d set a revenue goal to earn 3-5 times the cost before I buy it. This way, even if I fall short of the exact goal, I will have at least made my investment back.
Having a solid roadmap for how you’ll use the product/course to implement change in your business is key to knowing whether it will produce an ROI that makes it worth the investment.
Conference ticket registration fees (separate from hotel, flights, and rental cars, which are categorized under travel)
….and any other training and development material you purchase. If you’re conflicted on whether it falls under Business Development or a different category, reach out to an accountant who can steer you in the right direction.
Advanced note: If you’re a sole proprietor or a single-member LLC using a Schedule C on your personal tax return, business development expenses will be listed under “other expenses.” (It’s line 27 in the latest IRS edition.)
Get your books in order
Set yourself up to record your next professional development purchase now:
Open your favorite system you use to keep track of your expenses — a spreadsheet, Evernote, accounting software, etc.
In this category will go any content you’ve purchased from the categories listed above. Locate your receipts and keep them together. Be sure to take all physical receipts, scanning them in for backup and safekeeping so that at the end of the year, you’re not scrambling to pull information together or organize the shoebox.
When tax time comes around, be sure to include these expenses to help reduce your taxable income.
Measure ROI and record tax deductions on educational material: a better approach to learning
With a solid estimate of ROI before you’ve purchased a course and an understanding of how to record that income to maximize your tax return, you’re much better equipped to avoid becoming a “content consumer” and instead using your learning to truly better your business.
Congratulations! You decided to leave your 9-to-5 job to open your one woman shop. But, unlike a corporate job, solopreneurship doesn’t include a formal orientation with Human Resources. (Which were pretty boring anyway, right?)
So today, I’m going to answer your questions about solopreneur retirement options — because being on your own means shouldering the weight of setting up your retirement options. Even so, it doesn’t have to be draining. To make it more enticing? Take my view and think of it in terms of your “financial independence.”
The best definition I’ve read of financial independence comes from Matt Becker of Mom and Dad Money (he’s also a fee-only financial planner). He defines financial independence as “The freedom to make decisions based on what makes you happy instead of what makes you money.”
When you’re financially independent, you can choose to spend more time with your family, travel, or volunteer. You can choose when to work, and how you work. Unlike your 9-to-5, it’s all up to you. But unlike your 9-to-5, you’ve got some decisions to make. Let’s begin.
What do I do with an old 401(k) or 403(b)?
One of the first questions I get from solo business owners, or anyone who’s changed jobs for that matter, is what to do with their old 401(k) or other company-sponsored retirement plan. As tempting as it may be to cash out and use the funds to grow your new business, I wouldn’t go that route. Yes, investing in your business is a good idea, but there are additional taxes and penalties for tapping into your 401(k) before age 59½. An early distribution will generally be subject to both ordinary income taxes and a 10% early withdrawal penalty. Plus, you lose future tax-advantaged growth.
You have three good options when it comes to your old 401(k), 403(b), or other company-sponsored retirement plan: do nothing, roll the funds over to a Traditional IRA, or roll the funds into a solo retirement account. Let’s explore those options:
1. Do nothing and keep the funds in your prior employer’s retirement plan
Pros: This is the easiest option, but if your account balance is less than $5,000, you might be forced into taking action. Additionally, you may have access to certain investments (think institutional funds with potentially lower expenses) that might not be available outside of this retirement account.
Cons: You’re limited to the investment options chosen by your employer. Additionally, you’ll be unable to make additional contributions. If you can still make contributions, they’ll be restricted.
2. Roll the funds over to a Traditional IRA
Pros: You typically have access to a wider range of investment options, including mutual funds and ETFs (exchange-traded funds) as well as individual stocks, CDs (certificates of deposit), and bonds. Additional contributions are allowed and you have the option to move assets to a future employer’s plan. In addition, if you already have a Traditional IRA, all of your retirement assets will be in one place.
Cons: You can’t take a loan, but I wouldn’t recommend a 401(k) loan even if you had the ability to take it. Also, certain 401(k) investments may not be available.
3. Roll the funds into a solo retirement account like a solo 401(k) or SEP IRA
Pros: You can make contributions — and employer contributions are considered business expenses. Loans may be allowed.
Cons: Potentially limited investment options. This isn’t so much of a con, but a consideration. Depending on your solo retirement account type and size, you’ll need to file forms with the IRS.
Another consideration to make note of: If you rollover to a SEP IRA and hire employees in the future, you’ll have to contribute to the SEP IRA on their behalf if you also contribute for yourself.
Whichever route you take, pay attention to the fees and expenses associated with your old and new retirement accounts. Sometimes it makes sense to keep your money in your old retirement plan if the fees and expenses are much lower than a new retirement account.
Additionally, if you plan on rolling over your old retirement plan into another plan, make sure the new plan is set up first. Consider requesting a direct rollover, right to your financial institution. This is also referred to as a trustee-to-trustee rollover, and it can help ensure that you don’t miss any deadlines.
