Leave questions here for an answer within 24hours.
[progressally_note note_id=’1′ allow_attachment=’yes’]
[progressally_complete_button text=’Mark As Done’ objective_id=’all’]
What we will cover
- Basics of Capital
- Funding your account
- Setting up bank accounts
- Connecting sales channels
- Using Wave
SETTING UP YOUR BUSINESS BANK ACCOUNT
Where to Set Up the Account
Credit Unions typically do not allow for business accounts and commercial activity. Be sure to confirm the rules about business accounts.
Setting up a checking and savings account
The Patriot Act makes Financial Institutions responsible for identity verification to combat money laundering. Since companies are a great vehicle for laundering there is added scrutiny. Expect when you do set up your account that this will take a few hours and anyone that you want to have as a signatory on the account will need to be there. This may not be the case if you have an existing banking relationship manager but for larger institutions expect this to be the way forward.
When setting up a business bank account you will need to provide;
- Information about the corporation and its existence. -Articles of Incorporation / Organization. Bring a copy of the articles.
- A copy of the letter with your EIN.
- A Banking Resolution Authority to create an account on behalf of the company and who are the authorized signatories.See module 6 Banking resolution.
- Proof that you are who you say you are if you are a signatory. drivers license or passport.
You should set up a business checking and savings account. Get Debit Cards for you and those who you will trust with an expense account on your business (spouse) but hold off on the credit card if it requires your personal guarantee (it is very likely it will because your business is so new). Why? Because you personally are on the hook for that debt and the limited liability of the company will not help. Just use the debit cards.
CONNECTING YOUR SALES CHANNELS
You do not need to create a new KDP or Ibooks account. Just go and update the account details with the company name EIN number and account details.
With most sales platforms there are two functions they require when setting up an account.
- Tax reporting information. Sometimes referred to as the W-9. Go to your accounts under tax interview and resubmit with the new information.
- add the new bank account by going to banking information and complete the interview to switch to the new account
- You will need to do this with all of the platforms you sell on as well as affiliate accounts and other revenue sources. Hunt down the stragglers!
OTHER REVENUE SOURCES AND THE W-9
Go through last year’s return and find all the source of income via 1099 and reach out to those you will have a continued relationship with and recurring revenue and provide them with a W-9 for your new business. Make it clear as of the inception date of your business and that you need revenues to go to your LLC, not you. If you have contracts I suggest you amend them to name your LLC rather than you personally.
Fill in Box 2 with your company name
In Box 3 if you are an LLC elected subchapter S the sixth box, then not S after the arrow to denote the LLC is treated as an S Corp.
Fill out boxes 5-7 with your address
In part II provide your Employer Identification Number
You should create a business PayPal account and use it for all business-related activities. This will keep your records clean and PayPal can be linked to Wave.
If you use PayPal to pay your contractors great! This gets you out of having to issue 1099s, but we will need to do some accounting soon and we will want to make this easy. Since book covers and editing are in this system to be considered the cost of goods sold we need to account for them so that everything is in the right buckets. We will just need to hook it up to Wave.
I HATE ACCOUNTING!
I can hear you yelling it at your screen right now. I am going to show you a system that once set up will simplify your work. Weekly monthly or quarterly (please don’t wait until the end of the year) you need to go in and classify transactions. Once classified they will automatically go into the right spots on the Income Statement and Balance Sheet and from there they will easily move onto your business tax return.
There are however some basic concepts you should understand and when understood will help you with your business.
Cash Versus Accrual
You will run your business on a cash basis. This means you account for things when they hit your bank account. Sales are recognized when Amazon funds your account rather than accruing the sale when they report. Most businesses run an accrual system trying to associate the expenses with the sales and track cash collection later
When you do business accounting there are three main statements, The Income Statement(Profit & Loss), The Balance Sheet, and the Cash Flow Statement. Wave will automatically create The Income Statement and Balance Sheet and follow-on reports that make it easy to do your business taxes at year end.
Your main work will be categorizing expenses and income and the software will take care of the rest.
CAPITAL BASICS AND FUNDING YOUR ACCOUNT
In module 8 we will discuss planning out your capital needs to fully fund your business.
But let’s first cover the differences between Capital and Revenue.
When you or your partners contribute capital as after-tax dollars that is Capital it is different and needs to be tracked differently. You capital contributions go into your business and are attributed to your Capital Account. This account grows two ways, first by your contributions, second by the equity (retained earnings). If you put $1,000 in the business it is Capital and not Revenue. If you sold the equity in your business to me and I paid you $10,000 for the business you would get your $1,000 back tax-free and then pay capital gains tax on the $9,000 (usually a much lower tax rate).
You will need a minimum amount of money to open the account, likely $200 will suffice at most banks. Treat this as contributed capital. If you have book revenue once you switch your sale platform to pay into your business account you may have enough money, otherwise, we will look in module eight about figuring out the necessary working capital.
Your Money Verus Business Money.
No more intermingling of funds!
If you put money into the business it is either;
- Equity and goes to your capital account
- A loan and needs to be in a loan account
- Reimbursed (you pay for an expense then business reimburses you only for deductible expenses)
Money Comes to you as
- Equity (special transaction not covered here)
- Reimbursements for expenses you paid
I suggest after getting your business account opened that you use an accounting software like Wave or QuickBooks online. How do you decide the one to use?
Quickbooks is fully functional with hundreds of apps and plugins. It also has a payroll function that works in all fifty states. This issue is cost. It starts out around $35 but by the time you add in payroll and other items, it can be as much as $80 a month. This is prohibitive for most authors.
The next option is WAVE and It is free. They do have paid features such as payroll and payment processing. The software does not have all of the features or reports but it does provide the basics necessary for you to create an income statement and balance sheet for your business.
Wave is looking to make money when you begin to run payroll. I do recommend using them if they process payroll in your state. The fee is reasonable in comparison.
[progressally_vimeo_video id=” vimeo_id=’265887093′ width=’900′ height=’500′ ]
Cost of Goods Sold
This is where you will capture your editing, formatting and design charges. that you are billed. I suggest this be where you capture outsourced work not subscriptions for software if you do your own formatting. You purchase of Velum would go into software expenses in operating expenses, not in the cost of goods sold.
If you buy books for sale at shows where you hold inventory those costs go here in materials.
When categorizing items in Wave you want to have the following categories;
Purchases (Line 2 1125-A COSTS OF GOOD SOLD)
Cost of Labor (Line 3 1125-A COSTS OF GOOD SOLD)
Other Costs (Line 5 1125-A COSTS OF GOOD SOLD)
The reason is with these categories as you go through the year and assign expenses these categories will line up directly with you file the company taxes.