First posting, finally broke down and got a computer this week.
A few questions;
My buisiness partner and I have been working together almost a year, and so far have been working without help most of the time. We get long most of the time and are pretty much equal in what we bring to the table, so the partnership seems to be a good idea, even though more people have advised against doing business this way. My partner has great customer contacts and we have been getting great jobs. Our current customers are pretty well to do, and seem hapy with our work and eager to start more projects. Our biggest concern now is speed of production and we are ready to step up our size. We are looking to incorporate and would be grateful for any advice as to what type has worked for others, llc,s-corp etc. Also when we take the step to worker comp and payroll, apart from the employee costs, how much less can we expect to bring hame each week when we are on the payroll as well, since taxes now don’t come intoplay until april?
I am pretty confident that our image and work history, as well as our clientelle will provide us with plenty of future work, but with two kids each, mortgages etc theres a lot riding on this.
any advice is greatly appreciated.
Replies
"Amass one hundred times the weaponry and resouces you will need to wage this war"
Translation, (Make sure you are not undercapitalized and do marketing even when you don't think you need it"
L
GardenStructure.com~Build for the Art of it! Decks Blog
First of all, you should already have a tax account and be setting aside money each month for federal and state tax liability. The idea that taxes do not come into play until April is absurd. You need to be making estimated tax deposits, unless you're not making any money, which is of course possible. Anyway, if you set aside 25% for federal you'll be OK.... 15.3% for FICA and Medicare, and roughly 10% for income tax. 10% is about right unless you're making a LOT, and I doubt you are. Do you have state income tax wherever you are? Set aside for that also.
As far as comp goes, it depends entirely on what the rates are in your state. You may or may not have to pay on yourself. I recommend that you do. Here in WA I pay ~$2.60 per hour for "Wood Frame Building Construction", more or less for other types of work. In a lot of places it is a percentage.
We are an S Corp and that's what I recommend. A few people I know here are LLCs instead, but most are inc.
You need an accountant and possibly a lawyer too. I had a lawyer set up the corp for a few hundred dollars. I had an accountant set up my books and all of my federal and state dealings, i.e. workers comp account, sales tax account, UI account, etc. They also set up software for me to run.
Thanks to all, looking for encouragement or criticism, and appreciate both. I guess the 25% was what I needed to hear. I wish I had put the reasearch into the buisiness end of things five years ago before going on my own. I learned a lot how not to do buisiness by watching some previous employers and figured I could do a beter job of it than them. It,s taken this long to figure out how expensive it is just to go to work, and I've started to get over the thought of what I would pay for something, and what it's really worth. As to not making any money you are probably right. I have never understood how, when my tax preparer looks at my dome book, and figures my return, I'm ctually getting money back! Not wanting any future problems, Ive questioned it, but she always says its right. But this isn't the place Id like to stay financially so I know you're right about the quarterly filings. We already have an attorney who we recently used for a real estate purchase and he drew uo a partnership agreement for that. We'll contact him immediately as well as an accountant, who he already recommended. Seems like every morning we tell each other we're going to call both today, then grab our tools and get busy. Next thing we know it's 4:30 or 5 and our wivws are calling asking if we'll be home soon.
We've already priced the work comp and have a good idea what that will cost based on what we're expecting to pay. We priced the current job T&M at the customers suggestion, bigger renovation than we've done yet, so we didn't know where to start on an estimate, but the customer liked us for the job and we jumped at the chance. Our hourly rate is enough that we should be able to handle 25% less for the duration of this job. In pa we arent required to pay workers comp for ourselves and have used temps for labor, with pretty ugly results. The labor price we quoted just covered the cost with a little profit, but like I said the temps just didn,t work.
Sorry for rambling, I guess I know what we need to do next. Wish me luck
As you set up your business structure-set it up so that if your relationship sours (even though you are working well together now-it is possible in the future) that there are clear and definitive means by which the relationship can be dissolved in a straight forward manner and in clear and precise terms.
I have seen several partnerships that destroyed functioning companies and both partners ended up with virtually nothing and a complete bitter taste for the other while pissing off all there customers and vendors in the process.
Hopefully you will never need these arrangements, but they are best set forth before you proceed much further.
As far as taxes, Dave hit the nail on the head. You probably should be paying quarterly and if you set up a company, you will probably be on payroll so your taxes will be similar to what employees taxes are. Frankly, these are issues that need to be discussed with a CPA and attorney, particularly since you have a partnership arrangement.
Bruce