Maybe you’re not coming from a former employer with a company-sponsored retirement plan. No problem — there’s no better time to start investing (and saving) than now! Here are a few options for you, solo biz owner:
1. Traditional or Roth IRA
One way an individual with earned income can start saving for retirement is by contributing to a Traditional or Roth IRA. Individuals have until April 15, 2017 to make a contribution for the 2016 tax year. For 2016, individuals can contribute up to $5,500 ($6,500 if you’re age 50 or older) or their taxable compensation for the year, if their compensation was less than this dollar limit. However, a Roth IRA contribution might be limited based on tax filing status and income.
Roth IRAs are great because you can withdraw your money tax-free when you’re in retirement. Contributing to a traditional IRA, on the other hand, earns you an income tax deduction. However, that deduction may be limited if you or your spouse is covered by a retirement plan at work and your income exceeds certain levels. Review the IRS guidelines for more details.
Also, if you’re a new business owner, you may find yourself in a lower tax bracket than when you were at your corporate job. (Not for long, I hope!) That means it might be a good time to convert an old 401(k) or traditional IRA into a Roth, where you can capture lower taxes today and withdraw that money tax-free when you’re in retirement.
If you have more money to contribute to retirement than $5,500 ($6,500 if you’re age 50 or older), then you may want to invest in one of the following retirement accounts.
2. The Solo 401(k)
The Solo 401(k) is a traditional 401(k) plan covering a business owner with no employees, or that person and his or her spouse. A business owner can make the following contributions:
Elective deferrals of up to 100% of earned income up to a maximum annual contribution of $18,000 in 2016, or $24,000 in 2016 if age 50 or over; plus
Employer non-elective contributions up to 25% of compensation, with total contributions not to exceed $53,000 for 2016.
Note that these elective deferral limits apply per person, not per plan. So if you’re also participating in another employer’s 401(k), say if you’re starting your business while still employed at a corporate job and making 401(k) contributions to take advantage of an employer match, these will count against the limit for employee contributions to an individual 401(k) or IRA.
Also: A Solo 401(k) plan is generally required to file an annual report on Form 5500-SF if it has $250,000 or more in assets at the end of the year. A solo 401(k) with fewer assets may be exempt from the annual filing requirement. If you choose to go this route, your solo 401(k) must be set up by December 31st and funded by your tax return due date in order for contributions to apply for that year.
3. Simplified Employee Pension Plan (SEP IRA)
A SEP IRA is like a traditional IRA, but it is funded solely by employer contributions. A business owner sets up an IRA for each qualifying employee and can contribute up to 25% of each employee’s pay (and 25% of net self-employment income). Annual contributions are limited to the smaller of $53,000 or 25% of compensation for 2016. There are no “catch-up” contributions like the solo 401(k).
The SEP IRA is a great option for those who do not qualify for a solo 401(k), or who have employees and are looking for a retirement plan for their company. Business owners just need to file a form with the IRS (Form 5305-SEP) and open a SEP IRA at a bank or financial institution
How to choose your retirement account as a solo business owner
Which tax-advantaged retirement plan should you use? That depends on the nature and size of your business. (Do you plan on hiring employees in the future?) Additionally, you need to consider your tax filing status, age, and participation in other retirement plans. Since some plans require more administrative and fiduciary responsibilities, you may want to chose one retirement plan over another due to simplicity.
Pay yourself first!
Finally, in order to reach your financial goals, start by paying yourself first. This is important even if you aren’t a business owner! You can achieve this by setting up automatic transfers to your savings, retirement, and/or investment accounts. As an entrepreneur, your income may vary, so allocate your savings based on percentages instead of dollar amounts. For example, make it a goal to set aside 5% of every client payment. This will automatically help you save more dollars when your income is higher and keep you from overextending yourself during leaner months.
One Woman Shops can’t always do it all. But when it’s time to turn to an outside pro — and be certain we’re choosing the right one — we’re often at a loss as to what to ask to get the info we need. Welcome to Questions For A… a series where we interview the pros themselves on the questions you need to ask before hiring them.
Q: What services do you offer? What services are included in my package?
Amy’s why: Just like specializing in different industries, accountants can specialize in different financial services. Make sure your needs (tax planning, budgeting, etc.) align with what they can offer.
Tai’s why: Clearly define the scope of services you need or won’t need because you don’t want to be charged for a service you don’t need, nor do you want to be unaware of what’s included in your accountant’s quote. Some accountants provide tax preparation as well as monthly bookkeeping services. Some process payroll (which can include 1099s). Some accountants provide quarterly review meetings with the client, while others only talk to their clients once or twice a year. You want to make sure that there are no surprise charges down the road. Know what to expect from your accountant and when to expect it.
Catherine’s why: An accountant may provide any combination of the following services: tax preparation and planning, business formation, bookkeeping, payroll processing, financial and retirement planning, cash flow and budgeting analysis, and more. If the accountant you plan on hiring doesn’t provide a service you need, ask if they have recommendations.
