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Square cannot provide advice on tax issues. This article is for educational purposes and does not constitute legal or tax advice. For specific advice applicable to your business, please contact a professional.
In the last year an increased rate of workers who left their jobs has been dubbed the Great Resignation. But others see this mass exodus as the Great Rethink. Employees who are looking for better workplace culture, growth opportunities, and more are choosing the jobs they feel most passionate about.
According to recent Pew Research, about 29% of total employment in 2021 is made of self-employed business owners. This same research shows that self-employed workers see a stronger recovery from the COVID-19 recession. Before you open the doors to your business, learn how you can create a strong financial foundation for your business, which tools you can use, and which best practice steps to take as a self-employed business owner.
Build a strong financial foundation.
Before you become your own boss, there are a few money moves you may want to consider to set up your business with a strong financial foundation.
- Consider a business bank account. Opening a business checking or savings account may give you access to benefits catered toward building a business. If you are a Square Banking customer, your payments, banking, and cash flow are all in one place. So when you take a payment, your sales flow directly into your bank account. Business bank accounts can offer some advantages beyond personal bank accounts. Do research to see whether your business could benefit from having a business savings account, a checking account, or both. These accounts can provide protection that limits your personal liability. They can help you establish business credit that’s separate from your personal credit. And they can offer opportunities to leverage your credit.
- Separate your business and personal accounts. Keeping your personal bank accounts separate from your business bank accounts will help you manage your business’s cash flow better. Also it will be easier to look back and double-check your books.
- Open a business debit or credit card. Having a dedicated business debit or credit card can help organize your business’s finances. Whether you want to use a business card to separate your business finances from your personal finances, or to track business-related expenses for several authorized users, the benefits of a business card will vary depending on your business’s needs. In addition, card issuers may offer favorable interest rates or waive annual fees as incentives to open a dedicated business card.
Best practices for solopreneurs getting started
The initial stages of solopreneurship will look similar to starting any other type of small business. Yet there are important, specific factors to keep in mind. Here is a list of resources to help you get started:
- The Square step-by-step guide tostart a business: From tips on how to write a business plan to website and marketing strategies, this guide will walk you through all of the essentials for solopreneurs.
- Business entity 101: A business entity is another name for the type of business structure a venture sets up, which has legal, tax, operational, and overall ownership implications. You can use this to gather a better understanding of what a sole proprietorship looks like and how it compares to other models.
- Groundbreaking entrepreneurs share tips on how to starting a first business: Prioritize your creative energy. Put your own spin on a successful idea. Embrace your fear. These are just a few of the ideas that innovative entrepreneurs relied on to get their businesses off the ground, which you can replicate.
- How to stay organized when you’re a solo act: It requires strong organizational skills to run solo operations. Investing in automation, simplicity, and community are great ways to set yourself up for success.
Tools for solopreneurs
Being a solopreneur doesn’t mean you have to go it alone. While you might decide to take on some tasks yourself, you may also find opportunities to outsource or automate business functions as you scale. Here are a few helpful tools to get you started in the right direction.
Regardless of whether you hire an accountant, use accounting software, or keep track of your finances yourself, start by looking into these tools to get a broad, holistic view of your finances. That way you can forecast your cash inflows and outflows. By keeping track of several key accounting reports, such as a profit and loss statement or a cash flow statement, you can see a clearer picture of your business’s financial health. These may help you determine which business reports could most helpful to forecast and manage your business’s cash flow.
Whether you establish your business entity as a sole proprietorship, a partnership, a corporation, or an S corporation, research tax implications for each. Think about how you’ll want to pay yourself, taxes related to self-employment, and forms that may be most relevant. Once you decide which type of business entity your business will be, you can make informed decisions about next steps.
Finally, using a managed payments system can help you keep track of sales for your business. This will inform you on the ways your customers like to transact. Meet your customers where they are and offer payments wherever they like to shop. Think about which type of merchant services you might need to process payments. There are a variety of solutions that could come in handy depending on your business type.