Recent world events have people working hard to build additional income streams. Side hustles and part-time gigs are one option, but starting a small business is also a terrific way to boost your own financial health. There is some early paperwork that you will need to address to poise your business to grow.
What Is An EIN?
Your EIN is your Federal Employer Identification Number. Unlike a social security number, you can hold multiple EINs. It’s a good idea to open a new EIN for each business that you own.
With at least one EIN, you can
- get business insurance, such as workmen’s comp
- open a business bank account
- file tax returns as a business
If you have boot-strapped the financing for your business on your personal credit, being able to bank and borrow as a business can take a great deal of pressure off of your finances. Getting an EIN number as early in the process as possible is a quick and easy way to build a better financial platform to grow your business.
EINs Are Critical to Growth
If you are your only employee, your business will be limited to the hours and energy in your day. Before you can hire someone else, you will need an EIN so you can establish payroll. There are employees who are willing to work for cash, but you will be setting yourself up for tax challenges down the line that will take a lot of time and money to unwind.
Employees you can pay above the table will be likelier to stay put and invest more in your organization. Not paying your employees with cash will also lessen the amount of cash you need to keep in your office and on your person. Contractors may be willing to accept cash with an invoice, but employees should get a check with deductions built in.
Increase Your Borrowing Power
With an EIN, you can create a business credit history. Your ability to borrow for your business may still be connected to your personal credit history; you should do your best to keep your personal credit rating and history as clean as possible.
However, once you can apply for loans or a business credit card and borrow in the name of your business, you may have access to more money in larger chunks of cash. You may also be able to get a letter of credit and borrow money for purchases of equipment and tools.
Once you have an inventory as a business owner, an EIN can also help you apply for business credit tied to future sales. Unsecured debt in your own name can be quite risky; secured debt tied to your business equipment, buildings and inventory assets can lower your risk of high-interest rates.
DIY or Get Help?
Your EIN application can be quite simple if you can get through to the IRS website. Hiring out your EIN assignment may make more sense if you are already swamped with work. You will need to determine the right business structure for the business you are hoping to build.
Your business structure will determine the tax forms and fees you will have to file and pay. If you’re not completely sure what entity type your business will be, your best bet is often to plan for growth. Start big and grow into the structure you’ve created. If you plan to take your business across state lines, you may need to be ready to file taxes in multiple states, hire temporary workers in new locations, and even buy real estate across state lines.
There are many instances as a small business owner when DIYing your documentation is a good financial choice. However, if you are great with small engines, interior decorating or clothing alterations but are not confident on the computer, hiring someone else may be your best option. Don’t burn billable time working on projects that aren’t in your wheelhouse if you have work waiting.
Small businesses are a huge financial force in the American economy. If you have found a passion that can help you build a solid financial future for your family, make sure you set up the right structures and get all the licensing you need to avoid challenges in the future.