Q: Do you have experience in my industry?
Catherine’s why: Different industries come with their own unique accounting and tax issues. Accounting for a food blogger (are you tracking food purchases for recipe development?) is different than accounting for a retail store (hello, inventory!), which is also different than accounting for a freelance writer (do you have all of your 1099’s?). Your accountant should be aware of tax opportunities that relate to your industry.
Erin’s why: There are standard tasks in accounting and bookkeeping regardless of industry that any good accountant will understand. However, you’ll get more value from someone not only familiar with your industry but who has experience in it as well. You are essentially paying for the knowledge the accountant can bring to the table so the more they already know, the better!
Q: How can you help me grow my business?
Catherine’s why: Businesses have several moving pieces and an accountant can help you see the big picture by assisting with a business plan. At the same time, they can provide suggestions on your pricing, improving cash flow, assessing whether to hire an employee or contractor, and other ways to improve your bottom line.
Q: What bookkeeping software do you primarily work with, and what is your preferred method of communication?
Catherine’s why: Gone are the days of schlepping a shoebox full of receipts and a folder full of statements to your accountant’s office. Unless, of course, your accountant really wants you to! These days, accountants are using cloud-based accounting programs and file-sharing sites, emailing contracts and invoices, helping you track expenses with online receipt scanning, and communicating via Google Hangouts or Skype. When you have questions, figure out if your accountant prefers a phone call, email, or something else. When I work with financial planning clients, we have a set number of in-person or virtual meetings throughout the year, but I offer unlimited email support in implementing planning recommendations.
Amy’s why: Many accountants have a preference as to which bookkeeping software they use because they’re most familiar with it. Familiarity means they can work more efficiently and offer advice if you have any problems with the software.
Erin’s why: We all know that communication is critical in business relationships, and it’s no exception here. Look for someone who has the same preferred method of communication so it flows more freely and frequently. You can quickly become frustrated (and vice versa) if you always want to hop on Skype for a video chat but your accountant wants to respond with an email.
Q: Are you available during tax season?
Erin’s why: “Busy” season is a very real thing for accountants who also prepare taxes. You want to make sure your accountant will still have the capacity to assist you the first three and a half months of the year and not just go dark!
Q: What will your help cost me + how do you bill?
Amy’s why: Most accountants don’t have detailed costs for their services listed on their website because client needs can vary so much. Ask about this up front so you aren’t surprised with a big bill.
Erin’s why: Find out if you will be billed by the hour or if there will be a fixed fee. If by the hour, you will also want an estimate on what the fee will be. Along the same line of thought, you’ll want to know exactly what you are getting for your money.
Q: What systems and processes do you have in place to protect my financial data?
Tai’s why: Your accountant will have access to the most private information you possess. You want to make sure that your financial statements aren’t just lying around for anyone’s eyes to see. Also, social security numbers, addresses, and other private details should be under lock and key or encrypted digital storage.
Q: How quickly should I expect deliverables to be available every month?
Tai’s why: Clear communication prevents misunderstandings. I was recently interviewing a new client whose main problem with his previous accountant was that he didn’t get information to him in a timely manner. Expectations should be outlined upfront to keep you happy and to also give the accountant the time necessary to make information available to you. For example: Will I be receiving my monthly profit-and-loss report by the 10th of the following month? Should I start to worry if I don’t receive it by the 5th? What deadlines can I expect you, the accountant, to adhere to?
Q: If I incur federal or state penalties for filing errors proven to be the fault of you, the accountant, will you reimburse me? And if so, how much?
Tai’s why: Again drawing from client narratives of past accountant relationships, an accountant is human and sometimes mistakes are made. If that accountant is filing tax returns (business or personal) or making estimated tax payments on your behalf and causes you to incur penalties or interest with the IRS because of neglect or oversight, what is their policy on resolving the situation? Perhaps they will reduce what they bill you. Perhaps they will pay part of the penalties.
Ready to grill (in the best way possible) your potential accountant? Print these questions out + have them at the ready when you’re looking to hire! And if you want pros we stand by, check out the One Woman Shop directory.
April 15th strikes fear into the hearts of many entrepreneurs, and for good reason — once we’ve worked hard at becoming profitable, the last things we want to think about are tax payments, CPA prep fees or (gasp!) being audited.
I see that glazed-over look of “tax-time horror” on the faces of my coaching clients often. But based on my background as an accountant and auditor, I can attest that tax time is much less stressful if you’ve already conquered half the battle: having organized documentation. On April 14th, you don’t want to be scouring the depths of your purse for a receipt from that one expensive bill paid way back in January.
Now, tax time may have come and gone for this year (phew), but there’s no time like now to start making things easier for the next go-around — especially because the panicked search detracts from your peace and can be circumvented easily.
Even better? Getting your documents organized can be fun, manageable and save money. So, if you’re cringing at the thought of calling an accountant, staring at piles of old receipts or just putting it all off until the last minute (again), I have a few simple, actionable tips to get your critical items in order so you can get on with the business of being a solopreneur #bosslady.
Ready? Let’s do this.
Make organizing fun and manageable
Some of us love to be organized, and some of us don’t. But here’s the key: The more organized you are during the year, the smoother your tax season can be. Whether you’re already behind, with your receipts piled up in a drawer for “later,” or you’re just getting started in biz, approach it the same:
Pick up colorful file folders and use your favorite Sharpies/pens to label them with descriptions of the file contents (cable bills, pay stubs, bank statements, etc.)
Grab a pile of receipts/invoices/forms and start organizing them into the appropriate folders
Are you all about digital file-keeping? Google Apps or Dropbox are great options to hold your documents. Both have free versions, offer file-sharing to others (like your accountant), can be used on your mobile device and can even be color-coded, just like those handy, physical file folders.
If you’re looking for a service that does more than simply house shareable documents, Shoeboxed offers IRS-accepted receipt organization, automatic archiving of invoices from Gmail and even a GPS-enabled app to track your vehicle mileage. This option has a free 30-day trial with subsequent payment plans currently starting at $9.95 per month.
Organizing your receipts and files can be accomplished while watching TV or listening to a podcast if you have a larger chunk of time, or gradually over the course of a week if you only have a few minutes each day. Breaking it down into a few minutes each day or combining it into another activity (hello, Netflix!) helps it feel more manageable.
Bonus points: Keep both a hard copy of all documentation and an electronic copy in at least two places. Proving income and expenses to the IRS could be a mini-nightmare if you lose the only copy of your detailed receipts. (Editor’s note: Scan your receipts in with your phone using a handy app like CamScanner!)
How to organize receipts + files within your folders
For the most user-friendly filing system, group your files into categories that would mimic your financial statements (revenue and expenses). For example, a revenue folder might contain sub-folders containing documentation for:
Income from affiliate programs
Similarly, an operating expenses folder would contain sub-folders for:
Payroll and Related Fees
Vehicle Mileage and Maintenance
Meals & Entertainment
Software and Technology Service Fees
Grouping files into categories allows an accountant to more easily and accurately find what they need to file your returns. And in the event of an IRS audit, it could save you many stressful hours of digging through a stack of uncategorized files.
Organizing saves money
Another reason to organize your records: It can save you money. Having a brief summary of the year’s transactions can work as an excellent bargaining tool for reduced tax prep fees because most CPAs prefer getting a neat, concise schedule instead of a shoebox full of coffee-stained receipts. (A quick reminder: An accountant compiles the information; the IRS audits it.)
I highly recommend my clients regularly export their online financial account activity and maintain an electronic copy. Then, when tax time rolls around, they can easily summarize the year’s financial data to hand off to their accountant.
To do this, you can use budgeting or banking apps, or if you want to get nerdy with it:
Export online checking/savings account activity to Excel
Add a pivot table to the data in Excel (learn how to do it here or here)
Set up the pivot table to summarize by type of transaction, vendor, etc.
I am in love with using pivot tables on my exported Excel-format banking info because it provides 1) a quick summary of income and expenses by type for your accountant to use in tax filings, and 2) the underlying detailed transactions you would need if audited by the IRS.
If you use Freshbooks,Wave, or other bookkeeping apps, you can export reports, as well.
Getting your records organized can not only work as leverage for a potentially reduced tax prep fee but also illuminate forgotten expenses that help offset some of the year’s income, effectively helping to reduce your tax liability.
You can do this (really!)
The simple take-away: Organizing your tax records is 100% manageable, can save you precious dollars to reinvest in your business and can even be enjoyable when approached creatively. Give it a try and see if it provides some ease to your process. Happy tax season!
What were your greatest tax season pains this year? Leave them in the comments!
Sales and use tax: words to make even the bravest entrepreneurs quiver in their boots — once they know about it. If this is you, that’s totally OK, it’s less a tell-tale sign of your ability as an entrepreneur and more a case of under-education on the government’s part.
In fact, I’m willing to bet 75% or more of you don’t even know what use tax is and yet you could be responsible for paying it. (Again, not your fault.) Another large portion of you probably believe sales tax is something only those in retail have to worry about, but you would be wrong. Listen up infopreneurs and service providers: You might be required to collect sales tax!
If you weren’t quivering before, you might be now. Take a deep breath, because I’ve got the keys to the beginner kingdom of sales and use tax. What you’re about to read, however, is just the foundation. With these basics in mind, you’ll have to do some research on your own, because each and every state has its own laws when it comes to taxes.
But, let’s start from the beginning.
Sales tax…Do I collect it for every state?
Thankfully, no. You only collect sales tax for states in which you have nexus. Nexus is having a presence in a state in such a way that you come under jurisdiction of that state and are responsible for taxes if your sales apply. What exactly does that mean?
You likely have nexus in a state where:
You have an employee
You have a contractor who creates or maintains a market (This one can be confusing. I suggest calling your state’s revenue department just to be sure.)
You have inventory housed (A lot of sellers get burnt on this one. If you use Fulfillment by Amazon, you could be responsible for collecting sales tax in many states!)
Your next best step here is to look up the states in which you think you may have nexus and research their particular criteria. A good starting point is my Sales Tax Resource Guide; it has links to states’ nexus requirements.
In addition, there is now “click-through nexus,” which might affect you if you have affiliates marketing your products. I’ll leave it to the experts over at TaxJar to explain this one. (Note: For many states, it depends on dollar amounts of affiliate sales, and most thresholds are relatively high.) Keep your eyes open here: I would expect this idea to spread as affiliate marketing becomes a more popular trend.
So this is only for businesses selling a physical product, right?
The days of only physical products being taxed have passed with the progression of technology. Sales tax is a huge part of state revenue and they want to keep it that way!
What this means for infopreneurs selling digital goods and service providers is that you might also be responsible for collecting sales tax. I know: Crazy!
The best way to find out if your state requires you to collect sales tax is to call your state’s revenue department and ask directly. States have made an attempt to create resources to help you determine if your sales should have taxes applied, but I tend to find that these pages are vague and are often not much help.
Some digital goods you might be responsible for taxing:
e-courses (falling under audiovisual works or publications)
apps or software
But again, check with your state. For example North Carolina, where I live, does tax digital goods. New York however, does not.
As for services, this really depends on your state. (Are you seeing a trend here?) Here are a few examples to show you just how deep this runs:
Web design is taxable in Texas, but the first 20% of the total is exempt. Updates to an existing design may not require sales tax. Graphic design is also taxable. Consulting is not taxable; it’s the realization of the idea that is taxed.
In some states, an entire photography package may be taxable if a physical copy of photos is delivered.
Hawaii doesn’t have sales tax, but does have a general excise tax for all products and services.
The truth is, there are too many oddities in the laws to list. I would suggest doing a quick Google search for ‘your service + your state + sales tax.’
What the heck is “use tax,” anyway?
Now that we have the basics of sales tax squared away, let’s discuss use tax. The two go hand-in-hand. In fact, the registration and filing is done at the same time, but they are quite different in nature.
Have you ever bought something big online and were delighted to see that no sales tax was added? You were probably pretty excited to not have that extra charge tacked on, right?
Well, not so fast! Remember how I said sales tax is a big revenue stream for states? Even though you didn’t pay sales tax on that item, they still want their money. (Shocker.) And guess what? You are responsible for keeping up with your purchases made out-of-state that weren’t taxed and sending in taxes on that item to your state under use tax.
I know. This is a major bummer, and most people either have never heard of this or have and choose to turn a blind eye. BUT, this is important. States are starting to crack down more aggressively on people and businesses who don’t pay these taxes.
Okay, so now I know I should be collecting and sending in sales and use tax. What are the next steps?
The first step is figuring out if you have back taxes to pay. Unfortunately, even if you didn’t collect taxes over the past year doesn’t mean you can just start now and pretend those sales don’t matter. You are still responsible for sending money that should have been collected to your nexus states. Check to see if your state has a Voluntary Disclosure Program to disclose unfiled taxes without penalty.
Find a system to help you keep up with sales tax. You have a few options here:
Use a sales tax platform like TaxJar or Avalara’s TrustFile. Both connect with major ecommerce platforms or can have sales imported in. They will calculate your tax due for you and e-file in certain states, for a price.
Find a bookkeeper who can do it all for you. Keep in mind that not all bookkeepers do sales tax and it likely won’t be their cheapest service offering. Sales tax is a pain in the rear, regardless of who’s doing it.
Register with your state for a sales and use tax certificate. Some states may call this something different. This takes a while to process so start ASAP! Be sure to check out my Sales Tax Resource Guide below with links to each state’s registration page.
Take note of the filing frequency given to you when you register. This will tell you how often you have to file – annually, quarterly, or monthly.
File and pay. (And wipe the sweat from your brow!)
That was a lot of information — and that’s just the basics. Tax laws are like rabbit holes. They run deep and are quite complex. If you are the DIY type, give your state’s revenue department a call, and don’t be afraid to interrogate them; they will be able to answer any questions you have. If this is completely overwhelming, you have an out! Hire a bookkeeper who handles sales tax. You might have to work with them to register your business and get everything set up, but then it will be a mostly hands-off process.
Over to you: What experience do you have with sales and use tax? Share in the comments below!
Note: One Woman Shop is not a source for expert tax advice. The information provided here is shared with the understanding that the authors and publishers of this information are not intending to render legal, accounting, tax, or other professional advice and services.
As solopreneurs, we wear many hats in our business: customer support, copywriter, salesperson, and CEO. As we bounce from field to field trying to get our tasks done, we’re often bogged down by industry jargon. And the worst part of jargon is this: We get sucked into a rabbit hole of research trying to understand how these complex terms relate to our business.
One of the industries that is chock-full of jargon is the accounting and finance industry. In my opinion (and I think you might agree), it sometimes feels as though they’re just trying to overcomplicate things. Here’s looking at you, IRS.
This became especially apparent recently, as I was working with my friend Jenny on the launch of a new service, adding in-home cooking classes to her current catering business. As she was trying to work through the financial side of things, she kept running into over-complex formulas and explanations that didn’t relate to her solopreneur business.
We worked through her questions and I gave her basic explanations of some of the most important accounting terms, how to use them in her business, and why she should be sure to look at these items. I thought maybe an explanation could help you, as well.
Here are the main accounting topics we worked through and examples of how these relate to her new service launch:
What it is: Costs that will not change, regardless of how much you sell (rent, website hosting, utilities, salaries, etc).
Why it’s important: Fixed costs are often overlooked but they can creep up and quickly take a big bite out of your profits.
When you should review it: Monthly, to make sure your costs aren’t creeping up
As this is a home-based business and an extension of an existing business, Jenny’s fixed costs aren’t too high. They include things like her website hosting, her advertising budget, and her own salary. We were able to estimate that her fixed costs would be approximately $2,500/month.
What it is: The cost you have when you actually sell a product (materials, hourly wages, shipping, etc).
Why it’s important: Without knowing your complete variable cost, it can be very difficult to price a product or service appropriately.
When you should review it: Also monthly, to make sure your costs aren’t creeping up
For Jenny, included in her variable costs is the food she buys for each cooking class as well as payment to the assistant she hires on an hourly basis to help with each class. We concluded that her variable costs total for each student is $20.
What it is: Sales (income) from each product or service sold minus variable costs.
Why it’s important: This will tell you how much money from each item that you’ve sold can be used to cover other costs (like fixed costs). I use this as my first test to see if I’ve priced things high enough.
When you should review it: When reviewing your pricing or launching a new product/service
Jenny charges $60 per student and her variable cost per student is $20, leaving her with a contribution margin of $40 per student ($60 – $20). That means that for every student she has in class, $40 can go toward covering her fixed costs and hopefully making a profit!
What it is: The point where you have sold enough you are no longer losing money. To get this, you’ll take your fixed expenses each month and divide by your contribution margin.
Why this matters: This one is seriously a big deal. This is the point where you will either have a business that makes money each month, or loses money each month.
When you should review it: Also when reviewing your pricing or launching a new product/service
Jenny has pretty low fixed costs since she’s running a home-based business. Her breakeven point each month is $2,500 fixed costs / $40 contribution margin = 62.5 students each month. This means that in order for her business to not lose money, she needs to have approximately 63 students in her classes each month. If she sees more than 63 students in a month, she’ll have a profitable business.
Return on investment (ROI)
What it is: When you spend money, or invest, in a business you want to be sure that you’re making that money back, and then some. How you measure that is by using the return on investment. It is the sales you received from an investment minus the cost to fulfill those sales, divided by the cost of the investment.
Why it’s important: Use this calculation to make sure that the money that you’re spending on your business is working for you.
When you should review it: Before making an investment in your business such as new equipment or a marketing campaign
To advertise her new classes, Jenny is doing a sponsored post with a local food blogger that has a significant following in her city. The cost of the sponsored post is $750 and Jenny hoped that she could bring in 40 new customers from it. With that estimation her return on investment would be:
40 customers * $60 income per customer = $2,400
40 customers * $20 cost per customer = $800
($2,400 – $800)/$750 = 2.13
In other words, for every $1 that she spends on the advertising campaign she expects to get $2.13 dollars back. A pretty solid investment.
Understanding accounting jargon
At first overwhelming, these accounting numbers can be used pretty easily to evaluate your revenue and costs, and help make pricing decisions for your solo business. While accounting certainly isn’t the most fun aspect of the solopreneur lifestyle, having a foundational grasp on things like fixed versus variable costs, break even and contribution margins, and return on investment can help make sure you’re growing a healthy business that is paying you what you deserve.
There’s a lot to learn when getting started as a solopreneur. But with so many great resources that can help you, step-by-step, to start and grow your business, it should all just be easy breezy, right?
Not so much. So often, when it comes to actually putting what we’ve learned into action, we just get stuck. For solopreneurs, money is often one of those places where we feel ourselves trudging through mud.
What’s keeping you from moving forward to earn what you deserve? You may think lack of time, or maybe lack of knowledge. But so often, it’s the mental money barriers we unintentionally put up. Yep, mental money barriers are real and they’re keeping you from becoming the awesome business person you’ve dreamt of becoming.
So what’s an ambitious business owner like you to do? Identify your mental money barriers and create a strategy to get past them. Read on to see how you can move past four common mental money barriers — because earning money as a business owner is as much about mentally getting into the game as it is learning the skills to run your business.
Money barrier #1: Don’t like the idea of charging? Create an epic value proposition.
Do any of these quotes sound familiar?
“I struggle with the idea of charging my customers for this product/service.”
“I don’t want to seem like I’m selling all the time.”
“It’s okay to give a friend (or a friend of a friend of a friend) a discount.”
For most people, myself included, the actual act of selling products or services makes their skin crawl. We picture pushy salespeople and disappointed customers. The concept of selling is intimidating, often leaving entrepreneurs significantly undercharging for their services.
It’s time to bury that barrier by creating an epic value proposition: a statement that clearly lays out what value you are providing to your customer with your product or service.
While many people use their value proposition to attract their customers’ attention, another way to use this is to get over your money barrier. When you focus on the value you are delivering your customer, you are mentally taking the emphasis off charging people and replacing it with the value you are delivering.
There no one way to create a value proposition, but author Geoffrey Moore provides this easy template to start with:
For (target customer) who (statement of need) our (product/service name) is (product category) that (statement of benefit).
A nutritional coach might frame their value proposition as: for busy working mothers who don’t have time to eat a healthy breakfast, my product is a book of 3-minute breakfast recipes that make eating a nutritional breakfast easy to work into their morning routine, giving them the great start to their day that they deserve.
Writing a value proposition is not an exact science, but the key is to focus on the amazing value you are creating for your customer.
Money barrier #2: Struggle spending money to invest in yourself and your business? Adopt an abundance mindset.
As entrepreneurs, most of us know what it’s like to pinch pennies and debate spending money as we work to get our business off the ground. While that’s not a bad thing, it can lead to a scarcity mindset, creating a money barrier that stands between you and the leveling up you deserve.
In the scarcity mindset, we focus on short term results and only having a limited set of resources. In contrast, the abundance mindset is focused on long-term growth and endless opportunities to grow.
To move into an abundance mindset in your business, stop looking at money spent on your business solely as expenses, and consider them as investments.
To be clear, moving out of a scarcity mindset and into an abundance mindset isn’t about spending recklessly and viewing everything as an investment. It’s about carefully considering the expense and measuring whether it is a true investment that is going to grow you or your business.
The next time you are considering spending money on something and you begin looking at the cost, take a minute to think about what it could potentially bring you. Will an improved inventory system help you ship more products? Will that course or mastermind help you move past a business plateau? It’s these important distinctions that can help break the scarcity money barrier.
Money barrier #3: Feel uncomfortable with the idea of becoming wealthy? Define your goals with a purpose.
Money gets a bad rap. There are so many bad examples of wealth and greed, that many of us unconsciously put up money barriers to keep ourselves from becoming wealthy. You might think this barrier doesn’t apply to you, but before you dismiss it, fill in the blank below to reflect on what wealth means to you.
Being rich/wealthy looks like ______________.
If the image that you come up with is primarily negative, you might have a money barrier related to becoming wealthy.
To move past the negative image, work on defining goals with a purpose. While most of us will set goals for our business related to how much money we want to make, try adding a purpose to create a new image of wealth.
For example, if you want to grow your business to have profit of $150,000 per year, what does that amount mean to you? Does it mean that your partner is able to quit their job? Or perhaps it’s that you’ll be able to spend more time with your family or contribute to a cause you love.
Spend time defining that purpose to create your new image of wealth. Write it down and keep it somewhere you’ll be able to see regularly.
When I started my first business, I was a pro at avoiding the mundane money tasks like invoicing, logging expenses, and just keeping things generally organized. I would procrastinate for as long as possible, making up excuses that it wasn’t as important as other things on my list, or that I wasn’t in the mood to do it.
And the longer I put it off, the larger these mundane tasks became. I had created a horrible mental money barrier with all of my excuses, which ended losing me quite a bit of money.
To break this, I created a weekly money habit. I know that a weakness of mine is logging receipts and sitting down regularly to go through my books. I also know that Friday afternoons I’m not up for anything requiring much brainpower. So I decided to create a money checklist and go through it for 20 minutes every Friday after lunch. The first few weeks of sitting down to do it were tough, but after a month these actions clicked and I began automatically doing them right after lunch every Friday — no excuses.
To stop avoiding your necessary money tasks, create a checklist of the items you want to complete weekly and set a time do it. I recommend creating a list of items that will take 15-30 minutes to complete to start. To create an actual habit, tie it to something specific that you do every week. When you do that first action (for me, Friday lunch) it triggers my habit of completing my money checklist.
Break past the mental money barriers to grow your business
There may be other money barriers that are standing in your way (shout them out in the comments!), but the key to not letting them hold you back is to recognize that they exist and create a plan to move past them.
The marketplace is full of competitors, which can be intimidating when you are starting out on your entrepreneurial journey. This is exactly why it is important to learn how to feel confident selling your products/services. Depending on your personality type, this may come easier for some than for others — but every solopreneur has to be a saleswoman. So, why not get comfortable with it now and save yourself the headache later?
I have struggled in getting comfortable with everything from pitching, to selling, to pricing. But over time, I’ve learned a few key lessons that make sales more formulaic and less emotional. Here are my top 7 sales tips for online entrepreneurs:
1. Build trust with your audience.
Before you sell anything at all, you should build trust with your customers. Your customers can go anywhere for products, but why should they buy from you? Is your site personal? Are you transparent? Do you give value to your visitors? Or, are you throwing ads in your visitors’ faces as soon as they’re on your site, asking them to buy before they’ve had a chance to get to know you?
People buy because of a feeling more than anything. Give your customers reasons to like you, trust you, and want to buy from you before you even offer them anything. For example, if you send an email newsletter, connect with your subscribers by being open and transparent (like you would with your friends). Create a free, valuable opt-in — perhaps a free checklist, template, or bundled advice. Find ways to create value without asking for money. After you build trust and your audience likes you and is connected, then you can offer them something for a price.
2. Get your visitors used to clicking links.
If you have a subscriber list, consider including links in your emails. This will get your readers used to clicking and will help them become more receptive to promotional links (a tip I learned from Dan Faggella in episode 159 of Pat Flynn’s Smart Passive Income podcast). Again, keep in mind that you want to build trust first (the email shouldn’t open with an offer to buy your latest product if it’s the first email you’re sending someone).
Instead, draft emails to your subscribers that engage your readers, help them to get to know you, make them trust and like you, and then include links throughout the email to your work, including your latest product. The links can be in the middle of the page or toward the bottom, after you have engaged your readers. In fact, some will argue that you should include just one link in your email — and that’s fine, too. The point is to get your visitors used to the idea of you providing stuff (some free; others for a price).
3. Use your analytics.
Decide where you want to sell your products by paying attention to your analytics. A good place to start is by looking at your page views. Where are most of your visitors going when they land on your site? If your visitors hang out on your resources page much more often than in your store, then it would be wise to include your products on your resources page.
For me, the most visited page (by far) on my personal finance blog is my store. I know this because of my analytics — and it’s helped me optimize the page. It would be a shame if I had my products hidden on miscellaneous pages that didn’t make it clear to my visitors where they can spend their money.
Use your analytics (I use Google Webmaster Tools) to help you make intentional choices about where to place your products. For you, it might be a “Start Here” page, a “Work With Me” page, or something entirely different. Once you see trends in how your visitors navigate your site, you can learn how to better optimize it for sales.
4. Pay attention to your brand and your target customer when pricing.
Keep prices in line with your overall brand and your target customers. You pay more at Nordstrom than at Walmart — but you expect it to be that way. Which brand are you, and are your prices in line with that? There is a market for both Walmart and Nordstrom – you just need to figure out which you are.
Consider your customers, specifically. What types of customers are you targeting? Are you targeting everyone? Females? Female nurses? Female nurses under the age of 30 who have expendable income? Pricing is about the marketplace and it’s about the customer – it is not about you. Be very thoughtful about who your products are best suited for. This will help you be strategic in your pricing and your marketing.
5. Do your market research.
Consider your competitors. Look around and compare what prices competitors are selling similar items for in your niche market. Doing this will give you an idea of what’s already out there and what things are selling for. You can adjust your prices accordingly, or you can completely ignore them if you want to. Generally, it’s smart to stay within what’s considered “market” for what you’re selling because that’s what people are paying, but you might have a good reason to go outside market prices.
For example, maybe all of the online courses that you see for sale include 7-12 modules and are selling for $300-$700. If you have a 20-module course with other extras, you may want to consider pricing your course at $1,000 even though that’s above market for what you’re selling. Regardless of what you decide to do with the information, it’s still better to have the market research and at the very least, have a starting point from which to work.
6. Offer packages with different price points.
Offer packages that give your customers options based on price. This is a lesson I heard on several Smart Passive Income podcast episodes and seems to be widely accepted. Bundle your product into three different priced options ($29.99, $59.99, and $89.99, for example). This allows people with smaller budgets to buy your product while it still gives you the opportunity to earn a lot more from — and provide more value to — the people who have more money to spend.
Most people end up buying the middle option (think about it – do you order the cheapest glass of wine on the menu or the second-to-last cheapest?). And quite often, businesses earn the most revenue from the highest-priced item. So, having three packages is a good way to maintain lots of customers and also increase your revenue.
7. Have confidence to sell.
Before you’re convinced that you’re Walmart, I urge you to consider whether you’re actually Walmart or whether you’re Nordstrom that just lacks confidence. It is scary selling products – especially in the beginning (and it is okay to feel this way). Instead of discounting yourself, take a step back and reevaluate your product.
Think about what you’re selling. Think about the value you’re providing to your customers. It’s really important to believe in what you’re selling or you shouldn’t be selling it at all. If you review what you’re selling and you know you are providing tremendous value to your customer, price what your product is worth and not any lower. There is no reason you shouldn’t price high if you’re providing high-end value to your customers.
Start selling, solopreneur
March on and have the confidence to sell, sell, sell. Confidence comes from putting yourself out there through trial, error, and revision — but you’ll never know if you don’t first try. These steps will get you started. For more specific tactics on gaining confidence selling, I highly recommend To Sell Is Human by Daniel H. Pink and Sell or Be Sold by Grant Cardone.